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Saving Face 

Before BT, Burlington's moneyman had a rep for frugal financial management

Recent headlines have acquainted many Vermonters with the “bad” Jonathan Leopold. He’s the one who, as Burlington’s chief administrative officer, misappropriated $17 million in taxpayer funds to float municipally owned Burlington Telecom when the financial markets capsized in 2008. Some parties have even suggested he is guilty of malfeasance.

Fewer are familiar with the “good” Leopold. Once widely regarded as a financial wizard, he’s the one who has saved those same taxpayers millions of dollars through conservative stewardship of Burlington’s budget.

Leopold has been around almost as long as the Progressives have been in power. A year after becoming mayor in 1981, Bernie Sanders appointed him city treasurer. Leopold established and enforced the new administration’s taut fiscal policies. He made a lasting impression on some in city hall for the way he rejected funding-increase requests: using stationery on which he had crossed out the name of his predecessor, Lee Austin, and penciled in his own.

“It was a message within a message,” recalls George Thabault, then a close Sanders adviser. “Jonathan was being sort of Zen.”

Nearly three decades later, Leopold is still inclined to veto spending for equipment upgrades — unless it can be shown that the proposed investment will pay dividends for the city and its taxpayers.

Apart from his disastrous handling of Burlington Telecom’s deficit, Leopold’s conservative management of the city’s finances has made Progressives look fiscally responsible. Far from behaving like reckless radicals, they have placed a priority on delivering city services dependably and efficiently while capping taxes for working people — who happen to constitute an electoral majority. This “sewer socialism,” developed by Sanders’ ideological forebears in the upper Midwest, has made the Burlington Progs eminently electable — and reelectable — these past 30 years.

But the local leftists’ commitment to fiscal moderation began to erode late in the era of Peter Clavelle — the Progressive-backed mayor who followed Sanders. Driven partly by hefty payouts for health care and workers’ compensation claims, the city’s budget was growing at what Leopold describes now as an “unsustainable” rate of close to 6 percent a year. The municipal workforce had also been expanding, even as tax receipts were stagnating. Simultaneously, the retirement fund for city employees was slipping into critical condition.

Burlington’s finances “were in pretty dire straits” when Bob Kiss became mayor in 2006, Leopold remarked during a two-hour interview in his city hall office last week. It was the challenge of rebalancing Burlington’s ledgers that, he says, led him to accept Kiss’ invitation to return as the city’s money maven. Leopold had left city government shortly after Sanders did, in 1989. The Buffalo, N.Y., native and University of Vermont grad spent the next 16 years working as a financial and management consultant, making considerably more than the $83,444 a year he currently earns as the city’s chief administrative officer.

Leopold has largely met the challenge he returned to confront — even his sternest critics concede as much. Due to management reforms and thrifty practices recommended by the chief administrative officer and approved by the mayor, the Kiss administration is moving toward the goals set by a tripartisan city council “super committee” established in 2005 to address Burlington’s budgetary disarray.

Leopold fluently recounts that progress with a ready recall of most of the numbers and a detailed analysis of complex financial issues. The motorcycle helmet lying on his office chair contrasts intriguingly with his professorial manner.

The net effect of the discipline imposed by Leopold is that the city’s “rainy-day fund” now contains $4.6 million, compared to less than $1 million when Clavelle left office. As another key achievement, Leopold notes, the city’s operating expenditures are now increasing by less than 2 percent a year — about one-third the rate that was in effect five years earlier. And Burlington’s non-school workforce has actually shrunk, Leopold adds, from 406 employees in fiscal 2004 to 395 last year.

“Fundamental to balancing the fiscal 2010 budget was avoiding increases in health insurance costs,” Leopold says. That was accomplished in part through what he describes as “a meaningful wellness program — not the kind where they hold a fair and hand out water bottles once a year.” City employees are “strongly encouraged” to get annual checkups and to take advantage of workplace workout opportunities, Leopold notes. Municipal workers must also pay 3.5 percent of their salaries toward the cost of health insurance.

