Former Councilman Says Ex-Manager Misled City : Manhattan Beach: Report says David J. Thompson’s lucrative retirement package was created through ‘conscious omission’ of vital facts.

The furor over the former Manhattan Beach city manager’s lucrative retirement deal grew last week as a former councilman charged that the ex-manager enlisted his department heads to deceive the City Council into giving him a “golden parachute.”

In an 11-page report, ex-Councilman Larry Dougharty laid out for the first time a council-eye view of the controversial pension, which left ex-City Manager David J. Thompson earning more in retirement than he did while he was on the job.

“The retirement package was created through the conscious omission of information that should have gone to the council,” wrote Dougharty, who was on the board that approved Thompson’s deal.

The report further alleges that “Thompson, with the help of key subordinates, misled the council on the financial impact of his compensation package” by juggling numbers in the city budget.

So far, Thompson, who is living in Manhattan Beach, has refused to comment on the uproar, which became public this spring. The city is now contesting the pension deal and negotiating with Thompson’s lawyer.

On Friday, Thompson maintained his near-total silence on the issue.

“I know the truth, and when it is appropriate, everything will be revealed,” Thompson said in a brief telephone interview.

The report by Dougharty, issued Thursday, was one of two documents made public last week that castigated Thompson for the deal. In the wake of Dougharty’s findings, James Hendrickson, the city manager of Palos Verdes Estates, acknowledged that he had also lambasted Thompson, in a “scathing” personal letter complaining that the retirement deal made city managers in general look bad.

“The gist of it was that it flew in the face of what we represent as a profession and that it was a blatant representation of self-interest over the public interest,” Hendrickson said.

Thompson, he said, telephoned him to apologize the day he received the letter, but refused to reveal his side of the story.

“He was sorry about the position he’d put the rest of us in, but he didn’t indicate any remorse about the retirement package he’d negotiated,” Hendrickson said.

Thompson, 62, left the city manager’s post in 1990 after 16 years in the position with an annual retirement pension about $50,000 a year more than he was earning on the job. The deal was approved by the council, but members have said they had no idea until after his departure that they had given him permission to use accumulated sick leave, vacation and other fringe benefits to artificially inflate the base salary on which his pension was based.

Thompson’s $139,000 a year in retirement benefits includes $82,000 a year from the city and $57,000 a year from the California Public Employees Retirement System. His standard pay the last year on the job was $89,000, but the cashing out of sick days and vacation time boosted that figure to more than $200,000.

One top-level South Bay city official familiar with Thompson speculated that in putting together the pension deal, he was motivated by a feeling that the city had, for most of his career, taken advantage of him.

“The sense I have is that he worked for 15 or 16 years and he felt underpaid--he had department heads who were being paid more than he was when he retired--and he felt this was his just deserts,” said the official, who spoke on condition of anonymity.

“He felt that he had served the city well and shepherded it through some tough fiscal times, and by golly, he deserved this.”

Dougharty’s report--which he said is intended to clarify the council’s side of the story--paints the council as the trusting dupes of Thompson and his management team. It charges that Thompson and his top aides slipped the key provisions of the pension deal past the council in the form of innocuous agenda items, hid their financial impact by juggling numbers in the city budget and neglected to tip off council members who relied on their advice.

For example, he noted, Thompson first asked in late 1988 or early 1989 to convert some of his benefits to salary so he could get a higher retirement from the state pension plan to which the city belonged. Then, when city firefighters were given the option of basing their retirement on their single highest salary year, the city’s lead negotiator, Ralph Luciani--then the head of the Administrative and Community Services Department--recommended that Thompson be given the same option.

Under state guidelines, Thompson could not count accumulated sick leave and vacation time to compute his highest salary year, Dougharty noted. So in 1989, he drafted an innocuous-sounding amendment to his memorandum of understanding with the city, suggesting that the single highest salary year “be determined to be gross compensation including paragraph 3, Compensation, and paragraph 4, Other Salary Considerations.”

