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HomeMy WebLinkAboutCOW 2003-07-14 Item 4B - Ordinance - Compensation for Future CouncilMeeting Date 4/14/03 4/21/03 7/14/03 Meeting Date 7/14/03 COUNCIL AGENDA SYNOPSIS Initial. I Meeting Date Prepared by I Mayor's review I Council review I I 7/14/03 I I AAL. I 0'C. I I 1 I I I I I I I ITEM INFORMATION CAS Number 03-050 I Original Agenda Date: 4/14/03 Agenda Item Title: Ordinance Fixing the Amount of Future Council Compensation Original Sponsor: Council x Admin. I Timeline: Sponsor's Summary: This ordinance was written in the update of the Council operating procedures. It will remain in the TMC directly following the procedures, but remain a separate ordinance for ease in amending in future years. Recommendations: Sponsor: Recommend ordinance for adoption Committee: Finance and Safety recommended ordinance April 8, 2003 Administration: Same as sponsor Cost Impact (if 2004- $12,540 R) Fund Source (if known) 000 General Fund COW Regular Meeting RECORD OF COUNCIL ACTION Action APPENDICES Attachments Memo from L. Lauterbach dated 7/8/03 Memo from Foster Pepper Sheffelman dated 6/3/03 Memo from Linda Grage to Alan Doerschel dated 5/30/03 Memo from Bob Noe and David St. Pierre Regular Meeting Minutes 4/21/03 Draft Salary Ordinance ITEM No. To: City Council From: Lucy Lauterbach Date: July 8, 2003 Subject: Council Salary Ordinance This ordinance originally came to you in the spring after going through the Finance and Safety Committee. After discussion at a COW, you sent it to a Regular Meeting in late April. Several questions about salary came up at that point, including whether the benefits in the ordinance could be raised mid term, and whether benefits would be taxable. The City Attorney had opined benefits were salary, so should not be raised. The Council decided to ask an outside attorney firm to get a final answer to the question of this issue. At the same time, Linda Grage in Finance also asked the IRS informally for an opinion of whether the benefits were taxable. The answer she received was they are not taxable as salary. Steve DiJulio of Foster Pepper Sheffelman is a highly respected attorney who has made presentations at AWC in the past. He has written an opinion that the funds are not salary. It should be noted that the firm had to research this issue, as they did not have a ready answer to this question. He did use the City Attorney's information in his research on the issue. If the Council is comfortable with the planned increases, you are legally free to pass the ordinance. Please note that this ordinance is put before the Operating Procedures Ordinance so that there will not be any time when council does not have a salary (the Operating Procedures repeal all of the salary issues previously passed). Lucy Lauterbach City of Tukwila 6200 Southcenter Blvd Tukwila, WA 98188 Dear Ms. Lauterbach F O S T E R P E P P E R S H E F E L M A N P L L C A T T O R N E Y S A T LAW June 3, 2003 Re: Medical Expense Reimbursement for Council Members We have been asked whether the City Council may accept increases in the medical expense reimbursements paid under the City's direct reimbursement program.' Based on our review of this matter, it does not appear that such payments would constitute "compensation" as that word is used in the state constitution. As a result, the city council members would not be constitutionally prohibited from receiving an increase in the amount paid under the Program during their current terms of office. 2 The Washington Constitution prohibits elected municipal officers from increasing their compensation during their term of office. Article XI, §11 of the Washington Constitution directs that: The salary of any county, city, town, or municipal officers shall not be increased except as provided in section I of Article XXX or diminished after his election, or during his term of office; nor shall the term of any such officer be extended beyond the period for which he is elected or appointed. In addition, Article XXX, §1 provides as follows: 2 We are aware of the existence of other legal positions to the contrary. S0384322.03 Direct Phone (206) 447-4692 Direct Facsimile (206) 749 -2092 E -Mail r ie hj@ to s ter. tom 1111 THIRD AVENUE Suite 3400 SEATTLE Washington 96t0s -3199 Telephone (106)447-4400 Facsimile (1061447 Website W W W. FOSTER. COM ANCHORAGE Alaska PORTLAND Oregon SEATTLE 1 We understand the City has from time -to -time adopted by ordinance such a plan or progran`Ta' "'g "n "Program as part of its provision of health care coverage for officers and employees. 5eo RA NE Washington Lucy Lauterbach June 3, 2003 Page 2 The compensation of all elective and appointive state, county, and municipal officers who do not fix their own compensation, including judges of courts of record and the justice courts may be increased during their terms of office to the end that such officers and judges shall each severally receive compensation for their services in accordance with the law in effect at the time the services are rendered. Read together, these two provisions allow increases in salary or compensation during the current tern to only those officers who do not set their own compensation. Otherwise, they must complete their term of office before receiving any increase in salary or compensation. Washington courts have consistently construed the term "salary" in the constitution as the framers' effort to describe the compensation to be paid an officer out of the public treasury, based on the time, rather than the amount, of the officer's service. "Benefits" that do not result in direct and immediate economic gain to the elected officials for services rendered would not 3 AGO 1992 No. 8. This AGO concluded that a prior version of RCW 41.04.190 applied only to "county elected officials." At the time, RCW 41.04.190 provided: The cost of any such group policy or plan to any such public agency or body shall not be deemed additional compensation to the employees or elected county officials covered thereby ...(Emphasis added) In 1996, the Legislature thoroughly amended RCW 41.04.190. As a result, AGO 1992 No. 8 has limited use in interpretation of the statute. 