The city budgeted $7.4 million to cover the cost of health insurance last year, but it had to pay only $6.9 million. Health-related costs to the city have meanwhile risen 3.9 percent during the previous 24 months. Leopold terms that performance “outstanding” in comparison to a national health care inflation rate that typically tops out in double digits. Savings have accrued, he says, from “aggressive negotiations” initiated with both Cigna and Blue Cross Blue Shield of Vermont in 2007 after the city put its health insurance contracts out to bid for the first time in 15 years. Burlington applied the leverage it enjoyed over the Blues at a time when the nonprofit Vermont insurer was scrambling to avoid a financial crackup of its own.

Kiss and Leopold have similarly introduced stricter safety measures and case-management techniques to soften the financial impact of workers’ comp claims. Preventive initiatives have been tailored to jobs, such as police dispatcher, that involve the highest number of repetitive-motion injuries and stress-related health problems. The city also monitors rehab regimens to ensure that injured workers are healing — and returning to work in a timely manner, so as to minimize costs associated with hiring replacements, Leopold explains.

The city employees’ retirement fund has proved particularly nettlesome, he says — not least because the 2008 earthquake in equity markets caused massive damage to the fund’s assets. The city did manage to save $350,000 by switching management of the fund’s investments to the state system — a move, Leopold says, that “gave us access to higher and more stable returns.” The Kiss administration has also sued Morgan Stanley in an attempt to recover $21 million in losses to the retirement fund that were due mainly, the suit claims, to hidden fees and commissions in an account that the Wall Street investment house had recommended.

Property taxes had to be increased to cover some of the retirement fund’s shortfall — and may have to go up again for the same reason, Leopold says. The fund’s condition is more stable today, however, than it was five years ago, he maintains. Jim Strouse, chairman of the board overseeing the city retirement system, agrees with that assessment. “Are we out of the woods yet? I don’t think so,” Strouse comments. “Are we heading in the right direction? I think we are.”

Leopold is “a tough guy” on budgetary matters and in negotiations with city employees and their representatives, Strouse says admiringly. “He extracts from people all that they need to give.”

While restraining spending, the Kiss team has also been raking in more revenues. A crackdown on tax collections from businesses has resulted in a rise in gross receipts, from $1.8 million in fiscal 2006 to $2.2 million in fiscal 2009. A new policy of making bars’ and restaurants’ licenses contingent on paying whatever taxes they owe has fattened the city’s coffers “during the worst recession any of us can remember,” Leopold points out.

Stringent financial policies have, meanwhile, enabled Burlington to begin making capital improvements that had been deferred due to budgetary troubles, he adds. Leopold cites the $400,000 in repairs to both sets of steps at city hall, along with remediation of “critical issues” at Memorial Auditorium. Timely investments in infrastructure actually save the city money by preventing breakdowns that would cost millions to fix, Leopold notes.

Until the BT mess badly tarnished his reputation, Leopold’s handling of city finances earned him accolades from diverse points on the local political spectrum. He was frequently referred to as “brilliant” — and still is, in some quarters.

Craig Gutchell, a Republican former city councilor from the New North End, declared during the 2009 mayoral campaign that Leopold had handled Burlington’s budget skillfully. Does Gutchell still think so?

“Yes, I think he’s done a good job. I’ve found Jonathan to be straightforward and honest. I’m very hesitant to judge anyone on a single issue” — meaning BT, in Leopold’s case — “and so I think he’s done a lot of good things,” Gutchell says.

Democratic City Councilor Karen Paul, a private-investment manager, finds that Leopold “presents details in a cogent, intelligent way that’s hard to argue with.” The BT imbroglio has heightened skepticism about everything he says, Paul adds, but annual independent audits of the city’s books “do confirm what he’s saying.”

Leopold’s lingering appeal across party lines is enhanced by his own avoidance of petty partisanship. He’s no ideologue, as he pointed out to Sanders in a 1982 job interview. “Bernie was disappointed when I told him I wasn’t a socialist,” Leopold recalls, “but I did say I thought we had the same agenda.”

