Dealing With Misclassification

Since it’s clear there could be an issue with the classification of the Tourism Director position as a contractor versus an employee, what’s the City to do?

The IRS provides some alternatives.  If there is still a question in anyone’s mind, the City (or the Tourism Director) could request a determination directly from the IRS, using a form SS-8.  We’ve provided a link, to simplify the process for either party.

Secondly, the City could apply to participate in the Voluntary Classification Settlement Program (VCSP). This “is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes.” The IRS states that “To participate in this voluntary program, the taxpayer must meet certain eligibility requirements and apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.”

This would at least reduce the potential impact on the citizens of five years of misclassfication, and allow the City to move forward in full compliance.  Citizens, and Nauvoo City Government can then move forward with outlining a plan for what the Hotel Motel Board should be in Nauvoo, how tourism dollars should be spent and how the Tourism Office should be funded and staffed in the future. A discussion is needed, but the full costs of any direction should be included in the planning.

This approach is also preferable to the state and federal government becoming aware of the issue, and pursuing it directly.

For additional information on Hotel Motel Tax dollars, see the article on “Using the Golden Eggs.”

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Using the Golden Eggs

Every year thousands of tourists come to Nauvoo.  Some come to enjoy the Pageants, some the Grape Festival, and some just come to enjoy all the beauty and history that Nauvoo is so blessed with.  They all spend their hard-earned money in our little shops, gas station, restaurants, and accommodations.  Last year over $100,000 was collected, just in Hotel Motel Taxes.  Thousands more was collected on behalf of citizens through sales taxes.  This is in addition to the jobs created through the products and services offered and sold here in Nauvoo.

There can be little doubt that the major economic engine of Nauvoo is tourism.  Currently, the Hotel Motel Taxes collected by the City are allocated into two funds.  One, the General Fund is for use of general spending by the City.  It pays the bills.  The other fund, which receives half the taxes collected is the Hotel Motel Fund.  This pays for the rent on the tourism office, the utilities, internet, any interns, and the Tourism Director salary and bonus.  Over 80% of all funds retained by the Hotel Motel Fund from taxes are directed to Tourism Director pay. Once all of these expenses have been paid, very little remains in the Hotel Motel Fund for anything else.

Currently the Tourism Director attends travel shows in Utah and elsewhere, attends meetings to network with other communities and tourism offices, and participates in programs to try to increase tourism to Nauvoo. If we are happy with the current direction, a case could be made that the Hotel Motel Fund needs additional money to be able to do more actual marketing, if the decision was to be satisfied that tourism is the golden goose, and we just want more eggs. An analysis of how this investment has paid off will be helpful in looking forward.

From 2013 (the first year the City employed a Tourism Director) to the last full year report available (FY2016), the salary for this position increased by a combined 33%.  The average annual increase for average Americans during these years was about 3.5% per year (per the Social Security Administration Average Wage Index). During this same period, Hotel Motel Taxes increased by 26%, with the majority increase occurring in Fiscal Year 2014. In Fiscal Year 2016, the Salary cost actually increased by more than the increase in Hotel Motel Taxes collected.  In business terms, this is not a good return on investment. It can be a challenge to determine what the Tourism Director actually receives, since the numbers we have been provided do not always agree (the published report, the City’s check register, and the Hotel Motel cash flow reports).

When a city wins the Olympic Games, one of the factors that is taken into consideration is what legacy the games will leave.  New stadiums, facilities and roads will be built.  And when the games are over the infrastructure will remain to benefit the citizens. What legacy do tourists leave in Nauvoo?  Very few businesses generate enough income in those few months to survive full-force through the rest of the year.  So, restaurants close for the winter (if they’re smart), and others businesses go to reduced hours.  Some, unfortunately do not make it at all.