4 See, e.g., State ex rel. Stratton v.. Maynard, 35 Wash. 168, 175, 76 P. 937 (describing "salary" as "the amount of money which the state would have to pay out of its treasury for his [the attorney general's] services State ex rel. Banker v. Clausen, 142 Wash. 450, 457, 253 P. 805 (1927) (reaffirming that the framers' intent in adopting various provisions relating to officers' salaries was to eliminate system of fees and to fix officers compensation "in definite amounts which should be well known, and thus prevent any further contingent or unknown profit to any officer State ex rel. Funke v. Board of Commissioners, 48 Wash. 461, 466, 93 P. 920 (1908) (holding that a five- dollar- per -day payment was "compensation" as it was "a fixed sum with reference to a specified time, is not variable during the time that official duties require his services, and is paid from the public treasury as that of other officers Franklin Cty. V. Barnes, 68 Wash. 488, 491, 123 P. 779 (1912)( "There can be no question but that it was the intent of the framers of the Constitution that the compensation of salaried officers should be a fixed salary for their time, and not by fees for specific services 50384322.03 Lucy Lauterbach June 3,2003 Page 3 appear to be included within the definition of "salary" or "compensation As noted in AGO 1996, No. 2: [C]ourts in other states have held that a contribution by a state or a county to match an elected official's contribution to the federal social security fund is not "compensation" within the meaning of various constitutional provisions which prohibit increases in compensation during the term in which the official is elected. "6 Moreover, the Legislature has clearly stated that the cost of hospitalization and medical aid provided to the employees or elected officials of a public agency is not compensation. RCW 41.04.180 authorizes counties, municipalities, or other political subdivisions of the state to provide programs for hospitalization and medical aid for their employees: Any countv. municipality. or other political subdivision of the state acting through its principal supervising official or governing body may, whenever funds shall be available for that purpose provide for all or a Hart of hospitalization and medical aid for its emnlovees and their dependents through contracts with regularly constituted insurance carriers or with health care service contractors as defined in chapter 48.44 RCW or self insurers as provided for in chapter 48.62 RCW, for grown hospitalization and medical aid policies or nlans... The City's direct reimbursement program is a permissible group hospitalization and medical aid policy or plan pursuant to RCW 41.04.180. RCW 41.04.190, as amended in 1996, provides that the cost of these programs to the county, municipality, or other political subdivision is not additional compensation to their employees or elected officials: 5 AGO 1996 No. 2. 6 AGO 1996 No 2, citing State ex rel. Patteson v. Sims, 65 S.E.2d 730 (W. Va. 1951); Opinion of the Justices, 69 So.2d 702 (Ala. 1954). 7 RCW 41.04.180 (Emphasis added). 50384322.03 The cost of a policy or plan to a public agency or body is not additional compensation to the emnlovees or elected officials covered thereby. The elected officials to whom this section applies include but are not limited to commissioners elected under chapters 28A.315, 52.14, 53.12, 54.12, 57.12, 70.44, and 87.03 RCW, as well as any county elected officials who are provided insurance coverage under RCW 41.04.180. Any officer Lucy Lauterbach June 3, 2003 Page 4 authorized to disburse such funds may pay in whole or in part to an insurance carrier or health care service contractor the amount of the premiums due under the contract s Read together, RCW 41.04.180 authorizes a city to provide for all or a part of hospitalization and medical aid for its officers and employees through a variety of policies and plan, including direct reimbursement programs. RCW 41.04.190 makes it clear that the cost of such policies or plans "is not additional compensation to the employees or elected officials covered thereby." This interpretation is similar the policy of the Internal Revenue Service that direct reimbursement of medical expenses does not constitute "income" for federal tax putposes. As the American Payroll Association has observed: Benefits received by an employee under an accident or health insurance plan that directly or indirectly reimburses the employee for medical expenses incurred by the employee and his or her spouse and defendants (by paying the employee or the medical care provider) are also not included in the employee's income... The exclusion for reimbursed medical care expenses applies only up to the amount actually spent or incurred by the employee. Any reimbursements in excess of that amount are taxable income to the employee. The IRS requires that employer reimbursements must be made under a "plan" that must be written or otherwise made known to employees. Once the existence of a plan is established, the tax exclusion for employer reimbursements if the plan is set up to benefit employees and their dependents. It appears that the City Program, adopted by ordinance (and as revised from time to -time) is a "plan" for such purposes. 8 RCW 41.04.190 (Emphasis added). The phrase "public agency or body" in RCW 41.04.190 is synonymous with the "county, municipality, or other political subdivision. of the state" referred to in RCW 41.04.190. See, accord. 1992 AGO No. 2 (concluding that the cost of providing health insurance benefits to county elected officials is not additional compensation to those officials). 9 IRC §105; §213(c)(1). The City of Tukwila has independently confirmed with representatives of the IRS that such reimbursement is not compensation for federal tax purposes. The IRS has been asked for written confirmation, but it is unlikely that the IRS will do so for some months. 1° American Payroll Association, The Payroll Source, §4.1 -2 (2002 Ed.). 11 American Payroll Association, The Payroll Source, §4.1 -2 (2002 Ed.) citing Social Security Handbook, §1311-§1312. 