Pension spiking is the practice of adding sick leave, vacation pay and other benefits at the end of a worker’s career to increase their pension. The Goldwater Institute has sued to stop the practice in the city of Phoenix. Arizona Republic columnist Laurie Roberts will discuss the issue.
Ted Simons: Pension spiking is a retirement boosting perk that involves adding sick leave, vacation pay, and other benefits at the end of a worker's career to increase that worker's pension. Phoenix mayor Greg Stanton says pension spiking needs to end, and the Goldwater Institute has sued to stop the practice in the city of Phoenix. Laurie Roberts of "The Arizona Republic" has been following the issue and then some. Good to have you here.
Laurie Roberts: Great to be here.
Ted Simons: Always a pleasure. Give me a better definition, or is there a better definition of pension spiking?
Laurie Roberts: We're basically talking about public employees, at the end of their career, have saved up vacation time and sick leave and other sorts of perks, deferred compensation, travel allowances, anything they have they can cash out, they add it to their income, and then their -- The pensionable income and that income is what is used to determine their lifetime pension benefits. So basically they're taking unused sick time, getting paid for it, lumping it onto their income and spiking their pension, boosting it up artificially.
Ted Simons: This is not the kind of thing where vacation or sick time ends at the end of the year, this adds and adds and at the end of your career you go, ba-boom.
Laurie Roberts: Public employees don't have a use it or lose it policy, generally speaking. They can save up. In the city of Phoenix, an entry level employee gets 40.5 days off a year. Some of those are holidays so that doesn't count. And some of it is vacation. A good deal of it is sick time. You can save those days, bank them every year and instead of like in the private sector, where you would lose it at the end of the year, they just keep it. And at the end of their career, they are paid for that time. Interestingly, time they may bank at the beginning of their career when they make $10 an hour, and at the end of the career, if you're like David Cavazos you're making $157 an hour, all the time you've made at $10 an hour is paid at $157 an hour and on top of that you use it to artificially bump up your pension.
Ted Simons: Let's mention David Cavazos. Who is this gentleman and why is he so much in the headlines? How did he get that gig?
Laurie Roberts: David Cavazos has been a lifetime city employee. He's been there for virtually his whole career, started as a management intern making $9.47 an hour, worked his way up in to become the city manager. David has been in the news a lot, and he's done a number of good things for the city. But where he got in the crosshairs is in November when the city council gave him a 33% pay raise. I don't know how much of a pay raise channel eight gives you, but I haven't seen a 33% pay raise. It was also retroactive to last July 1st. And it was billed as a way, we need to pay our employees better. This is at a time when other city employees still not had full restoration of the pay and benefit cuts they voluntarily gave when the budget was so tight.
Ted Simons: What was the reasoning? He did such a swell job?
Laurie Roberts: Here's the thing. They won't really say what happened or who initiated this thing. This was done behind closed doors in an executive session, I've asked both the mayor and Sal DiCiccio. It was a 6-1 vote, by the way, so most of the city council went along with it. And they all say, "He's done such a good job, and he's underpaid, so we had to give him this raise." So great, give him the raise, now he uses that to leverage a new deal in a new city because he's now at 52 years old, old enough to retire here, collect his pension here and go get another shot at it in California.
Ted Simons: The Republic reported $220,000 a year in retirement only?
Laurie Roberts: Oh, sure. Because he's used pension spiking and other things to be able to boost that pay. His sick leave and retirement leave I believe thathe's going to be able to artificially add on to his salary that he's being paid for will boost his pension to well over $200,000. He may even get where to Frank Fairbanks, the former city manager, was, and his pension is $46,000 greater than the pension of retired United States presidents.
Ted Simons: And back to Cavazos, and he's got a new job.
Laurie Roberts: Got a new job. He was able to go to California, the city of Santa Ana and leverage the pay raise he got here to give him the same raise there plus other perks, plus he'll be collecting his pension, which will be well over $220,000, probably closer to $250,000.
Ted Simons: I need to know where I can get this gig. This is real money here. This isn't fooling around.
Laurie Roberts: And the thing is, you're going to see the Goldwater Institute is suing the city, saying pension spiking is illegal. And I have checked with the state pension systems, ASRS, PSPRS, it's illegal for them. The question is, is it illegal for the city to do it? And that's what we'll find out in the courts.
Ted Simons: Now, is the city of Phoenix the only municipality doing this? Are other cities doing this?
Laurie Roberts: I'm not aware of any other cities doing pension spiking. There may be some, I'm not aware of it. And the other thing I think you need to mention is, Greg Stanton now says pension spiking needs to end. But he -- And he's talking about for the police and firefighters, and for whoever takes over Cavazos's job. Remember two things. Number one, that's what he said during his 2011 campaign for mayor. And now we're into 2013 and he hasn't done it yet. So I would question if it needs to end, why didn't it end two years ago? Secondly, he's not talking about ending it for other city employees. The city last year did cap the amount of sick leave that city employee can use to spike with, but they haven't ended the practice. Sal DiCiccio and some of the councilmen want to have a vote pretty soon to end all pension spiking for all employees when this next contract -- When their current contract ends on June 30th. So look for that in the next few weeks to see if they can get that to a vote before the city council.
Ted Simons: How do you do that if you've got a bunch of employees right now banking, expecting X because they were promised X and all of a sudden X is pulled out from under them?
Laurie Roberts: Here's the way you do it. It's a contract. It's a two-year contract. The contract ends January -- June 30th, 2014. So you give them notice now, if you want that to happen, it's going to -- You better retire between now and then. I think most of us in the private sector, we went into the private sector knowing certain things were going to be there for us and they were all yanked. I think it's the same thing. But anything they've banked to date I think they would get to keep, but if they're still on the payroll July 1st of 2014, under DiCiccio's plan, it goes away.
Ted Simons: That would suggest to me from a distance here, a mass exodus of folks retiring and getting that payout.
Laurie Roberts: I would think if you were close to retirement that would certainly be what you would want to do. We'll see if it passes. First of all you've got get it onto an agenda, and I don't it this mayor has thus far been willing to do that. But I am led to believe the votes are there to do this, because it's just a fundamental feeling among taxpayers of not a fair deal. We want -- We should pay our public employees well, but nobody expected this sort of huge windfall at the end of their careers.
Ted Simons: Last question, with this, with compensation in general, we keep hearing that we have -- The municipalities, Phoenix in particular, has to go in this direction, pay these things, work these contracts, allow these benefits to attract the best and to attract the brightest. Valid?
Laurie Roberts: I think you have to give a fair wage, and we should. Our public employees are important. But I think they carry that too far. And remember, too, whatever they give, people that are negotiating these contracts also get. Say David Cavazos is negotiating the contract for the rank and file employees, whatever they get, he's going to get too. So they're not a taxpayer balance in that thing for the push and the tug. That's what the city council is supposed to do. They're supposed to be there representing the taxpayers. And I don't think that's happened in the area of pay.
Ted Simons: All right. Well, it's fascinating stuff, it's kind of like as the world turns at city hall. It's good to have you here. Thanks for joining us.
Laurie Roberts: Thank you.
Laurie Roberts:Columnist, Arizona Republic;