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NY's 'cash out' policy has survived a lot. Can it outlast the pandemic?

Members of the New York State Assembly meet

Members of the New York State Assembly meet for a legislative session in the Assembly Chamber at the state Capitol on June 8. Credit: AP / Hans Pennink

With the pandemic damaging the economy, fiscal experts question whether New York will continue to sustain a generous policy that lets police, teachers and other public employees cash in unused vacation, sick and other paid days off when they leave a job — or whether the system has become so ingrained in politics that it’s considered off limits no matter what.

After all, it’s survived both Republican and Democratic administrations, contract negotiations, massive budget gaps and even a recession.

The obligation on Long Island alone for severance or "cash out" payments is $2.1 billion, according to a Newsday analysis. Statewide, the policy has generated an $8.7 billion bill. The burden has become so great that some local governments have sought to borrow money just to fulfill cash out obligations.

Cash out payments to some individuals often top $200,000.

“Most people would be outraged because they don’t get anything like that,” Terry M. Moe, a Stanford University political science professor, said.

Most Long Island supervisors and school superintendents contacted for this story said that severance packages are a normal part of collective bargaining and that they've worked to lower the maximum number of vacation, sick and personal days that can be cashed out. They said their budgets account for estimated annual obligations, which are a small part of their budgets. Neither county executive commented directly on the issue.

But critics said school and elected officials almost never fight for structural changes that would produce long-term savings for taxpayers because they don't want to fight New York's powerful unions — and risk reelection — over a debt that comes due in the future: There's a mutual incentive to just make small changes. 

Over the years, local governments and the state have ratcheted down the limits on how much vacation, sick and other time can be cashed in. But those changes have been modest.

“The issue is, I believe, it was never affordable before all this happened and it’s even less affordable now with the coronavirus effect,” said Assemb. Michael Fitzpatrick (R-St. James), one of the most conservative members of the New York State Legislature. “But it needs to change. It’s just not fair to taxpayers.”

Fitzpatrick has sponsored a bill that would prohibit the use of vacation, sick and other days for the calculation of pension benefits. But it has been routinely defeated in Assembly committees since 2016.

Academic researchers say, to varying degrees, there’s a need for reining in such benefits — especially with a significant economic downturn ongoing.

“They are not going to be able to keep kicking this down the road because of the crash in revenue and the huge increases in costs for the COVID-19 virus,” Leora Friedberg, an economics and public policy professor at the University of Virginia. “Before now, they didn’t have the political will to confront these costs and now taxpayers are going to become more aware of them and become more upset about them and that will change the politics.”

But opinions aren't unanimous.

Severance payments are “an issue” but not a significant burden on Brookhaven finances, Matt Miner, the town’s operations director, said. The cost is about $1 million annually and the town has a reserve fund to cover spikes.

“It’s an annual expense, yes, but it’s something we plan for and it really doesn’t fluctuate very much from year to year,” Miner said.

“It’s certainly manageable for Southampton,” Town Supervisor Jay Schneiderman said. “For me, it’s not even on my mind.”

The supervisor said the town has lowered payout caps through recent collective bargaining agreements — several other Long Island supervisors told Newsday their towns have done the same.

Babylon Town Supervisor Richard Schaffer said it’s a routine element of contracts to pay for unused sick, vacation and personal days.

“They’re allowed to accumulate and to be paid out if you don’t use them. They’re employees’ personal property,” Schaffer said, adding Babylon has reduced the maximum payout amounts in recent contracts.

But it has become a burden for some local governments. Nassau County borrowed $184 million in September just to make severance payments alone to former employees. The county will pay $62 million on top of that in interest on the debt. The administration didn’t make Nassau County Executive Laura Curran available for an interview on the issue.

Michael Fricchione, a spokesman for Nassau County, said in a statement: “County Executive Curran is laser-focused on curbing expenses — delivering a surplus of approximately $112 million last year through strict fiscal discipline and streamlining government expenses. It would be inappropriate, however, to discuss these issues during the middle of active and productive contract negotiations" with the Civil Service Employees Association.

Suffolk County unsuccessfully sought state permission to borrow money in 2017 to make cash out payments. County Executive Steve Bellone did not respond to requests for comment.

Schools deal with the issue, too.

On Long Island, schools owe $747 million in severance costs, or an average of $1,819 per student. That is twice the statewide average.

Central Islip school district ranks No. 2 statewide in terms of payout obligations to retiring employees, with $66.3 million. Former Superintendent Howard Koenig, who retired last month, told Newsday that payouts, far from imposing a burden on taxpayers, help districts in the long run by encouraging older, higher-paid employees to retire. It’s been a standard practice, he said.

“These are things that were negotiated years ago,” Koenig said. “Retirement incentives have been used in this country forever.”

Koenig also said Central Islip’s ranking as No. 2 doesn’t “mean anything unless you talk about differences in cost of living around the state.”