50384322.03 Lucy Lauterbach June 3, 2003 Page 5 We believe that a legitimate foundation exists for the conclusion that reimbursement of an employee's actual medical expenses is not "salary" or "compensation" as those terms are used by the state constitution. Moreover, RCW 41.04.190 clearly states that the costs of hospitalization and medical aid provided by a city to its employees pursuant to a policy or plan does not constitute additional compensation for an elected official. It would not appear that any constitutional obstacles exist that would prevent the city council from accepting increases in the medical expense reimbursements paid under the City's direct reimbursement program. 50380322.03 We trust the foregoing is responsive to your inquiry. Very truly yours, FOSTER PEPPER SHBFELMAN PLLC f.r P. Stephen DiJulio City of Tukwila 6200 Southcenter Boulevard a Tukwila, Washington 98188 MEMORANDUM To: Alan Doerschel, Finance Director From: Linda Grage, Fiscal Coordinator 4, J Date: May 30, 2003 Subject: Council Medical Benefits I have researched the taxability issue of the council medical benefits given to them per Ordinance 1942. To the best of my knowledge and through the information I have available to me, I feel that the benefits for healthcare, including medical, dental, and vision are clearly not taxable for Federal Income tax, FICA, and Medicare. We can continue reimbursing the Council member for direct expenses, or for insurance premiums. We do have an issue with the reimbursement of life insurance and disability premiums. According to the Payroll Source, the life insurance benefit would be taxable. Disability insurance appears not to be covered by the Ordinance and may also be taxable. Copies from the Payroll Source are attached for your review. In order for a health insurance plan to not be taxable for Social Security and Medicare, the plan must be documented in writing. The Ordinance should be enough documentation to meet that requirement However, the Ordinance should be revised to exclude life and disability insurance. Also, I would recommend specific language from the Internal Revenue Code to define what healthcare expenses are. IRC §105; §213(c)(1), defines medical care as "the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure of function of the body." Please see attached. Also, I have attached a summary of the medical expenses reimbursed to the council for the years 2002 and 2003 by category (medical, dental, life, etc). This should help in deciding what to do on this matter. We could go as far as getting a "letter ruling" from the IRS, but they take a considerable amount of time and effort. Let me know if you need anything else from me. Finance Department 433 -1836 The Payroll Source Health maintenance organizations (HMOs). An HMO is a health care system that provides health care but does not directly pay for it, as does a health insurance carrier. The HMO provides these health care ser- vices on a prepaid basis with employers contributing to the plan on behalf of employees choosing the HMO option. (Employees also may be required to contribute if contributions are required from employees for non- HMO plans.) While HMOs may be attractive to employees because they generally do not involve deductibles or complex claim forms, they limit members to using HMO doctors and hospitals. There are two types of health maintenance organizations. Under the traditional scheme, the HMO has its own health care facility or facilities, and patients (e.g., employees and their families) have to go there to receive medical services. The other type of HMO is the Individual Practice Association, under which physi- cians sign up with a health care group and patients have the option of choosing their own physicians among those in the group, rather than being required to go to the HMO facility and seeing the first available physi- cian. A product now being offered by many HMOs is the Point -of- Service (POS) plan. The POS option allows covered employees and their dependents to use non -HMO health care providers, with the inclusion of deductibles and insurance copayments. Employees and their dependents must select a primary care physi- cian from the POS network, who acts as a gatekeeper and oversees the delivery of all health care services. But the employee can choose a physician contrary to the primary care physician's recommendation or go ini- tially to a physician outside the network subject to deductibles and reduced levels of reimbursement. Some HMOs are now also offering `open access" POS plans, which do not require an employee to choose a primary care physician from the POS network. Preferred provider organizations (PPOs). A PPO is a health care delivery system that gives participants a choice of a higher level of benefits and lower out -of- pocket costs if they use doctors who are part of the PPO's "network." If they use nonnetwork providers, the employees' costs, in terms of deductibles and copayments, are significantly higher. Participants may or may not have to choose a "primary care physician," who must approve or authorize all of their health care before the higher level of benefits is provided. 4.1 -2 Tax Treatment of Contributions and Benefits Generally, contributions made by an employer to an accident or health insurance plan providing insur- ance for its employees and their spouses and dependents are not wages and are not subject to federal income tax withholding or social security, Medicare, and federal unemployment (FUTA) taxes. On the other hand, contributions made by employees from their wages for health insurance must be included in their income for income tax withholding and employment tax purposes unless the contributions are made through a valid salary reduction plan under IRC §125 (see the discussion of cafeteria plans at Section 4.5). The rules are not so clear when an employer (without a §125 plan) gives its employees a choice whether to receive a portion of their compensation as wages or have the amount paid by the employer to a health insur- ance carrier to cover premiums. The IRS's position