Metro officials hope audit doesn't hurt chances of sales tax increase
This article first appeared in the St. Louis Beacon: September 19, 2008 - Metro's top official is hoping that an audit on the agency Missouri Auditor Susan Montee released this week won't dissuade St. Louis County voters from passing a half-cent sales tax on the November ballot.
"I'm afraid it will have some negative impact, but I hope it's not that bad," Robert J. Baer, CEO and president of Metro, said in an interview. Baer was named interim head of Metro after the departure of former CEO and president Larry Salci in December. He said the agency has begun looking for a permanent new head.
'No smoking gun'
Still, Baer welcomed the audit and said he's "glad" it has finally been released. "A lot of our critics wanted it to say we are not good stewards of public funds, that we're not managed properly, that we don't have good controls. The audit didn't say any of that," he said.
"There's no smoking gun at Metro. That to me is the great news. We're going forward. We've got new management, we've got new leadership. I'm sorry about the past. I can't do change it so I'm just going to manage our way forward."
If voters approve Prop M in November, the sales tax is expected to bring in about $80 million a year. Half of the revenue will be used to offset shortfalls in the agency's operating budget, and half will be earmarked for another line to MetroLink, the area's light rail system.
Officials have warned that they would shrink the system by 25 to 30 percent if the tax does not pass. That would mean no night service on MetroLink and major cuts in bus service.
Audit findings on compensation
The state of Missouri's audit of Metro did more than look at the impact of the Cross County Extension project on the agency's finances. The audit also had some harsh criticism of how and how much Metro paid some of its top personnel.
In the section "Compensation Issues," the audit addressed some of Metro's past personnel compensation practices, including:
- bonuses paid to the agency's CEO, counsel and other employees;
- an incentive program to keep engineering employees on the job until the project was completed;
- additional vacation pay not spelled out in employment agreements.
The audit took exception to the "propriety and necessity of the practices of granting bonuses, executive stipends, severance packages, retroactive salary increases, and retention incentives." At the very least, it said, "If any such payments are granted... these payments should be formally approved by the board."
But Metro, which says that it did follow "best practices," says that the board did formally approve the payments. In its response, the agency wrote: "Metro's Board of Commissioners has in fact approved the granting of all payments to Metro employees..."
Between 2003 and 2007, Metro's Board of Commissioners approved and paid bonuses, executive stipends, severance payments and retroactive raises of at least $704,600 to three executive employees, according to the audit. The board also approved other one-time bonuses of more than $810,000 and more than $166,000 retroactive pay increases for salaried employees, the audit noted. Some $145,460 in retention incentives was paid to 14 employees in the engineering division without the approval of the board, the audit said.
"The practices of providing these types of additional compensation payments are unusual and questionable in most government agencies," the audit said. The practices may violate a provision of the interstate compact that established Metro, it said.
But Metro replied: "Metro's policies and procedures are consistent with best practices, policies and procedures and Missouri law."
Although it did not mention former CEO Larry Salci by name, the audit noted that Metro's employment agreement with the former chief executive provided for bonuses if he met certain goals, including:
- decreasing system expenses and increasing on-time performance, ridership and employee diversity;
- reducing customer complaints;
- planning and implementing major capital projects;
- meeting project timelines;
- securing project financing and additional funding sources.
The board awarded Salci a total of $160,000 in bonuses from 2003 to 2007, the maximum allowed.
Metro reported that Salci resigned last December, but in an interview with the Beacon this week, he said the agency terminated his contract. The contract called for Metro to pay him one year's salary and benefits, including health insurance and an auto allowance, he said.
After his termination, the board awarded Salci 120 hours of accumulated vacation and an additional 200 hours of vacation time.
"The award of the additional 200 hours of vacation was not a requirement of the employment contract," the audit said but both Salci and current CEO Richard J. Baer said Salci's contract called for one year of pay and benefits if the contract was terminated and that included five weeks of vacation.
A few months after his termination, Salci asked for an addition of 2.76 years of service to qualify for lifetime medical benefits, a benefit to Metro salaried employees with at least 10 years of service, the audit said. The board denied his request.
