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Fremont public money used in 'questionable' payments to officials as they resigned, state auditor says

Posted at 6:34 PM, Aug 12, 2021
and last updated 2021-08-13 18:53:17-04

FREMONT, Neb. (KMTV) — The City of Fremont issued nearly $373,000 in “questionable” payments to city officials leaving their positions, and didn’t take proper steps to approve the spending, a state auditor’s report says.

The Nebraska Auditor of Public Accounts wrote in the May report the payments were concerning because the state constitution prohibits tax dollars to be spent for nothing in return.

Three former officials, a city administrator, attorney, and director of human resources, entered into separation agreements with the city between 2016 and early 2018. In each, they released Fremont from any legal claims, according to the report and the agreements obtained in a 3 News Now Investigators records request.

The auditor’s office asked for documentation supporting the necessity “and, therefore, the legality” of the payments. But it did not get that documentation.

The city told the auditor’s office that each may have made wrongful termination claims after leaving, for different reasons, our records request shows.

“There was nothing to indicate either the gravity of those supposedly potential claims or any objective reason for taking them seriously – much less that they merited the payments,” says the letter. City Administrator Brian Newton told 3 News Now he assumes those reasons were discussed in closed session.

Fremont responded to the auditor’s report, in part: “The City presumably was advised that it was exposed to liability and that the agreements were necessary. If the City was not advised properly, that is an issue of malpractice for which the city attorney at the time should be responsible for.”

Fremont Mayor Joey Spellerberg, elected in 2020, said he appreciated the auditor’s investigation for pointing out processes that needed correcting.

“Since that time, we have a new administration, a new legal team, and have put in correct processes to make sure these insufficiencies don’t happen now,” he said.

None of the payments, for $245,000, $118,000, and $10,000, are mentioned on pre-meeting agendas. More than $200,000 of the $373,000 wasn’t documented in city council minutes after the meetings, either.

State law requires that all settlement agreements of more than $50,000 to be made an agenda item, the auditor’s letter says. Instead, agenda items for the two payments worth more than that only mentioned moves to accept a resignation, not separation agreements or payments.

A nearly $75,000 payment to Former City Administrator Dale Shotkoski was not mentioned in city council minutes, but the equivalent of six month’s salary was. The agreement puts the six month’s pay at just more than $170,000. Neither was listed on the agenda. His resignation was accepted at a June 14, 2016, council meeting. He also remained on the city’s benefits for six months after his departure.

A nearly $118,000 payment to Former City Attorney Paul Payne isn’t mentioned in the agenda and minutes for the Dec. 12, 2017, meeting when his resignation was approved. The motion during that meeting included a call to allow the mayor to “sign a separation agreement…including the payment,” despite not being mentioned on either the agenda or minutes.

Former Director of Human Resources John Hemschemeyer reached an agreement worth $10,000. State law requires all public funds to be approved by city council and documented in minutes, the auditor’s letter says. The auditor’s report says it couldn’t find that any vote was taken on Hemschemeyer’s departure. 3 News Now Investigators weren’t able to find it, either.

Fremont, in the auditor’s report, argues that the payments were approved and in minutes even though “specific settlement agreements were not voted on,” and the council was informed when it voted. Fremont did not provide comment beyond what is included in the auditor’s report. It did not clarify when the payments were approved or where it could be found in council’s minutes.

The three former city officials didn't respond to attempts to reach them.

Much of the auditor’ letter recaps a legal disagreement in which Fremont stated “public employees have more protections than the usual ‘at-will employees in the private industry.”

The auditor’s letter suggests the minutes leave open the possibility that the council itself wasn’t aware that their votes might have been understood to be an approval of the expenditures.

“These omissions in the City Council meeting minutes are concerning because they reflect either an uninformed vote – or, worse yet, no vote at all…or incomplete meeting minutes,” the report reads.

One former councilmember told 3 News Now Investigators that’s the case.

Susan Jacobus said the council did not intend to approve any payment to Payne or Hemschemeyer. She was not on the council at the time of Shotkoski’s departure.

“We were never given any terms of any agreement or any details of any kind of a payoff,” she said. “So I was surprised to see that (Payne) was given ($118,000) to leave quietly.”

She said she can’t discuss what was discussed in executive session, but she can discuss what wasn’t. She said the motion made was from a script given to council, but that the body was never given details.

3 News Now attempted to reach each member of the council present for the December 2017 resignation of Payne, who received the majority of the $200,000 not approved in city council minutes.

Michael Kuhns, who resigned from the council on Wednesday, said his memory was iffy. But he says he recalls the council was aware of the payments to Payne, Schotkoski, and Hemschemeyer. The other councilmembers either didn’t remember well enough to say, were unreachable, or refused comment.

Jacobus was the only councilmember who voted not to accept Payne’s resignation.

“I wanted to have him have the opportunity to come before the council and tell us why he left,” Jacobus said. “I thought there was more to it.”

She said the $373,000 is not an amount of money to take lightly. She said the growing city needs more fire & rescue resources and infrastructure improvements to prevent flooding on the south end.

“You want to make sure every dollar of taxpayer money is spent wisely for the betterment of the city,” she said. “This was not good use of funding.”

Jacobus said she couldn’t speculate much on what might have been different if the city council was informed.

“I know that we would’ve had more discussion and would’ve tried to find out what the commonalities were in this thread of resignations and the payoffs, and why the need to silence any of the employees,” Jacobus said.

While the auditor’s report may spark change in how Fremont handles terminations in the future, there are no legal consequences from what has already occurred, and the auditor’s officer says no further investigation is needed into these terminations.

The full auditor's letter is below. We're also publishing the agreements provided to KMTV in its records request for Dale Shotkoski, Paul Payne, and John Hemschemeyer, and some correspondence between Fremont and the auditor's office.

This story was updated on Aug. 13 to reflect the resignation of Micheal Kuhns from the Fremont City Council on Aug. 11. After 3 News Now spoke to Kuhns on the phone for this story, he did not respond to requests to interview him on camera. However, he addressed the auditor's letter when reached to speak on his resignation on Friday, after the publication of this story.

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