Phoenix’s new contracts with its employee unions will end the controversial practice of pension spiking for police officers and firefighters and cap it for other city workers, saving taxpayers an estimated $233 million over 25 years, according to a city report.
Pension spiking is generally seen as the artificial inflation of a city employee’s income toward the end of a career to boost retirement benefits. The practice has been widespread at City Hall and became a hotbed of controversy last year, particularly after former City Manager David Cavazos cashed in sick and vacation leave and other perks to boost his annual retirement check by about $88,000, to $234,536.
The recent changes go far enough, however, that the Phoenix-based Goldwater Institute, a conservative watchdog group, is considering dropping its lawsuit challenging the practice for police and fire personnel in the state Public Safety Personnel Retirement System.
Goldwater’s attorneys contend that state law has prohibited spiking for decades, but Phoenix let it continue.
“At the end of the day, this is obviously a movement in the right direction,” Goldwater attorney Jon Riches said of the new contracts. “It’s unfortunate that Phoenix has been permitting these unlawful payments going back 20 years.”
Riches said the institute’s objectives will have been met if Phoenix successfully implements the terms of the contracts prohibiting police officers and firefighters from boosting their pensions by factoring in payments they receive in lieu of accruing more vacation, sick leave or uniform allowances.
Employee-union leaders opposed the changes, saying they unfairly remove a retirement benefit for employees who’ve worked years with the understanding that they could enhance their pensions. Some unions asked the city to apply the changes only to employees hired after the new union contracts take effect on July 1.
Will Buividas, chief negotiator for the Phoenix Law Enforcement Association, said the police union is considering whether it will file a lawsuit seeking to restore the pension benefit for existing officers. He said some officers rarely took sick or vacation leave for 15 years because they believed they would receive a better retirement.
“We’re just exploring all avenues to protect the officers’ rights in that arena,” Buividas said.
City Council members recently approved contracts with the city’s five labor unions that outline the new pension-calculation rules. Last fall, the council voted to direct City Manager Ed Zuercher to negotiate agreements that will stop or cap spiking for all city employees when their new contracts take effect on July 1.
The changes to public-safety employee pensions will save Phoenix at least $2.3 million in the next fiscal year alone, city records indicate.
Under new contracts that prohibit spiking, police and fire employees will still receive money in lieu of accruing more leave time, but it won’t be factored in for pensions.
State law prohibits public-safety workers from including lump-sum payments they receive upon retirement for unused sick and vacation leave. But their continued inclusion of payments in lieu of accruing unused sick and vacation leave is at the center of the Goldwater suit.
The labor-contract votes divided council members and made for some unusual political alliances. Councilmen Sal DiCiccio and Jim Waring, generally fervent opponents of pension spiking, cast the lone votes for a police-union contract that would have allowed spiking to continue. They’ve stood by the vote, saying it was intended to show their opposition to compensation cuts imposed on the officers.
For general city employees, the contracts cap their ability to pension-spike. Going forward,municipal employees will no longer be allowed to include inpension-benefit calculations cellphone and car allowances, which are often reserved for management, or lump-sum payments received for unused sick and vacation leave.
Employees, however, still could use their cash-outs for pre-existing sick- and vacation-leave balances to boost their end-of-career compensation, a key factor in the formula used to calculate the annual pension benefit. Sick-leave accruals will remain capped as of July 1, 2012, a result of previous pension-reform efforts, and vacation accruals will remain capped as of June 30, 2014.
Critics, including DiCiccio and Waring, have said that allowing existing employees to continue spiking with their vacation- and sick-leave accruals limits any immediate savings to taxpayers. But other council members have said the changes end abuses in the pension system without breaking the city’s contracts with employee unions and risking a lawsuit on those grounds.
“Obviously, to go back and take something away is legally precarious and not the right thing to do,” Mayor Greg Stanton said. “I think we took the right approach.”
Spiking adds to Phoenix’s soaring pension burden. In the next fiscal year, the city is projected to spend $271 million on pension costs, up about $18 million from the current fiscal year. Meanwhile, it’s raising taxes and fees and cutting employee compensation to fix a $37.7 million budget deficit next year.
http://www.azcentral.com/story/news/local/phoenix/2014/05/27/phoenix-curb-pension-spiking/9617269/j