The audit also raised questions about money paid to Metro's former counsel general, Celeste Vossmeyer. Attempts to reach Vossmeyer were unsucessful.
Metro's employment agreement with her included a provision for bonuses but did not specify amounts and included no performance criteria, the audit said. According to the audit, she received bonuses of $14,000 for fiscal 2005 and $20,000 for fiscal 2006, paid in January 2007. In fiscal year 2007, she received a one-time bonus of $4,095 shortly after the board granted one-time bonuses to other salaried employee although the board did not do an annual performance evaluation for her that year, the audit said.
In December 2007, the board authorized the chairman to negotiate a termination agreement with the former general counsel. According to the audit, after that she "performed limited duties for Metro" and was rarely present at Metro headquarters. She continued to receive her regular salary and benefits, the audit said.
In March 2008, nearly three months after the board authorized termination discussions, the board granted the employee a 5 percent raise totaling $6,825 annually, made the raise retroactive to July 1, 2007 and issued a notice of termination effective April 4, 2008, the audit said.
In June 2008, the board authorized final payments to her for the retroactive portion of the raise and a final bi-weekly salary payment of about $5,520 for the pay period ending April 10, 2008, a severance payment at the increased annual base rate of $143,325. The former counsel also received benefits -- including insurance -- for 12 months after termination, the audit said.
The board also approved payment for 240 hours of additional vacation time totaling more than $16,500 that was not a requirement of the employment contract, the audit said.
The audit focused on the cost overruns for construction of the Cross County Extension to Shrewsbury and Metro's suit against the Cross County Collaborative, a group of four engineering companies Metro hired in 2000 to design the project, provide start-up services and manage the project. But the audit didn't look at the way Metro does its job every day, he said.
"I don't even think she (Montee) meant to consciously indict the whole agency, but the way the media played it she did. I think that's inaccurate and not correct," he said. "All I can do is appeal to people to draw a line between what happened and what the need is going forward.
"I don't think this should indict the whole agency that's delivering quality bus, rail and call-a-ride service every day to 80,000 or 90,000 people. Hopefully people will see through it."
The audit's findings
The audit charged that Metro now faces "significant funding shortages" because it did not control costs of the Cross County Extension. "The financial impact of the Cross County Extension Project has placed numerous burdens on Metro's operating budgets for future years," it said. "These burdens could significantly impact the operations of Metro and the users of their services."
The audit said Metro:
- did not make sure the project's final design was complete and free of errors and omissions before soliciting construction bids;
- did not hire a project management oversight consultant before the final design was completed;
- did not ensure utility relocation design work was completed in a timely way and did not ensure utility relocation work was coordinated with construction;
- did not request lump sum bids;
- issued bid documents with conflicting provisions regarding the contractors' responsibility for excavation of rock and utility relocation.
As a result, the project cost $686 million, instead of the original $550 million -- or $136 million over budget, the audit said.
Montee said her office didn’t seek to assess blame in the audit. “We really didn’t talk about what happened to cause this,” she said. There is no way of telling how far in debt Metro would be if it had taken a slower approach to the Cross County Extension project, she said.
“They started with a very aggressive time schedule and it was pretty clear from the beginning there would be unforeseen circumstances that would cause delays,” she said. “If they had waited, the bids would have come in higher because bidders would have built in for the unknowns and delays. But they wouldn’t have had the legal fees, they wouldn’t have the delays caused by the lawsuit and they wouldn’t have had the lack of confidence now.”
Metro was forecasting financial problems outside of the Cross CountyExtension problems as early as 2002, Montee said. But now because of the cost overruns, the debt service on the project is going to be “significantly higher than it was going to be,” she added. She estimated that of Metro’s total debt package of $107 billion over the bond period, about $293.5 million is attributable to the cost overruns and the costs of the lawsuit.
"We are well aware of the absolute need to monitor the long-term stability of our financial condition," Metro wrote in rebuttal. "In this regard, it is important to understand that Metro cannot unilaterally take action to ensure its financial condition. The local elected officials and the stakeholders must assist and support Metro's financial solvency. Metro does not have taxing authority, and other than fare box revenues, is dependent upon the city, county, state and federal government for resources."
