Two Long Beach, New York, police officers who retired this year are being paid a combined $1.1 million for accrued time off. That’s equal to an almost 4 percent tax increase for the New York suburb’s 36,000 residents.
The city manager, Jack Schnirman, facing a $10 million deficit and borrowing costs that have tripled, said he wants to cap such payments. From California to New Jersey, where Governor Chris Christie calls them “boat checks,” such deals are under assault by officials who say the perks are driving up costs to taxpayers and can no longer be justified.
“Terminal payouts are an aspect of a system that needs to be reformed,” said Howard Cure, head of research at New York- based Evercore Wealth Management LLC, which manages $3.2 billion. “There is nothing illegal about what these employees are doing. It just seems abusive, especially when compared with the private sector.”
Almost three years after the end of the longest recession since the Great Depression, states and municipalities are still struggling to balance revenue with spending, including costs such as pension obligations and terminal-leave payments. Tax collections in the fourth quarter of 2011 grew at the slowest pace in a year, the Census Bureau said in March.
Investors are betting the liabilities won’t overwhelm municipal finances. The $3.7 trillion market has earned 4.1 percent this year, beating the 0.7 percent advance for Treasuries and the best start to a year since 2009, according to Bank of America Merrill Lynch data.
Minnesota Eyes Curbs
Minnesota lawmakers are considering a measure that would prevent state and local workers from accruing more than 160 hours of paid time off. The bill was introduced after the St. Paul Pioneer Press reported in November that state employees were paid $57 million for unused sick time and $32 million for accrued vacation time from January 2008 through June 2011.
In New Jersey, 428 municipalities face liabilities of more than $825 million for accumulated sick and vacation days, which would cost an additional $250 for every property taxpayer in the state, according to the office of Christie, a Republican.
Unions already feeling the pinch from wage freezes, furloughs and other cost-saving measures may resist giving up the perk at the negotiating table, said Stephen Madarasz, a spokesman for the Civil Service Employees Association, New York’s biggest public-worker union.
“If you’re looking at changing something like this that’s a longstanding practice, that’s harder to do,” he said.
When Stockton, the central California city trying to avert bankruptcy, suspended termination checks in February, it was sued by its police union. City Manager Bob Deis, who invoked power under the city’s 2011 financial-emergency declaration, announced the payment halt in a Feb. 24 letter to city employees.
“Any new surprise may push us into insolvency or uncontrolled default,” Deis wrote.
Last month, a San Joaquin County judge ruled in favor of the city.
Chicago is negotiating with its unions after Democratic Mayor Rahm Emanuel temporarily froze payouts for the third- largest U.S. school system in February. The move followed a Better Government Association report showing $265 million in leave disbursements were made to 19,000 employees since 2006.
Among the payouts was $50,000 in vacation compensation for departing schools chief Arne Duncan, according to the Chicago- based watchdog group. Duncan left after nine years to become President Barack Obama’s education secretary.
“People should take a good hard look at whether or not that policy makes any sense and whether it should be kept in place in these tight budget times,” Duncan said through an Education Department spokesman in Washington, according to the association.
The school board has since approved a policy that applies to new nonunion employees and stops sick days from carrying over year to year, according to an e-mailed statement. Previously, workers could bank as many as 325 sick days, the equivalent of 16 months, if they had worked at least 20 years. Vacation-day accrual is capped at 30 days, compared with 66 before.
The New York City suburb of Nassau County on Long Island was downgraded one level by Fitch Ratings in December after it received permission from a state oversight board (55894MF:US) to sell as much as $450 million in bonds over four years, including $80 million to cover the costs of unused vacation and sick leave.
“The unions could have agreed to give this up but didn’t,” Brian Nevin, County Executive Edward Mangano’s senior policy adviser, said in a telephone interview.
Long Beach, a shore community in Nassau, has paid exiting workers almost $10 million since 2008 as its reserve fund dropped from $8 million to zero, according to city data compiled by Bloomberg and Schnirman.
The city’s rating was cut five steps by Moody’s Investors Service in December after it tapped the bond market for $4.25 million to meet payroll and cover a $505,000 payment to the retiring police chief.
It borrowed again last month, paying a 2.5 percent yield for a one-year loan, compared with 0.77 percent on a similar maturity in December, Comptroller Jeff Nogid said in an e-mail.
To close a budget gap that’s 12 percent of spending, the city is considering raising property taxes 40 percent and cutting 20 percent of its workforce.
“These termination payouts are one of the major drivers of our deficit,” Schnirman said in a telephone interview. “We will be seeking a cap so we don’t see these outlandish payouts.”
Ken Apple, president of the Long Beach Police Benevolent Association, said the payouts are part of the collective- bargaining agreement and that any change would have to be negotiated.
“I understand what’s going on in the city, and we’re always amicable about going to the table,” he said.
Following are pending sales:
NEW YORK CITY plans to sell $800 million of tax-free general-obligation bonds as soon as next week, according to a city statement. The refunding debt will be sold to individuals on May 21 and May 22, and issued to institutions on May 23, according to the statement. Standard & Poor’s rates the bonds AA, its third-highest grade. Bank of America Merrill Lynch will lead banks on the sale. (Added May 15)
CHICAGO plans to sell about $597 million in general- obligation debt as soon as this week, according to an offering statement. About $306 million will be taxable and the remainder tax-exempt, with proceeds going toward refunding and capital projects. Moody’s Investors Service rates the bonds Aa3, fourth- highest. (Updated May 15)
SAN DIEGO COUNTY REGIONAL TRANSPORTATION COMMISSION plans to issue about $384 million in sales tax revenue bonds as soon as next week, according to an offering document. The proceeds will be used to finance and reimburse the commission for prior capital projects. Standard & Poor’s rates the bonds AAA, its top grade. Barclays Capital is the underwriter. (Added May 15)
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