Amid scandal, Stonecrest makes changes to bolster financial oversight

This is a screenshot from Stonecrest's regular meeting on April 26.
Caption
This is a screenshot from Stonecrest's regular meeting on April 26.

Credit: City of Stonecrest

Oversight is a hot topic in Stonecrest, where a recent investigation found evidence city employees mismanaged $6.2 million in federal coronavirus relief funds.

Eight employees contracted through a third-party staffing company were fired, and there are calls for Mayor Jason Lary to resign. Last month, City Council hired a new city manager and finance director to keep a closer eye on the city’s finances, and they’re considering hiring more in-house employees.

“We didn’t have the oversight that we should have had from our own staff because we didn’t have any,” Councilman Jimmy Clanton said Thursday. “We didn’t anticipate this type of problem, so I think we’re set on a different course after the fact.”

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Nearly every city that has formed in metro Atlanta over the past 16 years has relied on Jacobs Engineering, a Dallas, Texas-based company that provides staff to work in city governments. Usually, those cities slowly begin to hire their own employees, weaning themselves from Jacobs. The finance department is typically among the first to move in-house, if it was ever outsourced to begin with.

“We didn’t want the fox watching the henhouse,” Johns Creek Mayor Mike Bodker said. His city initially hired Jacobs to staff nearly every city job except for the finance department for the sake of oversight.

For now, Stonecrest will continue to rely on Jacobs for most staff positions. Clanton said the council will discuss hiring other city department heads but ensuring independent control of the city’s checkbook was their first priority.

“We call them ‘rent-a-city’”

Since Stonecrest’s founding in 2016, contracted employees have run the DeKalb County city, mirroring a privatized government model pioneered — and abandoned — by Sandy Springs. The north Fulton County city, founded in 2005, is credited with embracing privatized government at a scale previously unseen. For more than a decade, the only city employees who weren’t contracted were its elected officials.

Every city that followed in the Atlanta area, with the exception of South Fulton, adopted a similar model and hired Jacobs, previously known as CH2M. South Fulton Mayor William “Bill” Edwards said he wasn’t interested in hiring a company to do a government’s job.

“We call them ‘rent-a-city,’” he said, speaking of Jacobs. “They would take over these cities and then they would run the cities for them. We just didn’t like that model.”

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Most new city leaders disagreed, citing the difficulties in hiring dozens of employees while setting up a city’s foundation.

“A lot of the people who came to us from Jacobs had experience in other cities, and that was part of the point,” Tucker Mayor Frank Auman said. “They brought us immediate expertise.”

With offices across the U.S., including one in downtown Atlanta, Jacobs has roughly 55,000 employees. The company has an estimated market value of $14.5 billion.

Jacobs contracts with most metro Atlanta cities, whether that be completely running Stonecrest, staffing single departments or other one-time projects. This includes South Fulton, which has Jacobs staff its public works department. Despite concerns over the Stonecrest investigation, the Atlanta City Council also recently approved a contract with Jacobs for watershed projects.

Jacobs has called the Stonecrest allegations “abhorrent” but didn’t answer specific oversight questions. In a statement, Jacobs said oversight structures vary by contract, but the company is “committed to conducting business with integrity and according to the highest ethical standards,” citing its Codes of Conduct.

Weighing costs and benefits

Tucker, like Stonecrest, started off fully staffed by Jacobs, but they’ve slowly decreased the scale of their contract. Auman said the city, founded the same year as Stonecrest, is on its 10th version of its Jacobs contract. He estimates that less than half of the city’s employees are currently outsourced.

“I think everybody knows going in the point is to help us get out of the box quickly with professionals by our side and do all the things to get established,” Auman said. “Then as we’re either proficient and able and confident that we can handle certain functions ourselves, or as it become financially advantageous to do so, then we modify the contract and hire directly for the city.”

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Sandy Springs leaders touted the success of staying as outsourced as possible but began to evolve their philosophy in 2011. Instead of solely using Jacobs, the city opted to use multiple different companies.

The tide changed in 2019, when Sandy Springs backed away from the privatized model and hired more than 100 in-house employees to save money. Several other metro Atlanta cities, including Tucker, saw similar savings.

“In the business world, it’s commonplace to use contractors or temp employees,” Auman said. “It’s a more expensive way because obviously that contractor is earning a margin.”

Sandy Springs saved nearly $5 million by hiring its own full-time staff for nine departments, including three that used to be staffed by Jacobs’ contractors. City spokesman Dan Coffer said Sandy Springs plans to stick with its current model as long as it continues to realize those savings.

Savings in Sandy Springs
These are the 2019 bids that Sandy Springs received from contractors in comparison to how much the city paid in-house last year to provide the same service. In total, the city saved more than $4.6 million.
City of Sandy Springs

Contracted work can bring benefits that justify the extra cost. For public works departments, contracting those services means cities don’t have to purchase their own equipment.

“When there is snow on the ground (in Johns Creek), we are one of the few cities that our roads are cleared within 24 hours,” Bodker said. “Why is that? Because if they’re not, the contractor is fired.”

Auman also said contractors alleviate periods of turnover.

“If we have somebody leave, Jacobs can replace them right now,” he said. “We don’t go into a long interview process and all that kind of thing. That’s their job to make sure that we’re fully staffed all the time.”

Contracts on contracts

Jacobs sometimes uses subcontractors to help staff cities. While finance departments are typically the first to be brought under a city’s direct payroll, subcontractors are usually next.

This complicated employment structure was present in Stonecrest. At least three who were fired amid the CARES Act investigation were Jacobs’ subcontractors. They included Clarence Boone, economic development director, William Settle, business development director, and Al Franklin, director of community outreach and cultural affairs.

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All three were employed by The Collaborative Firm, a company established by former Fulton County Commissioner Michael Hightower, and assigned to Stonecrest by Jacobs. Hightower was sentenced to prison time in 2000 after being caught in a bribery scheme.

“The actions of the employees as alleged in the city attorney’s report are deplorable and do not represent the high ethical standards of The Collaborative Firm, which was completely unaware of these activities,” a company statement said.

Bodker said there’s pros and cons to both models of government employment but neither version has a higher risk of government corruption. The key is a lack of checks and balances.

“It’s certainly harder to collude between two different parties,” he said. “So for control purposes, I felt it was smarter to have finance in-house if other functions were going to be out of house.”

Auman agreed, adding that bad intent sometimes can’t be avoided: “If you’re going to be corrupt, it probably doesn’t matter who is paying your salary.”

Winston Denmark, the city attorney for Stonecrest, is continuing his investigation into the city’s CARES Act program, which is expected to include an upcoming audit.

“I think the investigation at this point is in good hands,” Clanton said.

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Our Reporting

In early 2021, The Atlanta Journal-Constitution documented the dysfunction between Stonecrest city leaders, including action by the state Legislature that changed the city’s charter and power structure. When City Council members raised finance questions about pandemic relief funds, the AJC took notice and began filing open records requests.

The AJC worked to obtain documentation, conducted interviews with people involved and tracked how the money was spent. Our reporters were the first to break down the findings of the city’s investigations and lay out the complex network of connections between those involved in the alleged scheme.