Why San Juan Beefed Up City Manager’s Contract : Government: Council members wanted to reward his good work and protect him from political change.

A little more than a year ago, Orange County’s longest-serving City Council was facing the prospect of political change.

Two of the five men who had ruled this city without interruption for 11 years ultimately would decide not to seek reelection in the fall of 1990. A third, Councilman Gary L. Hausdorfer, was also uncertain whether he would run again.

It was against that backdrop that the council members decided to approve a new employment contract in February, 1990, with their longtime city manager, Stephen B. Julian, who had two years remaining on his existing contract.

“He was aware that there was a great deal of indecision on the City Council relative to a (continuing, three-member) majority,” Hausdorfer said recently. “He didn’t know what was going to happen. So, was the renewal of the contract a protection against a volatile political environment? The answer to that question was, ‘Yes, in many respects, it was.’ ”

The new agreement doubled Julian’s potential severance pay, providing him with an extra layer of job security, and increased other provisions.

Now, the contract and the security it intended for Julian are under scrutiny. Some city residents have sued the city, alleging public funds were misused; they have also criticized Julian’s receipt over the years of loans from the city government. Although the Orange County district attorney has declined to investigate, citing no evidence of any crime, the City Council has hired outside accountants and lawyers to analyze the transactions; those findings are expected soon.

In interviews, the council members said that Julian’s achievements, expertise and sustained hard work have made him well worth his pay--among the best in Orange County and the state, according to salary and benefit studies conducted for the California City Management Foundation and the League of California Cities.

“I believe that we’ve hired one of the best city managers in the country,” Councilman Lawrence F. Buchheim said. “I think he’s worth every dime of it.”

Buchheim, however, said he is rethinking the council’s decision of three years ago to re-establish at no interest Julian’s debt stemming from an earlier city house-related loan of $250,000. And, Hausdorfer said recently that he thought perhaps another employment provision, involving the city manager’s accrued leave benefits, should be reconsidered.

Julian declined to be interviewed for this article. But from the interviews with the council members, a picture emerges of their thinking early last year when they approved the new contract with Julian. The officials said they were happy with their city manager, wanted to reward him, wanted to protect him from the winds of political change and were advised by their city attorney that all was in order.

City managers, who lack civil service protections, can lose popularity in their communities when they are directed by city councils to administer controversial policies. One protection that is becoming increasingly common, according to the California City Management Foundation, is the detailed, formal employment agreement. A study published last year by the foundation found that 171 city managers, more than half of those executives statewide, have such contracts.

A risk for any city manager, said James B. Hendrickson, who conducted the study, is losing a city council’s backing after doing exactly what current or past council members said they had wanted done.

“You get out front on an issue, and you turn around, and the troops aren’t there,” said Hendrickson, who worked for the cities of Fresno and San Clemente before becoming city manager of Palos Verdes Estates in late 1989.

Compared to most cities, San Juan Capistrano from 1979 to Election Day in 1990 was, as Buchheim said recently, “an island in a sea of tranquillity.” Indeed, during that 11-year span, San Juan Capistrano was the only city in Orange County where the same five council members served continuously.

But a year ago, Hausdorfer said, the potential change in the city’s political leadership was a concern of both the council and the city manager when the decision was made to negotiate his new contract.

Hausdorfer said that he also endorsed the new, 5 1/2-year contract because he thought Julian would provide stability to San Juan Capistrano during a period when more department heads would be retiring or accepting positions elsewhere.

”. . . What I was trying to do was to make basically a business decision that was fair to Steve, and provided long-term stability for the city and for the city staff,” said Hausdorfer, an investment adviser and commercial mortgage broker who was mayor at the time.

Said Buchheim: “I believe that the man is entitled to that kind of security.” Buchheim, whose family has lived in San Juan Capistrano since the 1880s, added: “Julian is a hell of a good man in my book. . . . I think I could do business with him with a handshake. He’s that kind of man.”

A leading local landowner and former citrus grower who remembers a more pastoral San Juan Capistrano, Buchheim said he believed Julian’s continued work for the city was important “to keep the continuity going.”

Indeed, the other members of the San Juan Capistrano council who, over the years, approved Julian’s contract provisions and loans, have consistently praised his performance.

Mayor Kenneth E. Friess, a member of the council since 1976, said he has backed Julian’s various employment provisions “based upon the fact that I felt that Steve Julian was one of the best things that ever happened to the city of San Juan Capistrano. . . .

“He (Julian) helped us to get the Price Club” discount grocery and retail store, a major generator of commercial-tax revenue. “He helped us to figure out a way to build a (downtown) parking structure that we’d been trying to build for 14 years. There are people who would argue that he was too pro-development, but the facts of the matter are that he simply helped us get things that we had been trying to do for several years.

”. . . He helped us stabilize the city, financially (in the early 1980s). He was very knowledgeable about the redevelopment process. . . . He did lots of things that were real community-oriented--Little League and AYSO (American Youth Soccer Organization).

“But along the way, he’s made a lot of people angry too,” continued Friess, a former high school principal who now is a construction consultant. “If you’re a good, solid leader, you’re going to step on a few toes. If you’re an assertive manager, you’re going to make a few people upset with you.”