Long Island operating costs are high — but that’s part of the point fiscal hawks make about pensions and payouts. The region’s taxes are high and costs are high because pay and benefits for public employees are so high.

For example, Newsday found base salaries and longevity bonuses for Suffolk police officers with 10 years on the job are more than 40% higher than for equivalent New York City officers.

Further, watchdogs said payouts aren’t like pensions, which have large investment mechanisms, such as the state pension fund or teachers’ retirement fund, to cover costs. That’s why municipalities sometimes borrow just to cover payouts — and that’s why severances should be dramatically scaled back, critics said.

“Severance pay issues — for example, unused vacation time — is essentially an accounting trick that public managers use to put off paying public workers so costs aren’t seen in current budgets,” said Joseph E. Slater, a University of Toledo College of Law professor.

E.J. McMahon of the fiscally conservative Empire Center think tank in Albany, said the system never changes because there’s little incentive for elected officials to fight with unions now over benefits paid years in the future.

“I’d never blame the unions. Unions are doing what unions do,” McMahon said. “It’s the politicians who are not acting like managers who have to pay the bills. … What will force them to reform is when they are broke.”

Southold Supervisor Scott Russell said while his town has had some success regarding reducing large payouts, any concessions the town receives apply to new hires whenever the town negotiates a new contract. A lot of the cost-drivers are legacy costs-benefits agreed to by previous boards, and once a benefit becomes part of a contract, it becomes very difficult to get the unions to agree to remove it, he said.

Further, when contract talks hit an impasse, arbitrators “seldom” stray from current contracts.

“In that scenario, it creates a cycle and the contracts are perpetuated, seldom leading to substantial cuts in benefits,” Russell said. “It’s a cycle town boards can’t break regardless of how much we try.”

Unless the state takes action. But it’s unclear what would prompt it.

Even following the recession, lawmakers failed to make structural changes.

Richard Ravitch, then the lieutenant governor, was tasked with developing a long-term restructuring of state spending. After all, he was a respected fiscal policymaker who was a major player in the fight to save New York City from bankruptcy in the 1970s.

But he found little support for his five-year restructuring plan in Albany, even from then-Gov. David A. Paterson. There would be no major changes.

“The parochial self-protectiveness of a system” had again kicked its fiscal problems down the road, he recently told Newsday.

A few years later, Gov. Andrew M. Cuomo succeeded in creating a new “tier” of pension benefits for public employees that lowered caps on payouts. But it applied only to new hires and didn’t make structural changes to cost drivers, limiting its impact, critics said.

Ravitch said it’s possible the pandemic could change the dynamics, with dramatic declines in tax revenues and no assurances of a full recovery in the near term. It could present an opportunity to address previously untouchable topics.

“I not only think it’s possible, I think it’s necessary,” Ravitch said.

Fitzpatrick has a series of bills aiming at the costs of state pensions, arbitration and step raises that he thinks works in tandem with limiting severance payments. But he thinks the only way state legislators work to limit costs is if they kick themselves out of the guaranteed pension system and into a 401(k)-style contribution system.

“The reason we don’t deal with it is no one wants to have the fight with the unions because they are in the same system,” Fitzpatrick said. “That’s why the Legislature is hamstrung. … There’s too much for them to lose.”

With Michael Gormley, Vera Chinese, Scott Eidler, John Hildebrand, Carl MacGowan, Keldy Ortiz and Jean-Paul Salamanca

Here's how other Long Island town officials responded to the issue of severance packages for employees who leave public service:

  • Hempstead Town spokesman Greg Blower: "The township has adequately planned for the separation costs of its employees in its multiyear spending projections."
  • Islip Town spokeswoman Caroline Smith: "Currently, the impact to the town is just over $1 million … Due to the fact that the town has always budgeted for this, there is no significant impact to our budget."
  • North Hempstead Supervisor Judi Bosworth: "We have caps on the amount of time employees can accrue, and all of the terms are negotiated as part of our collective bargaining agreement. To proactively deal with this issue, the town has a fund balance reserve account to help offset these expenses when they occur."
  • Oyster Bay Supervisor Joseph Saladino's office didn't respond.
  • Riverhead Town Supervisor Yvette Aguiar said costs “may be burdensome,” depending on how many employees from a given department will retire in a given year. To minimize impact, she said she doesn't immediately refill a vacant position until the departing employee's severance pay has been absorbed in the budget.
  • Smithtown Supervisor Edward Wehrheim said the current staffing contract reduces maximum payouts by one-third for new employees and added: "We will continue to negotiate payments down.”
  • Huntington Town Supervisor Chad Lupinacci said payouts are mostly the result of labor agreements. "What you always have to do is have strong budgeting skills, so normally when we have retirements in higher-paying positions, we avoid filling those positions where feasible …" he said.

With John Asbury, Carl Macgowan, Deborah S. Morris, Ted Phillips, Jean-Paul Salamanca, Nicholas Spangler and Dandan Zou

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