Checks Without Balances: Big Pay in Tough Times

NC community college presidents' pay rises, boosting pensions for some

dkane@newsobserver.com draynor@newsobserver.comNovember 18, 2013 Updated 22 hours ago

  • The series

    Sunday: Among public employees, a salary gap.

    Today: Working around a salary cap.

    Wednesday: Bonuses for the lucky few.

  • By the numbers

    $304,582 Compensation for Gordon Burns, Wilkes Community College president (3,300 students).

    $297,540 Compensation for Kenneth Peacock, Appalachian State University chancellor (17,589 students). He gets free use of a campus residence.

    $104,989 Compensation for Scott Lyons, Enloe Magnet High School principal, Raleigh (2,650 students).

    $130,286 Compensation for June Atkinson, state superintendent of public instruction.

  • How we did the series

    In 2010, The News & Observer published a series that exposed what was then one of the most restrictive state personnel laws in the nation. The law did not, for example, allow for the release of pay histories for public employees.

    As a result, legislators changed the law to make that information public. We discovered that much of the information exists in one place: The Office of the State Treasurer, which uses it to manage the pension fund for local and state government retirees.

    The N&O obtained four consecutive years of employee pay, which showed salaries, bonuses and other types of pay. While analyzing that data and asking questions about specific employees at their agencies, we found other types of pay not accounted for by the treasurer: housing allowances, car allowances and retirement supplements. We also found examples of unusually high pay for some employees at agencies that are not in the state retirement system.

    The treasurer’s records are incomplete. For example, they don’t include the position held by a given employee. In some cases, the type of pay has been mischaracterized by the agency involved; for example, we found a $56,000 payment listed as a bonus that was actually back pay after a litigated dispute.

    In all cases highlighted in our articles, we verified pay information with the agencies involved.

    Our reporting on this issue will continue. Send your questions and tips to dkane@newsobserver.com.

  • How the pensions work

    State and local employees are included in a pension system that is administered by the Office of the State Treasurer. The government agencies and employees contribute a percentage of employees’ pay, and as an employee builds a career, the state guarantees a certain level of pension income.

    For example, a state employee who works for 30 years can retire at nearly 55 percent of the average of his or her top four consecutive years of income.

    For the most recent year available, the state treasurer’s office set the employer contribution, provided by taxpayers, at 14.2 percent of qualifying pay such as salary, overtime and bonuses for state employees and 7.1 percent for most local employees. State and local employees contribute 6 percent, and the system counts on investment returns to help build the fund and maintain its solvency.

    State law requires taxpayers to cover the difference if the pension system falls behind in its obligations.

    For fiscal 2012, the state pension system paid $4.6 billion in benefits, supported by contributions by taxpayers and employees.

Gordon Burns paid close attention three years ago as state lawmakers considered legislation to lift a cap on the salaries of community college presidents.

Burns is the longtime president of Wilkes Community College, a relatively small school in the mountains with the equivalent of 3,300 full-time students. He was nearing retirement and, with a salary and longevity pay of $208,000, had bumped up against that salary cap. But he was also receiving roughly $80,000 in local money for housing, an annuity and travel each year that could not be factored in to boost his pension.

“Would this result in the removal of caps for presidents?” Burns asked about the legislation in an email to a community college system official. “This is important to me since I am in my final four years.”

The bill passed with little opposition. Shortly after, the Wilkes board of trustees converted Burns’ additional pay – along with what they spent on two insurance policies, his cellphone and his Rotary Club dues – into salary. Those changes, plus an annual longevity payment, boosted Burns’ compensation to a little more than $300,000, a 44 percent increase.

If Burns, 66, retires next year as he planned, his annual pension would be just under $200,000, about $52,000 higher as a result of the pay conversion. Pensions are calculated on the average of an employee’s highest four consecutive years of salary.

Community college pay records show that at least three other presidents who have either retired or are nearing the end of their careers got a similar deal from their boards, providing them a way to boost their annual pensions by $19,000 or more. Trustees converted housing allowances, annuities and car allowances paid from county or college foundation funds to salaries when the cap went away.

Some of the presidents and trustees acknowledged the moves were intended to boost the presidents’ pensions.

“I understand his retirement is based on his previous four years’ salary,” said Dick Johnston, chairman of the Wilkes board of trustees. “Things that he was getting compensated for that were not taxable now became taxable, so he actually paid more income taxes in the change, but it would help him on his retirement.”