Friess added: “I felt that Steve was underpaid for the first six years that he worked for the city. I think that part of the motivation on the council’s part (for approving Julian’s new, 1990 contract) was to try to compensate him for past service. . . . It is a good package, I don’t argue (with) that. It’s more money than I’ve ever made in my life, in any one year.”

Julian has had four separate employment contracts since he was hired in 1981 and has received separate raises over the years boosting his pay from approximately $58,900 in 1982, to $68,200 in 1985, $83,900 in 1987, $117,300 in 1989, and $125,600 now.

And while compensation experts say that managers’ salaries usually are tempered by the size of a city’s budget and work force, Friess said he believes that the modest size of San Juan Capistrano’s government should not be a factor.

“It’s not relevant,” Friess said, “because the facts are, when you have a larger organization . . . a city manager is able to take less responsibility. Because they’re able to administrate out from the top, and are able to give out more responsibility to people.”

And surveys show that Julian, as with many city managers in Orange County, is among the best-compensated municipal chief executives in the state. According to Hendrickson, author of the California City Management Foundation’s 1990 report and follow-up research, Julian leads his colleagues in these areas:

* Leave. Julian is given access each January to the equivalent of 11 weeks’ pay or time off in what is called “comprehensive leave,” which he may stockpile with no requirement that he use or forfeit any of it, according to city Administrative Services Director David P. Bentz. Julian’s contract does not report the amount or the dollar value of the leave. The contract does say that the leave is to be “in lieu of annual vacation, sick, holiday and other leave privileges” provided to other city employees. Because he is also allowed to convert it to cash at any time, the leave is now worth $26,701 a year, at a rate of $60.41 an hour, according to Bentz.

While researching questions posed recently by The Times, Bentz said he found that Julian’s leave account was not charged for “12 to 14” holidays, worth roughly $5,500 to $6,500, during 1990 and 1991. Bentz said that the failure to charge the account was an error caused entirely by the city payroll staff’s misinterpretation of Julian’s contract.

“That’s our mistake, not his,” Bentz said, adding that he would deduct the time from Julian’s leave account.

That aside, accounting summaries reviewed under a California Public Records Act request show that, from October, 1986, through March, 1990, Julian converted to cash $64,800 of his accrued leave under the terms of his contract.

* Duration of employment contract. Julian’s contract is for 5 1/2 years, ending on July 1, 1995. Only one other manager, in the San Francisco Bay Area city of Benicia, has as long as a four-year deal. Julian’s contract also has an automatic renewal clause that could--with his and the City Council’s ongoing assent--extend the pact another four years, making it at least a 9 1/2-year arrangement.

The council still would have the option to terminate Julian’s contract at any point, with 30 days of notice. Yet because every city manager serves at the pleasure of an elected city council whose composition can change every two to four years, a multiple-year contract gives the employee an additional vote of confidence, according to Hendrickson.

* Financial obligations. Julian has a clause in his contract that could free him from repaying “any” obligations to San Juan Capistrano if the city terminates him for reasons unrelated to “misconduct” or “willful or habitual breach of duty.” The forgiveness provision is noteworthy because Julian, after incurring five municipal loan debts, still owes the city about $80,000, at no interest. Julian and the longtime council members have said that the transactions were entirely proper. Three of the five loans have been repaid in full.

And, Mayor Friess has also said that the city manager would not be excused from repaying the remaining debts if he leaves on his own accord. Fred E. Whittlesey, a senior manager with the management-consulting firm of KPMG Peat Marwick, said that in his view the contract does not make clear whether Julian would be freed from the obligations if he left the job voluntarily.

Regardless, officials in San Juan Capistrano and elsewhere say that they are not aware of a similar debt-forgiveness provision in the contract of any other public employee.

“Usually, financial obligations would be payable to the employer at the time of termination, not the other way around,” said Whittlesey, who analyzed the contract on behalf of The Times.

Whittlesey, who specializes in developing and evaluating employment contracts, said Julian’s council-approved agreement is “unusual” in three other respects: The pact does not identify the number of hours or dollar value of the comprehensive leave to be received annually; the amount of his salary is not listed; nor is the value of his monthly auto allowance described.

“The purpose of an employment agreement is to document all the terms of employment,” the Peat Marwick consultant said. “It’s unusual to go to the trouble of having an agreement and have these omissions.”

Friess said he was not aware of any reason for excluding the salary, leave and auto allowance other than the fact that the council has “always” established those terms through voted-upon resolutions or actions that are matters of public record.

“I don’t do employment agreements on a daily basis,” Friess said. “. . . This thing was all approved by our city attorney, who said this is an appropriate way to do business.”

For his part, Hausdorfer said he was unfamiliar with the city manager’s receipt each January of 442 hours of comprehensive leave--equivalent to 55 1/4 days off a year--that he may convert to cash or stockpile.

“The city manager is treated a little bit differently (than other employees), simply because of his position,” Hausdorfer said. “Should it (the comprehensive leave) be accrued forever and ever? Maybe that’s an area that should be reviewed. I’ll be honest with you and say that, until (being asked about it), I wouldn’t know that there were 442 hours” granted annually each January.