According to Dougharty, the council routinely approved the amendment, which made the city responsible for paying pension based on “everything but the kitchen sink.” The vote was taken without anyone asking for or receiving any explanation of its financial implications, he wrote.

“Should the council have asked what was going on? Obviously, it should have or I should have,” Dougharty wrote. “(But) . . . I was dealing with a city manager with whom I had a fiduciary relationship, not an aluminum siding salesman. My trust was misplaced.”

Luciani, who has since died, was not the only top city official accused in the report of neglecting his responsibility to the council.

Also cited were Merle Lundberg, head of the Finance Department, and City Treasurer Stephen A. Schlesinger, both of whom, according to Dougharty, also failed to warn the council of the cost of Thompson’s package.

Lundberg last week disputed the charges, saying he had no reason to think that Thompson had not explained the pension to the council. Schlesinger declined comment.

Dougharty contended that these three men should have acted as “checks” to ensure the city manager’s deal would be amply scrutinized.

Instead, Dougharty charged, Luciani negotiated with Thompson his final year’s salary and pension program without ever mentioning its financial repercussions before the council approved it; Lundberg handled the city budget without ever noting to the council that certain line items had quietly been enlarged to accommodate Thompson’s payout, and Schlesinger took two years to take note of the size of Thompson’s retirement checks.

Dougharty theorized that Luciani chose not to tip off the council because he wanted Thompson’s endorsement for the city manager post, and later, because he was afraid Thompson would make it difficult for Luciani, an AIDS patient, to continue working for the city.

Lundberg, he noted, received a pay raise on the eve of Thompson’s departure.

And Schlesinger, he speculated, feared that if he complained about Thompson’s pension, Thompson would expose a conflict-of-interest violation he had committed soon after he was appointed treasurer in 1989.

Regarding the conflict, Dougharty alleged in the report that the treasurer directed the deputy city treasurer to put $250,000 in city funds into a certificate of deposit with Home Bank, an institution in which he was a stockholder.

Schlesinger has said he didn’t realize it was a conflict until after he had taken an educational seminar on such issues. At that point, Schlesinger has said, he went immediately to the city attorney. The fund eventually matured and was cashed out at a high yield to the city.

Lundberg, meanwhile, disputed Dougharty’s claims, saying that neither he nor Luciani had any reason to believe the council was being misled.

“It never occurred to me to advise the council,” Lundberg said. “Dave had met with them, and as far as I knew, they were aware they had given him a golden parachute.”

The raise, he added, “had nothing to do with the pension he had negotiated.” Rather, he said, Thompson had simply approved the following year’s raises for a number of department heads before he left because “he had been with us for 10 months of the fiscal year, and he felt it would be unfair for a new city manager to come in and make salary adjustments” based on only two months’ observation.

Until last week, Manhattan Beach city officials had said little about the affair, which has drawn considerable attention and criticism in the fiscally conservative community.

Dougharty, who was on the council when the deal was negotiated and who was ousted from his seat in 1989, said he wanted the public to know the council’s side of the story.

“I took pride in what I’d accomplished on the council, and now here’s this big blemish,” he said. “Also, people have been making recommendations about how not to let this happen again, and I thought it would be useful for them to know first exactly how it happened.”

Current council members were circumspect about the report, calling it accurate but adding that public commentary from them during negotiations with Thompson would be counterproductive.

“I guess I’m a little surprised he chose to do it in this fashion, but I’m not displeased,” said Councilwoman Connie Sieber, who noted that Dougharty “covered things quite factually.”

Added Mayor C. R. (Bob) Holmes: “I’d love to offer my thoughts, but our main goal is to resolve the problem. So I’ve been quiet, even though it’s galled the hell out of me.”

However, the International City Managers’ Assn.--of which Thompson was not a member--has weighed in on the incident with a revision this month in its professional code of ethics.

At Hendrickson’s behest, the 7,000-member association now specifically recommends that city managers fully disclose the financial repercussions of their contracts, and that they encourage their city councils to seek independent legal advice before such employment agreements are approved.