is that such amounts must be included in the employees' income and are subject to federal income tax withholding and social security, Medicare and FUTA taxes no matter what choice is made. A federal district court, however, said such salary reduction amounts are not included in income because there is no basis for distinguishing between amounts paid by an employer above and beyond an employee's salary for health insurance and amounts paid pursuant to a salary reduction plan. The IRS has also ruled that, where an employer reduces its employees' salaries, uses those amounts to pay for health insurance premiums, and then reimburses the employees for the amount of the salary reduc- tion, the reimbursements are not excluded from income. Where an employer's plan would allow the employer to convert a retired employee's unused sick time into a cash equivalent that the employer would then use to purchase additional medical insurance coverage for the retiree, the amount converted would not be income to the retired employee, according to the IRS. 1. Inc §106(a); IRS Reg. §1.106 -1. 2. PLR 9406002; Express Oil Change, Inc. v. U.S., 25 F.Supp.2d 1313 (ND Ala, 1996); ailed 162 F.3d 1290 (11 CA, 1998). 3. Rev. Rul. 2002 -3, 2002-3 IRE 316; Rev. Rul. 2002 -80, 2002 -49 IRB 925. 4. LTR 200222019, 2.27 -02. 4 -4 Section 4: Health, Accident, and Retirement Benefits Benefits received by an employee under an accident or health insurance plan that directly or indirectly reimburses the employee for medical expenses incurred by the employee and his or her spouse and depen- dents (by paying the employee or the medical care provider) are also not included in the employee's income. To qualify for this exclusion, the employee's expenses must be for medical care, defined by the Internal Revenue Code as "the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. In 2002, the IRS ruled that medical care includes radial keratotomy surgery to improve eyesight 6 as well as amounts paid for participation in a weight -loss program as treatment for a specific disease diagnosed by a physician, including obesity.? The cost of diet foods is not considered a medical care expense because the diet foods are substitutes for other food that would normally be consumed to satisfy nutritional require- ments. PLASTIC SURGERY IS NOT MEDICAL CARE The exclusion for medical care expenses does not apply to plastic or "cosmetic" surgery that is designed to improve a person's appearance with- out promoting the proper function of the body or preventing or treating an illness or disease. There are exceptions where the surgery is needed to correct a deformity, treat a disfiguring dis- ease, or heal a personal injury suffered during an accident or other trauma. The exclusion for reimbursed medical care expenses applies only up to the amount actually spent or incurred by the employee. Any reimbursements in excess of that amount are taxable income to the employee. Any amounts reimbursed for an employee's expenses incurred before the plan initially takes effect must be included in the employee's income Social security, Medicare, and FUTA requirements. To exclude employer contributions from employment taxes (social security, Medicare, and FUTA), the payments must be made under a plan. A plan can be shown by one of the following: 1. the plan is written or is otherwise made known to employees; 2. the plan is referred to in an employment contract (e.g., collective bargaining agreement) involv- ing the employees; 3. employees contribute to the plan; 4. employer contributions are made to a fund that is separate from the employer's salary account; or 5. the employer is required to make the contributions.'° Once the existence of a plan is established, the social security, Medicare, and FUTA tax exclusion for employer contributions will apply if the plan is set up to benefit employees and their dependents. Payments to the plan by an employer will not be excluded if the plan benefits dependents only.' Living together is not enough. Health insurance plan contributions and benefits are not excluded from income if made or received on behalf of an employee's "life partner," "nonspouse cohabitant" or domes- tic partner unless that person is recognized as a spouse under state law. If the employee's domestic partner is of the same sex as the employee, the partner does not qualify as the employee's spouse for tax purposes, 5. me *105; §213(cXl). 6. LTR 200226003, 3-7-02. 7. Rev. Rul. 2002.19, 2002 -16 IRB 779. 8. IRC §213(dX9). 9. Rev. Rul. 2002 -58, 2002 -38 IRS 541. 10. Social Security Handbook, §1311; §1312. IL IRC §3121(a)(2); §3306(bX2); IRS Reg. §31.3121(§X2) -1; §31.3306(6)(2) -1. 12. PLR 9034048, 5- 29 -90; LTA 9603011, 10-18-95. 4 -5 The Payroll Source Whole life insurance. An employer may purchase individual whole -life or straight -life insurance poli- cies for employees (usually done for key managers) or pay the premiums on policies already owned by the employees. A straight -life policy provides two types of benefits: Death benefit benefit is payable at the death of the insured employee equal to the face amount of the policy. Savings portion of each premium payment is applied toward the savings segment of the poli- cy. As premiums are paid, this "cash surrender value" of the policy increases. Employees may be allowed to borrow against the cash surrender value or withdraw from it. A return is also earned from the insurance carrier which may be reflected as additional increases in the cash surrender value, additional insurance coverage, or a payout of cash dividends. If the proceeds of the policy are payable to the employee's designated beneficiary, the value of the straight -life policy that is paid for by the employer is included in income and subject to federal income tax withholding.fi If the employer is the sole beneficiary of the policy or the employee pays the premiums with after -tax dollars, the value of the policy is not included in income. If the insurance coverage is part of a plan intended to benefit employees or their dependents, the value of the policy is not subject to social security, Medicare, or FUTA