Lucrative conversions

Burns and other community college presidents are among public officials across North Carolina who receive big pay and benefits running authorities, commissions or institutions that are overseen by political appointees, according to a News & Observer analysis of pay data for more than 435,000 employees from 1,216 state and local agencies. These agencies draw little scrutiny from the public.

During the prolonged economic slump, many local employees have received meager raises, while state employees and teachers have gone five years with only a 1.2 percent raise from the state.

Meanwhile, these college presidents got new salary deals:

•  Cape Fear Community College President Eric McKeithan, 67. His salary, including longevity, was $237,771 before the cap was lifted; afterward, it shot up to $334,427, a 41 percent increase. He made that salary for two years before retiring in 2012. Records show the college’s board converted $92,000 for a car, housing and supplemental retirement into salary. Those conversions could boost his pension by nearly $27,000 a year.

•  Central Piedmont Community College President Tony Zeiss, 67. His salary, including longevity, was also $232,651; it is now $336,760, a 45 percent increase. CPCC records show that three years ago, the board converted a $45,000 housing allowance to salary and gave Zeiss a $40,600 pay increase. The housing allowance conversion could boost his pension by nearly $19,000 a year if he works at that pay for another two years.

• Sandhills Community College President John Dempsey, 68. His pre-cap salary, including longevity, was $205,761; it is now $264,514, a 29 percent increase. Nearly all the increase is due to a $42,000 annual annuity payment the board converted into salary. If he works another year and retires, the converted annuity payment could boost his pension by at least $19,000 a year. Sandhills has the equivalent of 4,400 full-time students, making it the state’s 20th largest.

State law does not allow car and housing allowances, supplemental retirement payments and other perks to be counted for pension purposes. As a result, employees and governments do not make contributions to the pension system for such pay. So when the perks are converted to salary, other employees and taxpayers end up subsidizing the pension. Once the perks are converted to salary, the employee starts paying more into the retirement system.

State Treasurer Janet Cowell said the perks-to-salary conversions to boost pensions are legal but added that they shouldn’t be. She has been seeking legislation to curb the practice, which her staff said is confined to a small number of employees and retirees.

“It doesn’t seem fair,” she said.

Burns, the Wilkes president, declined to be interviewed.

He initially wrote in an email that the school had given details of his salary and other compensation to the community college system each year. In a subsequent statement, he changed that assertion, saying the details on other compensation had been given when the system did a survey. That survey was done in 2005, before Burns’ other compensation had soared, records show.

“We believed then and believe now that the compensation calculation was in compliance with the salary cap,” Burns wrote.

State community college system officials say they didn’t receive regular reports on supplemental pay. The only pay that colleges report regularly to the state is salaries, which are funded by state and local governments.

The state survey from 2005 showed much smaller amounts of supplemental pay, but it hasn’t been updated. Community college system officials say they didn’t realize how much some of these various supplements had grown until lawmakers dumped the cap.

Exceeding some UNC pay

Board meeting minutes show trustees at two community colleges approved the salary increases in closed board meetings with little public discussion afterward.

Meeting minutes from Cape Fear and Sandhills at the time of the salary increases reflect no such discussion, college officials said. Wendy Dodson, a spokeswoman for Sandhills, said Dempsey’s contract was amended to reflect his salary increase. Officials at Central Piedmont and Wilkes declined to release minutes of the closed sessions, saying they were protected by the state’s personnel law.

The law allows many personnel matters, including job performance evaluations, to be secret. But it also gives local boards the discretion to make records and meeting notes about job performance public to protect the integrity of the institution. The boards are appointed by county commissioners, local school boards and the governor.

The state legislation and subsequent pay jumps came during a prolonged recession in North Carolina, with few pay increases for many community college employees. That includes the North Carolina Community College System’s president, Scott Ralls, who was hired in 2008.

Today, Burns and Zeiss make more money than Ralls, who has a $286,000 salary. Their pay also exceeds the salaries for chancellors at several UNC campuses.

Students, meanwhile, were hit with tuition increases and larger class sizes. Six years ago, it cost North Carolinians $1,344 a year to attend a community college. North Carolina’s tuition is still among the lowest nationally, but students now pay $2,288, a 70 percent increase.

Nolan Belk, an English instructor at Wilkes Community College, said he doesn’t begrudge Burns for getting what he could. But Belk said state lawmakers and community college board members had the wrong approach in taking care of people at the top while the pay for most employees languishes.

Belk made roughly $48,000 last year, a dip in pay from previous years, in part because he did not take on additional faculty responsibilities. But budget cuts in recent years have him and other instructors teaching as many as six classes a semester, and he said he has seen his class sizes go from 18 to 27 students during the past decade.