So, when a decision is made about how to use these “golden eggs” perhaps legacy should be a consideration.  Tourism is a great part of the Nauvoo economy, but a clear direction, with Citizen involvement, on setting goals for the Hotel Motel Board could help to ensure broader buy-in.  Two things could happen: Tourism could be seen as a benefit to the community instead of a burden, and more citizens would feel the direction is one they had input into.  Rather than tourism being something that happens to Nauvoo, it could be something that’s helping build a more vibrant Nauvoo.

One of the points used to promote the concept of Home-Rule in Nauvoo was the idea that it would allow tourism funds to be spent to improve City infrastructure (streets, sidewalks, etc.).  This has not happened, but with a more responsible use of the funds collected, and revisiting the distribution of Hotel Motel tax funds is in order.

There will still be a need for marketing the City as a tourist destination, but a full-time salary position may not be needed as objectives are considered with citizen input. We need to rethink how Nauvoo manages its Hotel Motel Board, that’s a given.  While we’re at it, let’s build something that really helps build Nauvoo.

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Inaccuracies in City Response to Open Meeting Act Inquiry

The City of Nauvoo (in a response signed by the President of the Hotel Motel Tax Governing Board, Lee Orth) replied to the letter provided by the Attorney General Office.  The Assistant Attorney General asked the City to provide some specifics, and while they did reply, there appear to be some inconsistencies.  As noted in our response to the Attorney General’s office, we note a few of them:

The City mistakenly believes that the Open Meetings Act requires only 48 hours notice for rescheduling a meeting as they did on April 24th.  In fact the statute clearly requires 10-day notice, and publishing in the paper of record, not just posting notice at the post office.

(5 ILCS 120/2.03) (from Ch. 102, par. 42.03)
Sec. 2.03. In addition to the notice required by Section 2.02, each body subject to this Act must, at the beginning of each calendar or fiscal year, prepare and make available a schedule of all its regular meetings for such calendar or fiscal year, listing the times and places of such meetings.
If a change is made in regular meeting dates, at least 10 days’ notice of such change shall be given by publication in a newspaper of general circulation in the area in which such body functions. However, in the case of bodies of local governmental units with a population of less than 500 in which no newspaper is published, such 10 days’ notice may be given by posting a notice of such change in at least 3 prominent places within the governmental unit. Notice of such change shall also be posted at the principal office of the public body or, if no such office exists, at the building in which the meeting is to be held. Notice of such change shall also be supplied to those news media which have filed an annual request for notice as provided in paragraph (b) of Section 2.02.
(Source: Laws 1967, p. 1960.)

Since Nauvoo does have a population in excess of 500 people, the three location posting is insufficient.

There were other issues with the City’s response, which can be reviewed by reading our response to the Attorney General’s Office.  We are still waiting on the Attorney General opinion of how the Hotel Motel Board functions in Nauvoo, but it is safe to say that however it goes, major changes are in order for the Hotel Motel Board of the City.

 

 

 

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Nauvoo City Municipal Code Available Online

In response to a FOIA request, the City of Nauvoo has provided a copy of the current Municipal Code.  It is being reviewed for completeness, but has been placed on openNAUVOO while we are reviewing it.  It was provided as a paper copy, and was scanned by openNAUVOO.

This is the first time the Nauvoo City Municipal Code is available to every citizen without a need for a formal request, or being required to explain why it is needed.  We’re glad to provide it here.

 

 

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School Board Failed to Notify Public

A significant element of the Open Meetings Act is the requirement that public bodies notify the public of what will be discussed at meetings, prior to the meeting actually being held.  The notification requirement is 48-hours in advance to provide sufficient time to review agenda items and allow citizens to participate in a meaningful and informed way.

The Nauvoo-Colusa School Board meeting scheduled for tonight (15 May 2017) does not have an agenda posted at the place of meeting (the school), or on the website. A notification has been provided to the School Board of the violation, and the legal requirement to either reschedule the meeting (and advertise it in the newspaper 10 days in advance), or postpone until the next scheduled date on the annual calendar already distributed.

We expect one item of consideration will be the discussion of the failure of the sales tax to pass, so this is a particularly important meeting. But, without an agenda available, it’s hard to say.  Once we have an agenda in hand, we will post it for everyone to decide.

