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Granite Shoals Place 2 Councilor Kevin Flack (left) and Mayor Kiel Arnone each announced their intentions to resign during the City Council's special meeting on Oct. 3. Both expressed extreme discontent over the perceived 'slap on the wrist' of City Manager Peggy Smith, who they believe was negligent in managing the city’s finances for over a year. Staff photos by Dakota Morrissiey
Granite Shoals Mayor Kiel Arnone and Councilor Kevin Flack announced their resignations after the City Council voted to put City Manager Peggy Smith on a “personal improvement plan” rather than fire her for alleged mismanagement of city finances. In resigning, Flack said the city had “a mental illness.” Arnone called the council and its decision “disgraceful.”
Flack and Arnone’s resignations will go into effect after eight days or when the council accepts them during a meeting, according to Texas Election Code. Until either of these conditions are met, they will both still technically remain on the council.
The 5-1 vote followed a lengthly executive session regarding Smith’s job during a special meeting on Tuesday, Oct. 3. Arnone was the sole opposing vote, while Flack abstained.
Smith has been under fire recently for her failure to produce a balanced 2023-24 fiscal year budget and her alleged mismanagement of finances since she took over the city in June 2022. The council hired an outside finance consultant in early September to iron out the problems.
Place 4 Councilor Steve Hougen made the motion for the improvement plan.
“I move that the City Council create a personal improvement plan with strict goals and objectives with frequent performance evaluations at regular intervals for City Manager Peggy Smith,” he said for the record.
Hougen’s motion was seconded by Place 3 Councilor Judy Salvaggio, leading to the 5-1 vote. The nature of the plan is yet to be determined and will be discussed more thoroughly during the council’s Oct. 10 meeting.
“I would like to say that, for lack of a better term, this city has a mental illness,” Flack said after the vote. “Mental illnesses can be treated, but the person that is affected has to admit that they’ve got a problem and they have to be able to help themselves. I don’t think this city is capable of helping itself right now, and because of that, I will resign.”
Arnone spoke afterward, also announcing his intent to resign.
“I think this city is beyond mental illness,” he said. “I don’t see any direction this city is headed. I believe this council needs to wake up and look at the facts instead of worrying about hurting people’s feelings. This is disgraceful.”
Arnone and Flack have been expressing their concerns regrading Smith since late August, when the council discovered errors in her proposed budgets on multiple occasions. Both charge that Smith has been negligent in her management of city finances since she became interim city manager in June 2022 and city manager in March 2023. She was also criticized for not hiring a financial director after Russell Martin resigned in July 2022.
Arnone made his feelings clear with a statement issued during the council’s Sept. 26 meeting. In the statement, he listed alleged instances of negligence exhibited by Smith since she was put in charge. He also shared these concerns in an email sent to all members of the council and City Attorney Joshua Katz on Sept. 19.
Arnone claims that Smith and city staff have not reconciled Granite Shoals’ investment fund since July 2022 and that the trial balance for fiscal year 2022 did not match the audit. Also, the general fund trial balance was out of balance and no one was keeping up with a TexPool account to make sure statements matched financial software. A June 2022 TexPool deposit of $1.7 million was not recorded, and financial passwords were not secured. Interest on that account did not accrue for several months, according to reconciliation work done by finance consultant Marty Coursey.
DailyTrib.com reached out to all members of the council on Monday, Oct. 2, with questions regarding the allegations against Smith, why her budgets were rejected, why a finance director was not hired for 18 months, and who was ultimately responsible for managing the city’s finances. The only replies received before the Oct. 4 noon deadline came from Flack and Hougen. Hougen declined to comment, stating that talking “to the media would be premature at this point.”
In his response, Flack reiterated his belief that Smith’s budgets were inaccurate due to a lack of routine financial maintenance since she took over in June 2022.
“Ms. Coursey (the finance consultant) was hired because it was evident that the council had lost confidence in Ms. Smith’s ability to prepare a budget,” he wrote. “The council felt we had no confidence in the fund balances.”
In an interview with DailyTrib.com following Tuesday night’s meeting, Smith said she disagreed with Arnone and Flack’s allegations of financial mismanagement. She also stated that she made efforts to hire a finance manager throughout her tenures as interim city manager and city manager but was unable to do so until Cari Causey was hired for the position in August.
Past city leaders spoke out on Granite Shoals’ financial woes during public comment at the Tuesday special meeting.
Former Mayor Aaron Garcia, who decided not to run for re-election this spring, said he was extremely concerned over the council’s recent actions and Smith’s management.
“To the employees of this city, you are all good, hardworking people,” he said. “My advice to you would be to run as fast as you can because the people that are failing miserably at running this city do not care about you and nothing is going to change and the problems will continue to be blamed on somebody else.”
Former councilor and mayoral candidate Jim Davant also spoke.
“I will tell you one of the issues that the previous council created on its own was choosing to name Peggy Smith as the active city manager,” he said. “It created the conflict that the council dealt with last year and the council is currently dealing with. And now you see the result.”
Jeff Kahl, a former member of the city’s Charter Review Committee and current member of the city’s Airport Advisory Committee, has been a consistent defender of Smith but also had pointed words for the council as a whole.
“I’m disappointed that Granite Shoals is really looking like the butt of the Hill Country right now because we can’t get our act together,” he said. “I will blame the City Council up here.”