In 2004, John Hieftje appointed a Blue Ribbon Panel to study potential changes to the city’s employee pension system. Among the recommendations, was the restructuring of the Board of Trustees to remove city managers and employees. In essence, city employees control the Board, and according to the report from the Blue Ribbon Panel, “Of the nine current members of the Retirement Board, a majority are direct beneficiaries of the Retirement System. The Committee acknowledges that the essence of pure independence cannot truly be attained by citizens who are not beneficiaries of the Retirement System either, since they also have stakes in funding the Retirement System through the payment of taxes.”

Because Hieftje and Council members have ignored the report, the city’s taxpayers face unfunded retiree pension and future retiree health obligations of over $250,000,000. The cost of not acting has resulted in cuts to public safety, health, senior and children’s programs in order to pay for the ever-increasing costs of retiree health care.

When former City Administrator Roger Fraser retired recently, after just 9 years of service, he went to work for the State of Michigan in a job that pays six-figures, and Ann Arbor taxpayers are paying him a pension worth over $60,000 per year. Fraser is not alone in “retiring” from city work into a job that pays six-figures, then collecting a pension and health care benefits from the city. A2Politico posted an investigative piece in May 2011 that identified six former Ann Arbor city managers who “retired” into new jobs, some paying six figures, and who are collecting pension and health care benefits from the City at the expense of taxpayers.

On April 17, 2011, John Hieftje told AnnArbor.com that his administration had not dealt with the employee pension problem because, “….it would cost several million dollars up front, and the city isn’t in a hiring mode so it doesn’t make sense. As for the composition of the board, he said changing that would require a voter-approved amendment to the city charter.”

Peter Cappelli had this to say about Hieftje’s excuse: “That explanation makes no sense.” Cappelli is the Chairman of the Center for the Study of Human Resources, as well as the Chairman of the Council on Employee Relations at the Wharton School of Business in Pennsylvania. “It makes the most sense to restructure when there is a lull in hiring.”

On June 7, 2011, it was announced that City Council was going to modify the pension benefits for non-unionized employees. The suggested changes, again, ignored those recommended by the Blue Ribbon Panel. The suggested changes increase the time an employee must work to vest—to 10 years. However, the proposed changes do not up the age at which employees may retires.

“Allowing employees to retire at, say, 55, is the heart of the problem,” explains Cappelli. “Elected officials and businesses that are serious about dealing with this issue are moving away from years of service, and reshaping their plans to require employees to retire at a certain age, say 60 or 65.”

The changes proposed by Ann Arbor’s City Council are, in essence, window-dressing, an election boost to long-time Council members on the Council’s Labor Committee, such as Hieftje, Fourth Ward Council member Marcia Higgins and Second Ward Council member Stephen Rapundalo. For the past six years, Hieftje, Higgins and Rapundalo have recommended Council approve contracts, award pension increases, and ignored an unfunded pension liability that has grown to one-quarter of a billion dollars in just 36 months.

While announcing the pension “reforms,” again Hieftje claimed to AnnArbor.com that, “some might wonder why the city didn’t take steps to make changes five years ago, but he said the city hasn’t been in a hiring mode.”

Had AnnArbor.com’s reporter Ryan Stanton checked Hieftje’s assertion that changes to the pension system had not been made five years ago because “the city hasn’t been in a hiring mode,” Stanton would have found out that Ann Arbor’s Mayor had, once again, used AnnArbor.com to mislead the public.

In all probability, Hieftje is attempting to cover up the fact that under his administration the pension fiasco has been allowed to grow into an financial disaster that is forcing cuts to citizen services in order to pay down the unfunded retiree pension and health care obligations. As the Wharton School’s Cappelli points out, the currently proposed changes do little to address the main source of the unfunded pension obligations currently facing Ann Arbor taxpayers, nor will the Mayor’s proposed changes have a significant financial impact on the $250,000,000 in unfunded pension liability facing taxpayers.

“The city hasn’t been in a hiring mode,” Hieftje has repeatedly claimed as an explanation as to why  city officials have not addressed the employee pension problem. His claim is huckster propaganda.

Between January 1, 2006 and December 31, 2010 Ann Arbor hired 139 full-time permanent and 806 temporary employees, according to HR records provided to A2Politico.com in response to a FOIA request. Over the past 16 months, Ann Arbor has hired full-time employees to work in the Housing Commission, two city attorneys, doubled the staff at the Downtown Development Authority, and made full-time hires in Wastewater Treatment Services, Human Resources, IT, Project Management, Parks & Recreation and Systems Planning.

In short, during the period in which Hiefje and AnnArbor.com have repeatedly claimed the city “has not been in a hiring mode,” Ann Arbor continued to hire full-time permanent employees. FOIAed records show that the use of temporary employees by the City of Ann Arbor has exploded. City officials have repeatedly claimed that the city’s “workforce” has been trimmed significantly since 2006. Records clearly show that what Ann Arbor officials did was to replace full-time permanent workers with permatemps paid lower wages and no benefits.

Human Resource documents provided by city officials show in 2006 Ann Arbor hired just eight temporary employees and hired 48 full-time regular employees. In 2010, Ann Arbor hired over 200 temporary employees (excluding election workers), and 10 full-time regular employees. Between 2008-2010, the majority of temps hired were women, and the majority of full-time regular hires were men.

Using permatemps is a hiring practice condemned by labor relations specialists and national union leaders. It is a practice that is particularly troubling in a city which requires employers to adhere to a living wage ordinance. According to a piece about the living wage ordinance posted to AnnArborChronicle.com in June 2010:

The living wage ordinance applies to the wages that must be paid by companies who have contracts with the city worth more than $10,000. It does not apply to entities with contracts under $10,000. In the spring of 2008, the city amended the ordinance so that it also did not apply to entities that are funded out of the city’s community events budget, like the Ann Arbor Summer Festival.

The city’s widespread practice of using permatemps could, one expert suggests, open up the City of Ann Arbor to a Microsoft-sized class action lawsuit. Elizabeth Salasko is the Associate General Counsel at the University of Pennsylvania. Ms. Salasko was previously partner and chair of the tax and exempt organizations group at the Princeton law firm of Smith, Stratton, Wise, Heher & Brennan. Prior to earning her law degree, she was a Certified Public Accountant in the Washington, DC office of an international public accounting firm. Ms. Salasko writes:

Recent court cases dramatically highlight the legal and financial risks of improperly classifying and treating temporary staff. In a well-publicized class-action case, a federal court approved a $97 million settlement between Microsoft Corp. and a group of so-called “permatemps” who were mischaracterized as “temporary” workers and denied valuable employee benefits and pension benefits over the course of several years. The legal damage award utterly wiped out any financial or administrative benefits that Microsoft might have realized in structuring as “temporary” its relationship with the affected employees.

This week’s A2Politico Weekly Whopper goes to Mayor John Hieftje, Ryan Stanton and AnnArbor.com