As for the provision in Julian’s contract that could excuse him from repaying municipal loan debts if the city terminated him for reasons other than misconduct or willful or habitual breach of duty, Hausdorfer said that, too, was attributable to the city’s political climate.

“I think there was concern on Steve’s part (in early 1990) that there could be some arbitrary decision made to remove him, unfairly,” Hausdorfer said. “And if the council wanted to provide stability to the city, he wanted some assurances that he couldn’t be sacked overnight.”

Hausdorfer, Buchheim and Friess said they remain certain that Julian would not renege on any of his city obligations.

Though Buchheim said he and his council colleagues have always tried to do what was best, he now believes adjustments may be needed.

“Maybe they (critics) think we’re running too loose a ship,” Buchheim said.

Referring to the council’s decision three years ago to rewrite at no interest interest Julian’s remaining debt stemming from the original $250,000 house loan, Buchheim said: “Maybe we’ll have to do some changing around. Maybe that will be turned around.”

ORANGE COUNTY CITY MANAGER SALARIES

Auto Budget Rank.City/Manager Salary Allowance (in millions) 1. Irvine/Paul O. Brady $136,080 city car ***$63.0 2. Orange/Ron Thompson $134,299 none $37.3 3. Anaheim/James D. Ruth $132,250 $5,700 $137.0 4. Newport Beach/ $126,572 city car $49.2 Robert L. Wynn 5. San Juan Capistrano/ $125,644 $5,400 $11.3 Stephen B. Julian 6. Santa Ana/David N. Ream $124,596 $3,600 $112.0 7. Costa Mesa/Alan L. Roeder $121,792 city car $52.8 8. Fullerton/ $121,486 N/A $47.7 William C. Winter 9. Huntington Beach/ *$118,285 $4,800 $94.3 Michael T. Uberuaga 10. Brea/Frank Benest $117,972 $3,600 $23.3 11. Tustin/William A. Huston $116,031 city car $21.3 12. Yorba Linda/ $113,580 city car $23.8 Arthur C. Simonian 13. Mission Viejo/ $105,840 $3,600 $21.0 Fred Sorsabal 14. Laguna Beach/ $100,164 $4,896 $16.9 Kenneth C. Frank 15. Laguna Niguel/Tim Casey **$99,600 $6,000 $8.5 16. San Clemente/ $99,000 $3,600 $21.3 Michael W. Parness 17. Dana Point/ $95,943 $5,880 $9.5 William O. Talley 18. Garden Grove/ $94,800 city car $43.2 George Tindall 19. Buena Park/Kevin O’Rourke $93,792 city car $30.7 20. Cypress/Darrell Essex $89,616 city car $15.2 21. Westminster/Jerry Kenny $89,472 city car $26.4 22. Placentia/Robert D’Amato $88,000 city car $13.8 23. La Habra/Lee Risner $86,650 city car $13.0 24. Los Alamitos/ $80,472 $3,000 $6.2 Robert C. Dunek 25. La Palma/Pamela Gibson $76,320 city car $2.8 26. Stanton/Terry Matz $74,000 city car $8.4 27. Villa Park/Fred Maley $66,700 $4,200 $3.1

Full-time Rank.City/Manager Employees 1. Irvine/Paul O. Brady 636 2. Orange/Ron Thompson 761 3. Anaheim/James D. Ruth 2,125 4. Newport Beach/ 760 Robert L. Wynn 5. San Juan Capistrano/ 100 Stephen B. Julian 6. Santa Ana/David N. Ream 1,718 7. Costa Mesa/Alan L. Roeder 610 8. Fullerton/ 748 William C. Winter 9. Huntington Beach/ 1,100 Michael T. Uberuaga 10. Brea/Frank Benest 327 11. Tustin/William A. Huston 260 12. Yorba Linda/ 85 Arthur C. Simonian 13. Mission Viejo/ 62 Fred Sorsabal 14. Laguna Beach/ 224 Kenneth C. Frank 15. Laguna Niguel/Tim Casey 27 16. San Clemente/ 293 Michael W. Parness 17. Dana Point/ 30 William O. Talley 18. Garden Grove/ 1,030 George Tindall 19. Buena Park/Kevin O’Rourke 373 20. Cypress/Darrell Essex 200 21. Westminster/Jerry Kenny 312 22. Placentia/Robert D’Amato 150 23. La Habra/Lee Risner 245 24. Los Alamitos/ 60 Robert C. Dunek 25. La Palma/Pamela Gibson 56 26. Stanton/Terry Matz 40 27. Villa Park/Fred Maley 8

* Eligible for possible $10,000 bonus.

** Eligible for possible $5,000 bonus

*** Approximate. City uses 2-year cycle.

N/A: Not available

NOTE: Fountain Valley negotiating salary with newly-hired city manager. Seal Beach searching for new city manager, will negotiate salary.

Source: Individual cities.

Researched By: Janice L. Jones, Elena Brunet, April Jackson and Dallas M. Jackson / Los Angeles Times