The sick leave payout perk was something that the current City Council inherited from a prior council. Although once considered a nice perk, if the city continues this trend without any change it will continue further on a downward spiral of spending money it does not have. If the City froze all sick leave payouts today, it would still have an outstanding liability of $80 million. That is the same amount of money for the predicted budget deficit for 2012-2013. If sick leave was simply eliminated, then that $80 million goes to zero. If sick leave was phased out over a series of years, then the amount paid out would be more than zero and less than $80 million. The longer the phase-out period, the closer to $80 million. The shorter the pay-out period, the closer it goes towards zero.
What we do know is that last year alone the city paid out $14.8 million in sick leave.
Although a prior council allowed for the sick leave payout to be what it is today, I don’t think sick leave payouts are something the city should continue. Instead, I support a “use it or lose it” system like the private sector. Last year, the council imposed the elimination of sick leave for four of the 11 unions effective January 2012. However, seven unions still have it and among those seven, police and fire sick leave status may ultimately be settled by arbitration. Some feel that sick leave payouts are a vested right, while others say that isn’t since it is compensation and not a pension.
I am open to a phase out approach, but not for everyone. There will be some employees who choose retirement by Jan. 31, 2012, who qualify for the 3 percent bump via the COLA (cost of living adjustment) and having their pension based on salary before the 10 percent compensation reduction. Some of those who retire in January may also be doing so since they are worried about sick leave payouts being completely eliminated.
If an employer wants to retain a skilled subset of workers that may leave, and one of those levers is determined to be sick leave, then perhaps instead of elimination the employer should offer a phase out over 4-5 years to that specific subset of workers. However, it must certainly be for police since losing veteran officers with special skill set could be a setback. (I would suggest police negotiate on sick leave payouts separately, based on their own value proposition.) For non-police positions, the city should possibly cap the amount at $40,000, as opposed to some of the well-known payouts that approach $300,000.
Another alternative is to freeze the accrual and pay the sick leave over years instead of all at once. The new retiree gets the entire amount and less of a tax hit for a large payout. The city gets the benefit of paying back with inflated dollars over, let’s say, 10 years.
Some positions in the city have many applicants for few positions. If people in those positions choose to retire then they can be replaced more easily. And those newly hired can be on a new benefit structure. Ideally, that new benefit structure is a 401K, but at minimum it’s a reduced pension. I feel a reduced pension is still more generous than a 401K.
Approximately, 450,000 veterans are returning from the war and will be looking for work. Veteran’s getting hired as a fire fighter, for example, would cover any gap within that department of potential retirements. In addition, it would be a substantial raise compared to the military pay. Some of those same veterans may find other positions in the city attractive. We can lament over the current condition or we can anticipate and plan for the next wave.