tax.fi Calculating taxable income. If the proceeds of the policy are payable to the employee's beneficiary, the amount included in the employee's income is the sum of: the increase in the policy's cash surrender value for the year (if the employee has a vested right to the cash value), and the "reasonable net premium cost" of the current life insurance protection (the death benefit payable minus the cash surrender value at the end of the year). Split dollar life insurance. There is a way for the employer and employee to share the cost of the employee's ordinary individual life insurance policy split- dollar life insurance. Under such an arrange- ment, the employer pays that part of the annual premium representing the increase in the cash surrender value of the policy during the policy year. The employee pays the remainder of the premium, if any. As the cash surrender value increases, the employee's premium costs decrease. At the employee's death, the employer is entitled to the cash surrender value of the policy, while the employee's designated beneficiary is entitled to the rest of the proceeds. The amount that must be included in the employee's income each year is the amount of the yearly premi- um cost for the employee's current life insurance protection that the employee does not have to pay because it is being paid by the employer from the increase in the cash surrender value 6 This includible amount is equal to the one -year term cost of the current (declining) life insurance protection minus any amounts paid by the employee. This cost is determined by multiplying the amount of current life insurance protection (face value minus cash value) by the rate per $1,000 and then dividing by 1,000. Any additional benefits the employee receives as a result of the arrangement, such as policyholder dividends, must also be included in income. The amount includible in income is subject to federal income tax withholding, but not to social security, Medicare, or FUTA tax if the insurance is provided under a plan to benefit employees or their dependents 6 Before 2002, the reasonable net premium cost per $1,000 of current insurance for one year had been determined by referring to the "Uniform Premiums Table II" provided by the IRS (referred to as P.S. 58 rates). 60. IRS Reg. §1.61- 2(d)(2)(ii). 61. IRC §3121(aX2XC); §3306(bX2XC); IRS Reg. §31.3121(a) -1; §31.3306(b) -1. 62. Rev. Rul. 64 -328, 1964 -2 CB 11; Rev. Rul. 66 -110, 1966 -1 CB 12; Rev. Rul. 78 -420, 1978 -2 CB 67. 63. IRC §3121(a)(2)(C); §3306(b)(2)(C); IRS Reg. §31.3121(a) -1; §31.3306(b) -1. 64. Rev. Rul. 55 -747, 1955 -2 CB 228; Rev. Rul. 66 -110, 1966 -1 CB 12. 3 -26 MICHAEL R. KENYON MARGITA A. DORNAY LISA M. MARSHALL ROBERT F. NOE BRUCE L. DISEND SANDRA S. MEADOWCROFr TO: City Council GUIDANCE: G: \City Attorney \David\M E00017- dbs.doc/COT /1 /29/03 KENYON DORNAY MARSHALL, PLLC THE MUNICIPAL LAW FIRM 11 FRONT STREET SOUTH ISSAQUAH, WASHINGTON 98027 -3820 (425) 392-7090 (206) 628-9059 FAX (425) 392 -7071 CITY OF TUKWILA MEMORANDUM CC: Mayor Mullet John McFarland Alan Doerschel FROM: Bob Noe David St.Pierre, City Attorney's Office DATE: January 29, 2003 RE: Medical Expense Reimbursement for Council Members SERVING WASHINGTON CITIES SINCE 1993 ELIZABETH A. ABBOTT STEVE C. KARI.MI STEPHEN R. KING HEIDI L. BROSIUS DAVID B. ST.PIERRE DARIN H. SPANG Council President Carter, through Lucy Lauterbach, has requested our opinion on whether or not there is any legal uncertainty "gray area over the question of whether Tukwila's council members may receive an increase in the amount of their direct reimbursement for medical expenses during their current terms of office, in light of MRSC's opinion that council members cannot receive such an increase. It is our understanding that Tukwila council members may receive direct financial reimbursement from the city of up to $3,400 per year upon presentation of receipts for council member medical expenses. It is also our understanding that only one council member has opted to receive group medical insurance benefits from the city vice participating in this direct financial reimbursement plan. It is the direct financial reimbursement that is the subject of this memorandum. It is our opinion that there is a low probability that legal uncertainty exists "i.e. no gray area as to the prohibition against Tukwila's council members receiving an increase in the amount of their direct reimbursement for medical expenses during their current terms of office. Though we believe MRSC's analysis of the question was flawed, it is our opinion that their conclusion was correct, but for other reasons. January 29, 2003 Page 2 ANALYSIS: Medical "expenses" of council members are "benefits" and not business- related expenses, which can be fully reimbursed pursuant to council policies and state authority. Hoppe v. State. 78 Wn.2d 164, 469 P.2d 909 (1970). "Benefits" received by elected city officials are considered part of the elected officials "compensation." Id. Our state constitution prohibits elected municipal officers from increasing their compensation during their term of office. WA Const. Art. 11, Sec. 8. However, where the state legislature specifically declares a benefit to "not' be compensation, then the courts will not view any increase in such a benefit as a violation of the state constitution. AGO 1992 No. 8 and No 8 Addendum (to Supreme Court Justice Talmage) RCW 41.04.190 was passed by the state legislature to allow local governments to take advantage of the cost savings associated with group insurance policies or plans when providing for benefits for their elected officials by declaring such costs `not' additional compensation for such elected officials. Id. However, the legislature had the opportunity to declare direct reimbursement plans to "not" be compensation, but they did not take advantage of that opportunity. Our Supreme Court has stated that when a statute speaks in specific terms, an implication arises that omitted terms were not intended to be included within the scope of the statute: Under "expressio unius est exclusio alterius," a canon of statutory construction, to