Report: Reed’s staff bonuses violated state constitution, city charter

A confidential investigative report obtained by The Atlanta Journal-Constitution says that former Atlanta Mayor Kasim Reed’s administration, along with the City Council, violated the state Constitution by paying roughly $800,000 in bonuses just before Reed left office in December.

The 90-page report from the Thompson Hine LLP law firm also says the Reed administration violated the city's charter by handing out the awards and probably ran afoul of the city's Code of Ordinances, although reaching an absolute determination in that area was impossible because of "vague and ambiguous language" in the ordinances.

Mayor Keisha Lance Bottoms requested the outside investigation after the AJC and other media reported on the bonuses and raised questions about the legality of the awards.

» RELATED: Ex-mayor Kasim Reed does out $500K in bonuses, gifts on way out

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“I appreciate the detailed analysis in the report, and look forward to discussing with members of the City Council additional steps that we can take to make sure that any future bonus payments are fully compliant with all provisions of the law,” Mayor Bottoms said in a statement.

The report, presented to the City Council during a closed-door executive session Monday, also describes several interviews with senior city officials, including Reed where the officials offered conflicting statements about who first had the idea for the bonuses, and who was responsible for determining if they were legal.

It repeatedly referenced the Georgia State Constitution’s gratuities clause — a provision that expressly prohibits public agencies from granting donations, gratuities and “extra compensation to any public officer, agent, or contractor after the service has been rendered or the contract entered into.”

The purpose of the clause is to prevent taxpayer money from being spent without taxpayers receiving something in return.

However, the report recommends against the city attempting to recoup the money. Instead, it urges the city to adopt stronger guidelines governing bonuses and clarify existing codes.

The investigation did not find evidence that anyone intentionally or willfully violated the law.

“The investigation has revealed no improper motives or any deliberate decision to act in an unlawful manner,” the report says. “To the contrary, the investigation has revealed that the decisions to provide the (bonuses and awards) appear to have been made to enhance the workplace morale and to reward employee performance.”

Reed said in a statement issued through a spokesman that the conclusions that the bonuses and awards violated state and city law are "debatable, a matter of opinion and represent but a single opinion."

“The sincerity and legitimacy of my understanding that the awards were proper is only underscored by the report, which does not undermine my belief that, at the time that I authorized the awards and continuing to this day, my actions were correct and appropriate,” Reed’s statement says.

While the investigation found no fault with officials’ motives, it revealed key officials to have a surprising lack of knowledge of applicable laws.

Yvonne Yancy, the city’s former human resources commissioner, for example, told investigators she was unfamiliar with the state’s gratuities clause. A 2012 memo cited by her and others to justify the bonuses had a flawed understanding of applicable city codes, the report found, and its author could not be conclusively identified.

» RELATED: Three more Atlanta department heads return controversial bonuses

» RELATED: Year-end bonuses under Reed cost Atlanta taxpayers $811,000

Although the report noted that many key players, including Reed, spoke about the need to determine if the bonuses were legal, no one consulted the one city attorney, Robert Godfrey, who was the city’s expert on employment matters.

Yancy contacted him at Reed’s request after the AJC and other media outlets reported on the bonuses in April, and Godfrey told her then that the bonuses violated the gratuities clause.

When investigators interviewed Yancy’s interim successor under the Bottoms administration, she told them it was her belief department heads did not have the power to award discretionary bonuses.

The attorneys working on the investigation for Thompson Hine included former City Attorney Michael Coleman, who is a partner at the firm. They interviewed 23 witnesses, and reviewed hundreds of pages of emails and other documents, including city and state law. The firm was authorized to bill up to $150,000 for their work.

Bonuses were ‘grossed up’

The bonuses were discovered this spring after a video surfaced on social meeting showing Reed at a holiday party in December handing out $31,000 in prizes for lip sync and ugly sweater contests and another $36,000 to people whose names were drawn out of a hat during a raffle.

But that was just a fraction of what other select employees received.

Reed awarded an additional $350,000 in bonuses to his senior staff and $42,500 to the eight members of his security detail. Four members returned their bonuses after the AJC and other media outlets publicized them.

Yancy handed out an additional $57,500 in bonuses to 11 members of her human resources staff a month before she left City Hall for the private sector, on Dec. 31.

Those awards, as well as some of the contest prizes, were “grossed up” so that city taxpayers and not the employees paid the state and federal withholdings.