“The current business model in the United States is to pay the CEO way more than anybody else, and I think the legislature was trying to compete with the business model,” Belk said. “I think it’s misguided to treat education as business and government as business.”

Community college system records show instructor pay has stagnated in recent years. Average salaries have been in the $47,000 range for the past four years.

A survey by the American Association of Community Colleges said the median salary for presidents in 2012 was $167,000 and reported the median total compensation at $177,462. For larger institutions with 12,500 full-time students or more, the survey reported the median salary at $215,000 and the median total pay at $226,800. At Central Piedmont, Zeiss has the equivalent of 18,424 students.

No research was produced before the legislation that lifted the salary cap to show that North Carolina presidents’ compensation was inferior to pay in other states. The community college system took no position on the legislation.

Target: Above-average pay

Officials at the four colleges say the additional pay was justified. All four presidents have received accolades for their work. Zeiss was the state’s community college president of the year in 2002; Burns in 2006. The Wilmington Star-News gave McKeithan a lifetime achievement award before he retired.

Trustees boosted Burns’ compensation several years ago after he turned down an offer to lead an Illinois college, said Tracy McEntire, Wilkes’ human resources director. About the same time, trustees began increasing McKeithan’s pay after he pushed back his retirement plans. Ralph Pitts, the Central Piedmont board chairman, said trustees have sweetened Zeiss’ pay over the years to keep him from taking offers to go elsewhere.

“If you look at the prominence this college has relative to all the other colleges, not only in this state but nationally, I think to lump Tony Zeiss in with (57) other community college presidents would be a great injustice to him,” Pitts said.

North Carolina has one of the largest community college systems in the nation. The system’s 58 colleges are the state’s top resource for retraining workers and preparing students for careers in nursing, computer programming and other fields. The colleges also serve as a low-cost start for some students seeking bachelor’s degrees at the state’s 16 public universities.

Traditionally, the state largely paid for the salaries and benefits of community college employees while the local communities paid for operations and infrastructure. Local community college boards can provide supplementary salary money to all employees, but the total salaries had long been subject to a cap set by the state board. Zeiss said the cap had been in place since at least the early 1990s.

He said a system official told him back then that the cap was based on the average community college president’s salary nationwide.

Zeiss said he told the official, “You only want to attract average presidents? I mean, if we want the best presidents, you know, that cap is inhibiting that opportunity.”

Lifting the cap

The lack of authority over presidents’ pay didn’t sit well with trustees on the community colleges’ local boards. Their nonprofit, the N.C. Association of Community College Trustees, lobbied lawmakers to lift the cap.

The colleges typically draw less scrutiny from the press and public, though the rising salaries of Burns and McKeithan were reported by local newspapers. Burns told the Wilkes Journal-Patriot he sought the conversion of his perks into salary to boost his pension.

Former Rep. Jimmy Love, a Sanford Democrat, was one of the lawmakers asked to sponsor the bill.

Love said he recalled that one of the arguments made was that the presidents’ pay had stagnated to the point that some community college vice presidents’ pay had overtaken them. One example Love recalled was Central Piedmont, the state’s second-largest community college in terms of enrollment. Wake Tech is the state’s largest community college with about 19,500 full-time equivalent students.

Central Piedmont records show that at least as far back as 2001, Executive Vice President Kathy Drumm had a higher salary than her boss. But Zeiss’ housing allowance kept him ahead of Drumm in total compensation.

‘Be reasonable’

Records show few objections from lawmakers about lifting the cap, which was done when Democrats controlled the legislature.

The one concern, raised by then-Rep. Dale Folwell, a Winston-Salem Republican, was to make sure county governments, which provide the community colleges’ local share, addressed the pension implications of any subsequent pay increases. He succeeded in getting colleagues to approve an amendment to try to do that.

Love and Rep. Joe Tolson, an Edgecombe County Democrat who also sponsored the bill, said they did not know that some presidents were receiving perks that were converted to pay once the cap was lifted.

Tolson, a retired Edgecombe Community College administrator, said he still supports the original legislation, even if it has led to college presidents receiving big pension boosts.

But Love said he would have reconsidered the legislation had he known how much it would boost salaries and pensions, especially amid tuition increases for students and pay freezes for the rank and file.

“If the trustees have jumped those salaries that much, they need to look at them,” Love said. “You’ve got to be reasonable with all this. When you give somebody authority to set salaries, then you’ve got to be reasonable.”

Tomorrow: Surprising bonuses

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