The Columbia Association abruptly kicked village workers off its employee rolls in February 1999, because the arrangement threatened its status as a tax-exempt, nonprofit corporation with the IRS, according to sources and a confidential internal memo.
The organization's "entire non-profit status" would have been at risk if the association did not make the change, according to a memo that Deborah O. McCarty prepared for Columbia Council members in April, shortly before she resigned as president of the association.
"This did have to do, from a legal standpoint, with jeopardizing their nonprofit status," said one of two sources closely involved in the matter who spoke on condition of anonymity.
Several legal questions about the association's operations have come to light in the past 18 months, including the staff's unlicensed use of wireless radios and the failure to require employees to fill out I-9 forms, used to screen illegal aliens from the work force.
The reason for removing employees from association rolls has been kept under wraps - so much so that a Columbia councilman last week compared the matter to the search for Kennedy assassination files.
Village workers were never informed of the reason they - 10 years after they were made association employees - became employees of their respective village associations.
They were told that the reason was too sensitive to disclose at the time, but that it would eventually be revealed.
Nearly 1 1/2 years later, village workers are still in the dark.
That could be about to change.
The Columbia Council voted Thursday to seek a legal opinion on whether it can make the reason public.
For years, village workers were employees of the village associations, with the Columbia Association funding their salaries and benefits as part of the village budget.
That changed in 1989, when workers in nine of Columbia's 10 villages were made association employees.
One village, Long Reach, chose to continue employing its workers directly.
Use of services
By placing their employees under the association umbrella, the nine villages were able to take advantage of the association's administrative services for such things as payroll, human resources and accounting.
Workers could take part in the association's medical benefits and 401(k) plans.
Then, last year, an attorney for the association discovered that the arrangement might violate IRS rules for nonprofits, the sources said.
Neither source could explain what it was about the employee relationship that posed a problem.
One source described the matter as "very complicated," and both said any violation was inadvertent.
"They'd been doing something wrong for many, many years," one of the sources said.
70 employees affected
The change affected about 70 full- and part-time village workers. Critics of the move say that medical benefits and morale have suffered.
It has also made the villages more expensive to run and strained relations between the Columbia Association and the villages - the two branches that administer services for the 87,000 residents of Columbia.
Jane Parrish, village manager for Hickory Ridge, said the new arrangement costs her village $6,500 a year, in part because of the higher cost of insuring the village's one full-time employee - herself - as an individual instead of through the association's group policy.
The medical insurance premium jumped from $5,000 a year to $9,000 a year, she said.
Parrish and other village managers say they have had to hire firms to handle village payrolls and accountants to review village finances - both services formerly provided by the association.
But perhaps the sorest point has been the secrecy.
Village managers said they attributed the change to everything from problems with the association's 401(k) plan to a plot to undermine the authority of village boards.
Some thought it was a reaction to the discovery that Anne S. Darrin, the former village manager of Dorsey's Search, had embezzled about $65,000 in village funds.
She was sentenced in November to 18 months in jail.
"It ran the gamut," said Wendy Tzuker, Harper's Choice village manager.
"We would say, 'Gee, I wonder if it was the 401(k)? Gee, I wonder if it was Anne Darrin?' None of us really knew. We still don't know," she added.
One source said Columbia officials wanted to keep the matter under wraps so they would not draw the attention of the IRS.
The matter apparently has been resolved without penalty, the sources said.