express one thing in a statute implies the exclusion of the other, i.e. omissions are deemed to be exclusions. In re Williams, 147 Wn.2d 476, 55 P.3d 597 (2002). Consequently, the declaration of what constitutes "not" compensation under RCW 41.04.190 applies specifically to group insurance policies or plans and not to other mechanisms such as direct reimbursement. We conclude that if the state legislature had intended that other such mechanisms, such as direct reimbursement, be declared "not" to be compensation then the legislature would have stated so. Because they did not so state, we conclude that the state legislature intended that local governments could take advantage of savings associated only with group insurance policies or plans and not other mechanisms, regardless of the similarity in financial cost to the city. Tukwila's direct reimbursement mechanism for council members is NOT a group insurance policy or plan. Regardless of the financial cost similarity between Tukwila's direct reimbursement mechanism for council members and council member coverage under a Tukwila group policy, the direct reimbursement mechanism constitutes compensation where coverage under a Tukwila group policy would not be compensation. Consequently, whereas increasing a council member' s group policy coverage levels during that member's term in office would not be constitutionally proscribed, increasing a G: \City Attorney \David\ME00017- dbs.doc/COT /01/29/03 January 29, 2003 Page 3 council member's amount of medical expense benefit through direct reimbursement is constitutionally prohibited. Finally, it is our opinion that the attached opinion of MRSC reached the correct conclusion but for the wrong reasons. First, it is obvious that MRSC did not understand that Tukwila's direct reimbursement mechanism for council members was not an insurance policy or plan. Consequently, MRSC was analyzing the wrong question. Second, MRSC's analysis (not prepared by MRSC's legal department) of the wrong question was flawed in our opinion and showed a lack of research into the recent (as of the year 2000) legal references (see AGO 1992 No. 8 and No. 8 Addendum). Thus, contrary to MRSC's analysis, it is our opinion that the single council member that opted to receive coverage under the Tukwila group insurance policy is NOT receiving compensation and that member's policy levels can be increased during that member's term of office without violating the state constitution. CONCLUSION: It is our opinion that Tukwila's council members are constitutionally prohibited from receiving an increase in the amount of their direct reimbursement for medical expenses during their current terms of office. It is also our opinion that there is a low probability that legal uncertainty exists "i.e. no gray area as to this prohibition. G: \City Attorney \David\ME00017- dbs.doc /COT/01/29/03 From: "Byron Katsuyama" <bkatsuyama @mrsc.org> To: <Ilauterbach @ci.tukwila.wa.us> Date: 1/24/03 10:21 AM Subject: MRSC Research Request Lucy, Here is a copy of the response that we gave to Alan Doerschel, Finance Director, Tukwila, in 2000: RE: Whether city councilmembers may receive during their current terms of office an increase in the amount of medical expense reimbursement. No, the proposed increase would be considered additional compensation, which may not be increased during the councilmembers' terms of office, regardless of how RCW 41.04.190 is interpreted. The proposed plan would increase the monetary amount for which councilmembers can be reimbursed for medical expenses such as pharmaceuticals, health care, dental and vision care, and health insurance premiums. RCW 41.04.190, amended in 1992, provides in relevant part as follows: The cost of a policy or plan to a public agency or body is not additional compensation to the employees or elected officials covered thereby. The elected officials to whom this section applies include but are not limited to commissioners elected under chapters 28A.315, 52.14, 53.12, 54.12, 57.12, 70.44, and 87.03 RCW, as well as any county elected officials who are provided insurance coverage under RCW 41.04.180. We have opined in the past that it is uncertain whether this applies to city elected officials. See, e.g., Inquiry No. 94 -0624, Richland. I contacted Brian Buchholz, assistant attorney general who advises the state auditor's office, to see if they had any new opinion on the issue of whether this statute applies to city elected officials. He opined, based on the final bill report contained in the 1992 Legislative Digest, that the 1992 amendment was intended to apply only to the elected officials of special districts. The statute references specifically only those RCW chapters dealing with special districts and the bill report states as part of the summary regarding the 1992 amendments (ESHB 1150, Ch. 146, Laws of 1992): The cost of group hospitalization and medical insurance coverage is not additional compensation for elected officials of special districts. So, it is probably best for MRSC to advise that this statute would likely not be interpreted to apply to city elected officials. Even if this statute were interpreted to apply to city elected officials, it would not apply in this instance because the city would not be paying for the cost of group hospitalization and medical r-r JAN 2 7 2003 insurance coverage. Rather, it would be reimbursing for medical and other health care related expenses. We also note that the 2002 Washington Legislature considered but did not pass HB 2508 which would have extended the authorization in RCW 41.04.190 to city elected officials. While this is certainly not conclusive, it does support the interpretation that city officials are currently not included within the group of public officials referenced in RCW 41.04.190. The basic legal issue is whether adding medical insurance benefits constitutes an unconstitutional mid -term increase in compensation. Article 2, section 25 of the state constitution states in relevant part: The legislature shall never grant any extra compensation to any public officer, agent, employee, servant, or contractor, after