Metro also said the issues with the utilities stem from time pressures on the project.
"Metro understands and agrees that it is desirable to have all major utilities relocated prior to the start of construction," the agency wrote. "However, schedule pressures and cost/benefit analyses can lead to the issuance of construction notices to proceed prior to the complete relocation of all utilities. This is not an unusual practice."
Metro agrees with most of the audit's recommendations and has already implemented some of them and is working on implementing others, said Baer. "I can assure you the team here has learned a lot of lessons. We won't make those same mistakes again."
Beyond Metro's Control
But the audit did not acknowledge that some issues were beyond Metro's control, he said. "There was good reason at the time for some of the decisions that were made. Some changes were made because the community demanded them, and there are costs associated with that.
"A lot of people don't understand Metro didn't design this line. East-West Gateway Council of Governments in effect planned it and handed it off to us and said, 'Build it.'"
Baer said he wished the auditors had "gone back to the beginning instead of picking it up where Metro got involved," adding "this is like a seven-year time span and they only picked up the last half. I don't think that is fair but it is what it is."
Also, Metro was told to build the extension "sooner rather than later," Baer said. "But there was a cost associated with it. They said, 'By the way, Metro, sell some bonds to have the money to do it. We did that and starting next year we have to start paying off the debt. That complicates our problem. And then they said, 'By they way, Metro, operate it but we're not going to give you any new money.' So we operate it which adds to our financial problems because we're trying to do more with less. Eventually it catches up with you, and it's caught up with us."
Time to move forward
But Mike Jones, a senior advisor to County Executive Charlie Dooley who has done a lot of work on Metro issues, isn't worried about the audit's impact on the November vote.
"There was "really nothing new in the audit," he said. "The main focus of the audit was on the Cross County-Shrewsbury connection. Most of the information had already been thoroughly aired.
"At the end of the day they (Metro) did complete the project in the revised time and budget and learned some lessons about how to do it better."
The agency also learned the need for a separate construction manager, Jones said. "They put the construction management and the design function all in one contract. I don't think we'd ever do that again. It definitely proved to be problematic."
Separating the design from the management provides "check and balance" in the project to keep it realistic, Jones said. "The design team comes in and says we want to do this and the guy that has to build it says, 'Have you lost your mind?' " he added. "In this instant, the construction management function and the design function were all the same entity. We had no internal checks."
The problem was compounded by the fact that Metro did not have "a significant enough internal engineering capacity," Jones said.
Another mistake was to build the extension "on our own dime and without designating future revenues to pay for the additional costs that came with it," Jones said.
"That's kind of why we're going for this tax in November," he said.
"Metro has accepted the findings in the audit and has moved to correct most of them already. We think it's an opportunity to put a period on this issue and turn the page. The real issue becomes: What do we do about the transit future of the St. Louis community?"
Jones said he sums up the lesson Metro learned from the Cross County Extension this way: "You can do it right and pay for it, or you can do it cheap and do it wrong." Metro has tried to do it cheap "and it has always cost us money in the long run," he said.
Metro's problems with the Cross County Extension did not affect the overall operations of the agency, Jones said.
"At no point in the audit did she (Montee) say Metro is not a very well run transit system," he said. "Arguably it's one of the best run systems in the country right now. We still have an excellent, well-run transit system that is very efficient and people come from all over the country to study it."
Jones cited "five years of clean audits," and reviews from the Federal Transit Administration rates the system as one of the top in the country.
Baer concurred. Representatives of the state auditor's office met with the agency's outside auditors and reviewed its reports, he said. "They didn't make one negative comment about our financial controls or our financial management systems. To me that's a great, great outcome of the study."
The agency's current financial crisis does not stem from the cost overruns of Cross County Extension but from the civic leadership's decision to build it without federal money and not providing for the additional operational costs it brought, Jones said. "We kicked that can down the road. The chicken is now coming home to roost and it will be pecking on the door the first Tuesday in November," he said.
"I think the audit right now is a side order of grits. Anybody who uses the audit as a reason not to vote to support Metro wasn't going to support it anyway."
Kathie Sutin is a freelance writer in St. Louis.