Past and current members of the Atlanta City Council gave aides $54,035. The report found that those bonuses likely complied with city law, but also were given in violation of the state Constitution.

None of the awards could be tied to any retention agreement or “codified employee recognition program.”

“Moreover, it appears that none of the bonus recipients were specifically owed these payments or expected to receive them as salary, wages, benefits, other remuneration,” the report says.

The report concluded the both the administration and council bonuses were for services that had already rendered and there fore represented “extra payments” in violation of the gratuities clause.

Georgia State University law professor Caren Morrison said the violations should be seen by the public as a “big deal” because the mayor and his staff have “an obligation to behave in a certain way, to give compensation in a certain way that (is) transparent, open, subject to certain restrictions, and the didn’t follow that.”

“Disbursing hundreds of thousands of dollars as you’re on your way out the door just looks so bad,” Morrison said. “There comes a point where what can you say? What is wrong with everybody?”

According to the report, Reed took full responsibility for the payments at the holiday party and told investigators that he decided to give the gifts because his administration had been “high performing.”

But neither Reed or any of his senior staff owned up to initiating the conversation about executive bonuses.

Reed recalled that Chief Financial Officer Jim Beard, Chief of Staff Candace Byrd and Yancy came into his office in December 2017, closed the door and asked if the former mayor “had an interest in awarding bonuses to the cabinet personnel prior to the end of his administration.”

In interviews with the outside law firm, the trio recalled that a meeting took place, but couldn’t agree on what was said, according to the report.

Beard told the firm that the bonus idea originated from the “administration,” and it was not his initial idea.

Yancy said Reed first brought up bonuses with his executive team in the Fall of 2017, but the report said no other member of the executive team remembered that discussion.

Byrd said the executive team often gathered in Mayor Reed’s office and recalled that the topic of bonuses arose “organically” among Reed, herself, Yancy, and Beard.

Beard, Byrd and Yancy later received $15,000 cash bonuses that were “grossed up” to about $21,000 to cover income taxes.

Following news reports about year-end bonuses in April, former HR commissioner Yvonne Yancy texted Robert Godfrey at the request of former Mayor Kasim Reed. Godfrey was the city attorney who specialized in employment and pay issues, but he had not been consulted about the bonuses when they were conceived and awarded.

Ms. Yancy: Do you have the summary … on what provided the authority to pay bonuses. Felicia is going to say we broke the law and my old boss has asked me to write him a reply as no one in the current] (sic) admin is going to defend us. (Reference to City Council President Felicia Moore.)

Mr. Godfrey: I don't have anything. All my stuff … was on the server that is compromised.

Ms. Yancy: Am I correct that it's not illegal?

Mr. Godfrey: Not illegal but in conflict with the gratuities clause of the Georgia Constitution.

Ms. Yancy: Really? How? We've given many other employees bonuses for a variety of reasons.

Mr. Godfrey: I have opined that for additional services rendered a bonus is appropriate but that had to do with the Oracle project where folks actually did something more.

Ms. Yancy: Got it. The intent I believe was for recognition of services rendered. We've paid bonuses where nothing more happened. For example street car retention bonuses.

Mr. Godfrey: Don't know about those but the key is the extra benefit to the City beyond the employee's regular service. "Extra" is the key.

Ms. Yancy: Got it. I can articulate the benefit for each end of term bonus I compensated for I think Mayor Reed can as well. One last thing and I'll give you peace for the evening. Departments all receive in budget $$ for employee engagement. It was often used for holiday parties, etc. Why couldn't those funds be used for ugly sweater contest for example?

Mr. Godfrey: No answer to that. A gratuity is a gratuity.

Ms. Yancy: Got it. So the work bonuses fine. Holiday party bonuses not fine.

Mr. Godfrey: Not going there!

Ms. Yancy: Got it. Thank you. I appreciate your perspective.

Source: Report of Investigation, City of Atlanta, 2017 Bonus Payments

Our reporting

The AJC reported in April that the Kasim Reed administration handed out more than $500,000 in year-end bonuses to senior staff, and revised that figure to $811,000 in a subsequent article when officials disclosed that bonuses had been “grossed up” to include the expected income tax owed by the recipients. The AJC’s reporting also raised questions about whether the bonuses were legal under the state constitution and city codes, and reported when several senior officials returned bonuses. Today’s story reports the findings of an outside investigation into the legality of the awards.

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