the services shall have been rendered, or the contract entered into, nor shall the compensation of any public officer be increased or diminished during his term of office. (Emphasis added.) Although this provision refers to action by the legislature, it has been interpreted by the courts to also apply to local government legislative bodies. See AGO 63 -64 No. 97, at 2, and cases cited therein. Article 11, section 8 does not apply here because it prohibits mid -term increases in salary, which is a narrower term than "compensation." See AGO 1992 No. 21. RCW 41.04.190 characterizes the "cost" of medical insurance to elected officials of counties and special districts, but not to city elected officials, as "not additional compensation," which means that the "cost" of such insurance is compensation for the latter. See Inquiry AGO 1974 No. 9 and AGO 1969 No. 2. In any case, our advice is that you discuss this with your city attorney. You may also want to discuss this further with one of our attorneys. I would suggest contacting Bob Meinig, MRSC Legal Consultant. I have spoken with Bob about your inquiry. I hope this helps. Byron Katsuyama Public Policy Consultant MRSC Visit our Web site! www.mrsc.org l ^J City of Tukwila City Council Regular Meeting Minutes Sgt. Bruce Linton addressed the issue of how juveniles will be handled as a result of being charged with this crime. In response to Councilmember Hernandez, Sgt. Linton noted they will be handled much the same as with any other misdemeanor crime(s). *The motion to adopt the ordinance, as read, carried 7 -0. APPROVED ORDINANCE #2017 Page 4 of 9 April 21, 2003 b. Approval of 2003 Contract with Southwest King County Chamber of Commerce in the amount of $20,000.00 Nancy Damon, Chamber Director, was present, yet made no presentation; nor were any questions asked. In response to an inquiry at the April 14 meeting, from Councilmember Haggerton, Rhonda Berry reported an addition to the Scope of Work was made. Service Item K, although currently being done, was never expressly written as part of the agreement. The item mentioned states, "SERVICE K The Chamber will act as a sounding board and Information source for issues associated with economic vitality, development, and other matters related to the City's economic development policies." DUFFLE MOVED; HERNANDEZ SECONDED; TO APPROVE THE 2003 CONTRACT WITH THE SOUTHWEST KING COUNTY CHAMBER OF COMMERCE IN THE AMOUNT OF $20,000.00. The motion carried 7 -0. c. An ordinance fixing the amount of compensation for Councilmembers through 2007 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, AMENDING THE TUKWILA MUNICIPAL CODE TO FIX THE AMOUNT OF COMPENSATION FOR COUNCILMEMBERS THROUGH 2007, REPEALING ORDINANCE NOS. 1942, 1955 AND 1956; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE FENTON MOVED; DUFFIE SECONDED; READING OF THE PROPOSED ORDINANCE BY TITLE ONLY. The motion carried 7 -0. Assistant City Attorney David St. Pierre read the title of the proposed ordinance. DUFFIE MOVED; HAGGERTON SECONDED; ADOPTION OF THE PROPOSED ORDINANCE AS READ.* Discussion began with Councilmember Haggerton asking if an answer had been received regarding an inquiry on whether the reimbursement program should be counted as income. Lucy Lauterbach noted the attorney to address that issue is on vacation. In light of that, Councilmember Haggerton spoke in favor of deferring action on this issue until such time as an answer is reached. COUNCILMEMBER FENTON MOVED "THAT, UNDER OLD BUSINESS ITEM C, THE ORDINANCE FIXING THE AMOUT OF COMPENSATION FOR COUNCILMEMBERS THROUGH 2007, BE PULLED FROM THE AGENDA." The motion died for lack of a second. To assist Councilmember Fenton, Bob Baker, Deputy City Clerk, informed Council the maker of the main motion (to adopt the proposed ordinance as read) could withdraw his motion and it would no longer be on the table. Council chose to continue discussion of the item, under the guise of the main motion. Discussion continued. Councilmember Hernandez recalled Council has staggered terms as well as staggered levels of compensation. Council President Carter reported that as of 2004, the terms will begin to level out. Additionally, she spoke in favor of small increases, or escalators, over the years, versus one large jump in salary figures. COUNCILMEMBER FENTON AGAIN ASKED IF THE MATTER WOULD BE POSTPONED. AGAIN, COUNCIL CONTINUED DISCUSSION OF THE ITEM. City of Tukwila City Council Regular Meeting Minutes Councilmember Haggerton wondered if there might be some Councilmember who would vote differently if they learned an answer to his earlier inquiry about medical reimbursements being counted as income. Councilmember Linder agrees with the way stipends are handled; yet is not comfortable with increasing medical benefits for more than one reason, namely the City's current economic financial situation. "To be prudent," she urged Council to "leave it [Council's medical benefit] where it is, which is healthy." Before ending her remarks, Ms. Linder shared a written informational memo which lists the names of 10 area cities and whether or not their Councilmembers receive medical benefits. Finally, Councilmember Linder spoke in favor of setting an example in leaving the benefit "as is" so as not to send a bad message to employees or Tukwila residents. Although not all Councilmembers will utilize the total amount of benefits per year, some will. As it relates to those benefits which may be taxable, Council President Carter noted that if it hurts a person's tax bracket, there is nothing which requires them to take all of that benefit or all of their salary. Confirming Ms. Carter's position, David St. Pierre, City Attorney, noted Councilmembers are within their rights to return whatever salary portion they don't want. The monies may be reduced in their W -2's and the City can reflect they've received something less. In Congress, noted Mr. St. Pierre, this is done all the time. FENTON MOVED; HERNANDEZ SECONDED; THAT UNDER OLD BUSINESS, ITEM C, THE ORDINANCE FIXING THE AMOUNT OF COMPENSATION, FOR THE COUNCILMEMBERS THROUGH 2007, BE PULLED FROM THE AGENDA. The motion carried 6 -1; with Councilmember Linder voting NO. *With the motion carrying 6 1, the previous motion, to adopt the motion as read, is moot. Mayor Mullet asked this matter be placed on the next Regular meeting agenda or titled "pending" as staff awaits answers to Council inquiries. NEW BUSINESS: a. Authorize Mayor to accept Public Works Trust Fund Loan in the amount of $100,000.00 for design of the Cascade View Neighborhood Drainage Project LINDER MOVED; FENTON SECONDED; TO AUTHORIZE MAYOR TO ACCEPT PUBLIC WORKS TRUST FUND LOAN IN THE AMOUNT OF $100,000.00, FOR DESIGN OF THE CASCADE VIEW NEIGHBORHOOD DRAINAGE PROJECT.