 

UPDATE: The School Board posted the meeting sometime in the day on the website.  It did not meet the 48-hour requirement for public notification of the agenda, but a call to Michael Siegfried was returned, and he was made aware.  Thanks go out to the School Board President.

The decision was made to proceed with the meeting. We will update the openNAUVOO site once we have made a determination how to proceed.

 

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Moving Forward

We have made several public statements, here, on facebook, and in the community, saying that we choose to believe that once Citizens have access to information, they will begin to be more involved, and to have informed input to offer.

While we do not have all the information we have requested, we’re on our way.  The wheels are in motion with the Attorney General’s Office, the Circuit Court, and the State’s Attorney and others, and I have confidence that the end result will be getting the documents we have requested.  We then move on to transparency, education, and accountability.  This will be an ongoing effort. We will continue to request information from the City and others.

But, we now have enough information to begin to make some changes.  We know enough in many areas to begin to have our voices heard.  Applying what we are learning about Nauvoo City Government to make improvements is critical to moving forward. It’s time to start thinking about solutions.  It’s not enough to point out problems, we need to learn lessons, and fix problems.

As we have started this work, it has been the encouragement from citizens all around Nauvoo that have keep us going.  The calls, emails, texts and conversations from people in Nauvoo has been the fuel to continue.  Effective today, we have begun assembling a group of openNAUVOO Advisors.  The climate in Nauvoo is not open enough at this stage for people who want to be involved to do so publicly, but you will begin to see their effect this week.  They are all individuals who feel that Nauvoo City Government needs to be open and accountable to Citizens, and will help to bring a broader voice to openNAUVOO.  They bring broad experience.  Some are long-time Nauvoo residents, others bring new energy and insight.  They cover the broad range of backgrounds and beliefs.  My hope is that, as the climate improves in Nauvoo for public discussion, they will choose to identify themselves.  For now, I understand.  The personal attacks have been a daily occurrence for us, so some anonymity on their part will be an understandable thing for a time.

We have been accused of creating division in Nauvoo.  And, upon reflection, I agree. There is a clear division between those who want to have City operations be open and transparent, and those who do not.  The former will win the day, I am confident.  And now that the responsibility is being shared by many, many citizens, we will move forward with increased energy and excitement.

As information is finally made available to us, the Citizens of Nauvoo, there will be more questions, that is certain.  We will continue to provide analysis and context, and to demand accountability, but we hope also to be able to suggest solutions. There will be articles appearing every day this week that apply the lessons we have learned, through our investigations, to real solutions.   This will bring discussion and dialog.  Liberty can be a messy thing. There will be disagreement on how to move forward, and what needs to change.  With broad access to information and an opportunity to participate, we hope for engagement. You will often not agree with the suggestions being made…Good! That is one thing about an informed citizenry, they often disagree.  But the process of public discourse brings about the best solution.  The defense of ideas in a legitimate debate strengthens them.  Personal attacks, inflexibility and defensiveness will just ensure we keep doing what has been done for years. Education, information, dialog, respect and discussion will prevail.

What will unify Nauvoo is a common interest in moving forward. What openNAUVOO will do is provide a platform for this participation, and a forum where these ideas can be discussed in the open, for all to see.

 

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Tourism Director Misclassification Could Cost Nauvoo Big Bucks

Any organization that has employees, whether the enterprise is for profit, not for profit or a government agency, is under increasing pressure to cut costs while at the same time it faces rising expenses for employee benefits. (See the National Employment Law Project’s Fact Sheet: Independent Contractor Misclassification)

One way to reduce the benefits expense is to use more independent contractors, who are not paid medical and insurance benefits that are expected for employees. Classifying a worker as an employee is an expensive decision, which makes the independent contractor route more attractive. But is that person really an independent contractor?