Leopold’s political views are solidly liberal, but management philosophy encompasses what may be his strongest set of convictions. “The common wisdom is that the private sector can do things better than the public sector,” he says. “But I don’t believe that has to be so. The city can be run as prudently as any private business.”

While Leopold may not be politically zealous, he’s keenly attuned to political nuance. Despite the budgetary dishevelment he says he and Kiss inherited from Clavelle and then-treasurer Brendan Keleher, Leopold dances away from invitations to criticize the previous administration. “I’m not going to second guess,” he demures. And he’s quick to laud Clavelle for engineering voter approval of a 1 percent local sales tax. “That was an essential component in rebuilding the city’s finances,” Leopold says, adding that the former mayor also deserves credit for winning benefits concessions from city workers’ unions in the course of “very difficult” negotiations.

Leopold is equally cautious in describing his political relationship with Kiss. The CAO has widely been viewed as the financial brains behind a hollow throne. And one city employee suggests that the mayor’s passivity has allowed the self-confident Leopold to operate as a virtual fiscal free agent — for better and for worse. During the Sanders years, Leopold was surrounded by a coterie of strong personalities; today, this employee adds, “There’s an absence of forces that — who knows? — might have helped avert the BT disaster.”

For his part, Leopold applauds the mayor for establishing a citizens’ budget task force that served, partly, to provide political counterweight to interest groups intent on defending services perceived as vulnerable to the administration’s austerity ax. “Every item in the city budget has its own constituency,” Leopold observes. It’s been no easy feat to slow the growth of city spending while leaving services untouched, he adds.

“My role is to make recommendations and help manage the policies the mayor approves,” Leopold says in response to a question about who’s really in charge at city hall. “All that’s been accomplished would not have been possible without the support and leadership of the mayor and the city council.”

Isn’t that a little too self-effacing from a man occasionally described as an egomaniac? “It’s not false modesty,” Leopold insists. “I don’t see myself as indispensable.”

At the same time, he’s not about to dispense with his work as CAO. Leopold, 60, says he wants to remain in the job in order to continue addressing what he identifies as his two main challenges: the city retirement fund and Burlington Telecom’s finances. “These are jobs I’d rather finish up than leave undone,” he says.

What about the stress? “You get used to it,” Leopold replies. And throughout the interview, he exhibited a degree of ease perhaps unexpected from someone subjected to relentless attacks for the past six months.

But unless BT experiences a near-miraculous turnaround in its finances, Leopold’s legacy may be ineradicably stained.

“I can’t separate BT from what he’s done overall,” comments Yves Bradley, a broker with Pomerleau Real Estate. “BT triggers questions about what will happen with the Moran Plant. It casts doubt as to where the city can go from here.”

Harlan Sylvester, a semiretired vice president at Morgan Stanley Smith Barney and still a Democratic Party power broker, agrees that what happened to BT overshadows all that Leopold may have achieved. “You obviously can’t separate it, when the city’s credit rating drops two notches,” Sylvester says.

But not all faith has been lost in Leopold’s financial acumen. Even while deploring his role in BT’s near-bankruptcy, Bradley adds, “I’m not saying Jonathan can’t get us out of this.”

The Money Issue

It's not keeping us awake at night, like it was last year, but money is always an issue. The last 28 months have been an endless lesson in short selling, credit default swaps and underwater mortgages. Are we any smarter as a result? Let's hope. In that spirit, our Money Issue underscores financial matters in Vermont, where Mark Young lives in the bank he owns in Orwell. Meanwhile, in Montpelier, National Life's bond-trading floor is as close to Wall Street as you can get. Burlington sure could use some of those billions. Kevin Kelley analyzes the city's moneyman, Jonathan Leopold, whose frugality rep is now in question. Along those lines, we've included three budget-stretching stories: Ken Picard offers up his coin collection for evaluation; our food writers compare cheap-eating strategies; and Alice Levitt blows $20 at South Burlington's new Goodwill store.

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About The Author

Kevin J. Kelley

Kevin J. Kelley

Bio:
Kevin J. Kelley is a contributing writer for Seven Days, Vermont Business Magazine and the daily Nation of Kenya.

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