col Salary caps are unrealistic

City pay must be competitive to retain good managers

Most people have a deep-seated, but illogical, fixed opinion about the salaries of those holding major public offices.

Stated bluntly, it is this: Pay as little as you can. Of course, this is in glaring contrast to the general opinion on salaries for the CEOs of private corporations. It is this: Pay whatever it takes to get someone who will run the company successfully.

Those clashing views are at the root of the current dispute over salaries for two top-ranked city and Rochester Public Utilities employees. Larry Koshire, general manager of RPU, and Richard Freese, public works director, are both due for pay raises that would exceed the state salary caps.

State law provides a ceiling for city employees of $114,288 -- 95 percent of the governor's salary of $120,303. Of course, that law in itself is illogical and out of touch with reality. The governor runs a complex $14 billion-per-year business, a position that would command millions in compensation in private industry. It should be noted also that the salary for the office of governor has not been raised in five years -- a condition unheard of for the chief executive of a private corporation.


City Administrator Stevan Kvenvold has proposed both Koshire and Freese be given additional vacation and compensatory time to make up for the compensation limits imposed by the state. Kvenvold has said the state's mandated ceiling makes it difficult to hire and retain highly qualified employees in a very competitive national market.

Kvenvold has made a practice of recommending an appropriate salary for city department heads, even though that salary cannot be put into effect because of the state ceiling. There are two reasons for doing so: 1. In some cases, the state Legislative Coordinating Commission can grant a waiver to permit exceeding the state ceiling. 2. If the state salary cap is abandoned or modified in the future, an appropriate salary level for the department heads would be on the record.

Koshire's current total compensation is $122,000, which is in excess of the state salary ceiling because the Legislative Coordinating Commission has granted a waiver. Kvenvold has recommended Koshire's authorized (not actual) compensation be set at $131,194, as suggested by the RPU board.

In addition, Kvenvold has recommended Koshire be awarded "compensatory time to compensate for the difference between the authorized compensation ... and the restricted compensation." Under this plan, Koshire would be able to take that much extra vacation time or save the time and cash it in when he retires or resigns. Kvenvold said this process is legal and its purpose is to retain valued employees who might otherwise seek another job because they are ineligible for pay raises. He quotes a Minnesota attorney general's opinion to the effect that "compensation of employee for unused vacation upon termination is not considered salary for the purposes of Minnesota Statute Section 43A.17."

Freese's salary is $114,288. Kvenvold has recommended his authorized (not actual) salary be set at $119,068 and that he also be granted compensatory time to make up the difference.

Kvenvold said freezing employees' compensation simply gives them an incentive to seek other employment in government or private industry. It also makes it virtually impossible to recruit well-qualified new employees for key posts if there is no opportunity for additional compensation.

Koshire runs an enterprise with annual revenues of $104 million. His proposed authorized compensation would be .00126 percent of that total. Freese's department has a 2003 operating budget of $21.9 million and a capital budget of $48.6 million -- a total of $70.5 million. His authorized salary would be .00168 percent of that total. Executives handling expenditure of sums of that kind must be compensated fairly or they will seek jobs elsewhere and it will be hard to find qualified replacements for jobs that have no economic future.

Kvenvold's own salary exceeds the state ceiling by more than $5,000, but it was set after the state commission waived the ceiling requirement last year.


The limit on the governor's salary is short-sighted because it means that many able candidates are discouraged from seeking the office because they can't afford to take four or eight years out of a lifelong career to serve at that salary. In addition, it means that the state cannot compete successfully for high-ranking candidates for the state's top technical or administrative offices.

The same problem exists at the municipal level. Running a city of more than 85,000 people takes high-level skills. The city competes for employees having those skills not only with larger cities and counties but also with private industry. If it cannot attract the most able officials, it risks poor performance in key jobs -- a condition that could be far more costly in the long run than the cost of appropriate salaries.

It is not realistic to suggest that the state of Minnesota or the city of Rochester pay their executives near the same level as those in private corporations. However, two things make sense:

1. The state should not impose an arbitrary ceiling for the governor or for top state administrators. Any excessive expenditures for salaries could be dealt with by the voters in future elections.

2. The state should not dictate a salary ceiling for city employees. The cities should make those decisions based on the best judgment of local officials who are responsible for achieving the best results. In the long run, hiring the best-qualified employees for important city jobs will save millions of dollars and also provide residents with more effective services.

Maintaining a dead-end salary schedule for the city's key positions will have just the opposite effect.

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