* Councilmember Duffle left chambers during discussion of this item; yet returned before the vote was taken. Discussion ensued with a question and answer period between Councilmembers and Jim Morrow, Public Works Director. Council was seeking clarification to information presented for this agenda item. *The motion carried 7 -0. Page 5 of 9 April 21, 2003 b. Authorize Mayor to sign a contract with Perteet Engineering, Inc., in the amount of $269,715.00, to provide the North Quadrant GIS Infrastructure Inventory project LINDER MOVED; CARTER SECONDED; TO AUTHORIZE MAYOR TO SIGN A CONTRACT WITH PERTEET ENGINEERING, INC., IN THE AMOUNT OF $269,715.00, TO PROVIDE THE NORTH QUADRANT GIS INFRASTRUCTURE INVENTORY PROJECT.* Jim Morrow informed Council of the City's incomplete as -built infrastructure information and noted it lacks a comprehensive inventory of all City-owned utilities. Generally speaking, areas recently incorporated from King County have little to no recorded information, and areas developed or redeveloped through the City have limited information. The global positioning study will include an area north of South 115 (Allentown) including Ryan Hill and East Marginal Way South. Of importance to the City, the study will D 1 W r AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, FIXING THE AMOUNT OF COMPENSATION FOR COUNCILMEMBERS THROUGH 2007; REPEALING ORDINANCE NOS. 1942, 1955 AND 1956; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. WHEREAS, Ordinance 1956 set Council compensation levels for the years 2001 through 2005; and WHEREAS, Council members elected in 2003 will serve through 2007, and salaries for 2006 and 2007 are not set forth in Ordinance 1956; and WHEREAS, the City Council recognizes that the current economy warrants a conservative compensation that does not rise beyond the current scale; and WHEREAS, a uniform stipend ensures that all Council members receive the same salary for several years; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, DO ORDAIN AS FOLLOWS; Section 1. The Tukwila Municipal Code is hereby amended to set Council compensation and benefits as follows: 2.04.030 Council Compensation and Benefits A. Monthly compensation: 1. Compensation levels. Pursuant to the provisions of RCW 35A.12.070, members of the Tukwila City Council shall receive the following monthly compensation during the years listed here according to their position and date their term of office commences: Council Members Salary.doc I I POSITIONS 1, 3, 5,7 1/1/02- 1W31/05 YEAR (current teen of office) and 1/1/06- 12J31/09 1 2003 1 $950 /month 1 2004 1 $1,000 /month 2005 1 $1,050 /month 2006 1 "$1,050/ month 1 2007 1 $1,050 /month **New Council term commences on January 1. POSITIONS 2, 4, 6 1/1/00- 12/31/03 (current term of office) and 1/WJ04-12/31/07 $685 /month "$1,000/ month $1,050 /month $1,050 /month $1,050 /month 2. Compensation review. At any time the Tukwila Council compensation falls below the mean of the other Valley Communication cities, Tukwila will review the stipends and may increase its stipend to the level of those other cities. B. Benefits: Each member of the City Council, beginning January 1, 2003, shall be eligible for one of two benefits options: 1. Reimbursement program. Reimbursement from the City for medical expenses for one year including pharmaceuticals, health care, alternative health care, dental, and vision costs; and health and life insurance premiums shall be authorized up to the following limits (which approximates the cost of insurance for one employee) during the years listed here, according to Councilmember position and date their term of office commences: Reimbursements shall be made only upon presentation to the Finance Director of a receipt or other evidence that the expense was actually incurred; OR 2. Medical plan eligibility. Councilmembers have the ability to join the City's self insured medical and dental plan which is offered to non represented employees. This benefit will cover only the Councilmember and not additional family members, unless the Councilmember makes separate payment for those family members. Section 2. Repealer. Ordinance Numbers 1942, 1955 and 1956 are hereby repealed. Section 3. Severability. If any section, subsection, paragraph, sentence, clause or phrase of this ordinance or its application to any person or situation should be held to be invalid or unconstitutional for any reason by a court of competent jurisdiction, such invalidity or unconstitutionality shall not affect the validity or constitutionality of the remaining portions of this ordinance or its application to any other person or situation. Section 4. Effective Date. This ordinance or a summary thereof shall be published in the official newspaper of the City, and shall take effect and be in hill force and effect on PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of 2003. ATTEST AUTHENTICATED: Jane E. Cantu, CMC, City Clerk APPROVED AS TO FORM BY: Office of the City Attorney Council Members Salary.doe 1 POSITIONS 1, 3, 5,7 1/I/02- 12/31/05 YEAR (current teen of office) and 1/1/06- 12/31/09 1 2003 1 $3,400 /year 2004 1 $3,400 /year 1 2005 1 $3,400 /year 1 2006 1 ""$4598 /year 1 2007 1 $4,598 /year ""Nero Council term commences on January 1. POSITIONS 2, 4, 6 1/1/00- 12/31/03 (current term of office) and 1/104- 12/31/07 $3,400 /year "$3,800/ year $4,180 /year $4,598/ year $4,598 /year Filed with the City Clerk: Passed by the City Council: Published: Effective Date: Ordinance Number: Steven M. Mullet, Mayor