Inappropriately classifying workers as contractors to save the costs of associated benefits is an issue that is receiving increased scrutiny. A review of documents received through our Freedom of Information Act requests (check registers, meeting minutes, employee salary reports) has led to a concern about the employment classification applied to the Tourism Director position.

The IRS says that anyone who performs services for the City is its employee if it can control what will be done and how it will be done. This is so even though the employee is given freedom of action. What matters is that the City has the right to control the details of how the services are performed. For the Tourism Director, this is evident by the monthly Hotel Motel Governing Board meetings where a report is provided, and the board approves the actions of the Tourism Director, and makes assignments.  This is also the case in the Monthly City Council meetings where the Tourism Director (Kim Orth) provides a report which is reviewed, and formally approved by the City Council. Further, a review of the contract with the President of the Hotel Motel Tax Governing Board (although we could not obtain a copy), showed the Tourism Director receiving annual bonuses equal to 50% of the year-to-year increase in Hotel Motel Tax Revenues, as well as outlining specific areas where performance would be evaluated.  We look forward to receiving a copy of the contract (per our outstanding FOIA request of 27 February 2017) to do a more detailed evaluation of it.

For the purposes of Social Security and Medicare Taxes, the IRS provides clear guidelines:

The City is to withhold Social Security and Medicare taxes from the wages of statutory employees (even those that may not be considered employees based on other criteria) if all three of the following conditions apply.

  1. The service contract states or implies that substantially all the services are to be performed personally by them.
    • The Tourism Director contract specifically identifies a single individual providing all services, and only the Tourism Director reports on these activities. When other individuals are utilized, they are compensated separately (as Nauvoo City Employees), as in the case of Interns, or are volunteers coordinated by Hotel Motel Board members.
  2. They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
    • The City pays the rent, utilities, travel and other expenses related to the tasks the Tourism Director performs.
  3. The services are performed on a continuing basis for the same payer.
    • The city issues checks on a bi-weekly basis for salary, and annually for bonuses.  As well as frequently for reimbursement of expenses.

Another area of the relationship that leads to an individual being classified as an employee is duration of the work.  The IRS typically finds that those who work for a long period, as opposed to on a project basis, are employees.

What Can It Cost Us?

The following chart can help illustrate the costs the City (and consequently the Citizens) could incur with the Federal Government by misclassifying this position. It does not include additional penalties by the State:

DESCRIPTION OF PENALTIES & FEES AMOUNT
1. W-2 Penalty: $50 for each Form W-2 that wasn’t filed $50
2. Wage Penalty: Estimated gross wages for misclassified employee x 1.5 $60,477
3. Social Security and Medicare Tax Penalty: 
This penalty requires employers to pay 40% of the Social Security and Medicare (FICA) taxes the employee should have paid, plus 100% of the matching taxed the employer should have paid.
a. Social Security Employee Portion: Total estimated gross wages for misclassified employee x 6.2% $2,499
b. Medicare (FICA) Employee Portion: Total estimated gross wages for misclassified employee x 1.45% $584
c. Social Security & Medicare Employer Portion: Total estimated gross wages for misclassified employee x 7.65% $3,084
Total (a) + Total (b) + Total (c) x 40%
Note: The cap on taxable wages for social security is $118,000, so the max Social Security employee portion is $118,000 x 6.2%= $7,316. This would apply below as well.
$2,466
 4. Failure to Pay Tax Range:
a. Low End of Range: Wage Penalty (total from 2 above) + Social Security and Medicare Tax Penalty (total from 3 above) x number of months the employee was misclassified x .5% $37,765
b. High End of Range: Wage Penalty (total from 2 above) + Social Security and Medicare Tax Penalty (total from 3 above) x number of months the employee was misclassified x 25% $188,829
 ESTIMATED TOTAL POTENTIAL FEDERAL PENALTIES
(add totals from items 1 – 4 above)

$100,698 – $251,762

Note: If the IRS suspects fraud or intentional misconduct, the City could be looking at additional fines and penalties – including as much as 20 percent of the worker’s wages and 100 percent of the FICA taxes (both employee’s and employer’s portions). There’s the possibility of criminal penalties and imprisonment as well.

