The way Chattanooga paid its city attorneys for most of the past half century may have violated the state's conflict-of-interest laws, and the city now could try to recover any illegal payments, according to an internal audit report released last week.
But Mayor Ron Littlefield insists problems identified by city auditors were corrected this year when the city attorney's office was brought into City Hall. He said he isn't interested in revisiting the past.
"We made changes that I think are working out well for the city," he said. "I don't really want to go back and track through all of the issues about how this was all established decades ago and what was done for many years under many different mayors."
Mr. Littlefield said he was surprised to learn from an audit review last year that the city was paying for the health insurance of private employees who worked for Chattanooga's city attorney. The attorney is a city employee who, before this year, owned and maintained a private legal practice.
Before the changes this year, the city paid the attorney's salary and most of the lease payments for his office as well as benefits for secretaries. But other lawyers who worked on city business were private attorneys and also worked on other cases.
In a five-page assessment prepared in September, city Internal Auditor Stan Sewell said the arrangement violated state rules over contracting, bidding, segregation of duties and conflicts of interest.
"We can only conclude that the City Attorney is in violation of (the state statute TCA 12-4-1-1)," Mr. Sewell wrote to the mayor in a memorandum obtained last week by the Times Free Press in response to an open records request.
Mr. Sewell said state law requires that if the city made payments that were illegal under the statute, the city attorney "shall forfeit all pay and compensation" made under any improper arrangement.
City Attorney Mike McMahan and his predecessor, Randall Nelson, both dismissed Mr. Sewell's legal analysis. They insisted that state statutes and the city code allow the city to contract for professional services from the city attorney under the manner used for decades in Chattanooga.
"Comparing us with other cities, this was a less expensive way to provide the city with legal representation, and I think we did an excellent job through the years," Mr. Nelson said.
Mr. McMahan said the city has used the same law firm for more than three decades and the attorney was reappointed every four years under the same payment method.
"I think the record shows it worked well for the city, but we were certainly willing to bring the practice within City Hall when the mayor and council decided to make the change last year," he said.
Mr. Nelson said attorneys through the years evaluated the propriety of the old arrangement and didn't find the legal problems suggested by Mr. Sewell, an accountant who is not a lawyer.
Asked about the auditor's suggestion that money paid to the city attorneys in the past could be reclaimed, Mr. Nelson, who is now retired, said simply, "Good luck."
"What we did was perfectly appropriate," he said.
Mr. Littlefield got the audit report last fall, before he recommended that all of the city attorneys be city employees and work in city offices. But he said he decided to make the switch primarily because the city had extra office space and he was about to appoint Mr. McMahan to succeed Mr. Nelson.
City attorney pay
Among major Tennessee cities responding to a survey, 10 pay their city attorney more than $100,000:
Oak Ridge, $102,461
Not reporting: Nashville, Knoxville, Jackson, Johnson City
* Maximum salary
** Current Chattanooga salary. City attorney has requested an increase
Source: The University of Tennessee Municipal Technical Advisory Service
"The only thing that I can say is that with the retirement of Randy Nelson and the expiration of the lease down at the Pioneer Bank building (where the city attorneys previously worked), I felt like it was time to address the issue and resolve it," he said.
Mr. Littlefield said the former method of both employing a city attorney under the city charter and contracting with that attorney for his firm's legal representation dated back to former City Attorney Gene Collins, who defended the approach as less costly and more efficient for City Hall.
"It was a very unique arrangement in the past, but we were told repeatedly that this was a more cost-effective method for the city," Mr. Littlefield said.
Mr. Littlefield said the old arrangement "was one of the last remnants of the old commission form of city government" which Chattanooga replaced with its current City Council in 1990. Mr. Littlefield served on both the former City Commission and as a city councilman.
Manuel Rico, chairman of the Chattanooga City Council, said he was unaware of any auditor's questions about the legality of the former method of legal representation.
"But I think having all of the city attorneys work as city employees housed in city offices has worked out well," Mr. Rico said.
new budget request
The city no longer pays the attorney's lease. But Mr. McMahan has requested a salary boost for him and his chief assistant, Phil Noblett, citing loss of ability to take outside legal work and an increasing workload from annexation and other cases.
Mr. McMahan's salary of $105,765 is below at least eight other comparable cities in Tennessee, according to a survey of city salaries by the University of Tennessee Municipal Technical Advisory Service.
* When Mike McMahan was named Chattanooga city attorney in late 2009, the city decided to bring his practice into a City Hall annex building and switch the 14 employees under Mr. McMahan from private employees to city employees.
* With a growing workload and no opportunity for outside income, Mr. McMahan is requesting the city add another staff attorney and boost salaries for him and his top assistant, Phil Noblett, by a total of $35,000.
Source: City attorney budget request for fiscal 2010-2011
Disputing the past
* Before this year, the city attorney, as a city employee, received more than $15,000 a month from the city that he used to pay for secretarial services in his firm. The auditor this claimed violated state conflict-of-interest laws. The city attorney said none of the money came to him.
* The city paid 80 percent of the office lease for the city attorney's private practice in the Pioneer Bank building and paid for health insurance coverage for his staff even though it was a private business. The city attorney claims the arrangement kept costs down for the city.
* The city attorney didn't use written contracts for special legal services or administrative support as required by other municipal officers. The city attorney said competitive bids and contracts are not subject to such regulations for professional services and are exempted under the city code.