It will now be up to the Internal Revenue Service, Social Security Administration, and others to determine the correct classification of this position and whatever penalties may be incurred.

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Nauvoo City Named in Court Complaint

Today is a significant day in the progress of opening the operations of Nauvoo City government to all citizens.

In light of the fact that several recent requests (April 10, April 12, and April 18) have still not received any of the requested documents, a Complaint was filed today in the Hancock County Circuit Court.  Every one of these requests has exceeded the five days required.  This is in addition to the February 27 request which still has many documents that have been denied, ignored or lost (but is not included in this case). That request has resulted in a significant amount of Attorney General attention, and should generate an opinion with major importance to Nauvoo City government and how it operates.

Our Complaint seeks a “declaratory judgement” and “injunctive relief”.  This means that we have asked the judge to consider the facts and inform Nauvoo City government that it must comply with our rights as citizens and follow the law.  And, that once it has considered the impact Nauvoo City government’s actions have had on our rights, that it order the City of Nauvoo to provide all the information it has refused to provide.  Injunctions are sought, and awarded, when a monetary award alone cannot compensate for the wrong. If the City simply paid a fine, and still didn’t provide the requested information, the wrong would not have been corrected.  We do ask the judge to award us the costs of taking this action (court costs and fees for service, etc.), and whatever other relief the Court feels is fair.

It has taken hours and hours of our time to get to this point. When any request has been sent to the City, or a reply to any of their questions has been provided, the City consistently uses every single day they feel the law allows, even if the answer provided is that they will NOT provide any information.  How long does it really take to say they’re NOT going to do something?  For the City of Nauvoo, it takes five days (unless the State allows them ten).

Our hope is that this will be the push the City needs to begin to comply.  There continue to be claims of how many hours the City has spent complying with requests we have submitted.  That’s false.  They have spent very little time complying.  They have spent hours and hours not complying.  They claim it has occupied their time and is preventing their getting necessary work completed, and yet they have not sent a single document from these three requests.  Not a single invoice, meeting agenda, copy of minutes, ordinance or resolution.  We will be posting a summary of all the documents that are being denied, and why it is important. Every one has come as a result of a statement made by the Mayor or other City Official.  When a claim is made, we simply want to see if it’s true.

The City of Nauvoo now has 30 days to respond to the Summons that is being served in relation to this case.

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Nauvoo City May FOIA Request Answered

We were pleased to receive a response to our 1 May 2017 FOIA request for the meeting agenda and minutes for the Hotel Motel Meetings conducted in February 2017 and March 2017 today.  The responsive documents are now being reviewed, but are available to all citizens here in advance of our review.  This request was the last one submitted, and was mailed to the City on 1 May 2017.  The City FOIA Officer states they received it on 3 May 2017 and responded to today.

While we are still waiting on several previous responses, we thank the City’s FOIA Officer for the quick reply to our most recent request.

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Nauvoo City Attorney Bill: $5,000 to Avoid Providing Requested Documents

The bill for legal services provided by the City Attorney has reportedly exceeded $5,000.  In an attempt to restrict access to the Tourism Director Contract, Invoices (for purchases from Outlaw Tee’s, Rhino Industries, and other non-bid services), City Council Meeting minutes, City Ordinances, Receipts, etc the City has utilized the services of the City Attorney, resulting in significant fees.

The City has appointed a FOIA Compliance Officer and Deputy.  Training is required by the FOIA Officer and Deputy, and was presumably completed.  “The FOIA officer’s responsibility is to receive FOIA requests from the public and to send responses in compliance with FOIA.” These are the instructions provided by the Attorney General’s Office. There is no requirement to get an opinion from the City Attorney prior to doing so.

A review of the Freedom of Information Act restrictions would have shown that none of these documents fall under the category of restricted information.  A call to the Attorney General’s Office to clarify would have been free (we’ve done so dozens of times to ensure we were only requested appropriate documents).

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