Californian’s $609,000 Check Shows True Retirement Cost

When psychiatrist Gertrudis Agcaoili retired last year from a state mental hospital in Napa, California (STOCA1), she took with her a $608,821 check for unused leave banked in a career that spanned three decades.

She wasn’t alone. More than 111,000 people who left jobs as employees of the 12 most populous U.S. states collected $711 million last year for unused vacation and other paid time off, according to payroll data on 1.4 million public workers compiled by Bloomberg.

America's Great Payroll Giveaway: a Six-Part Series

California employees accounted for 39 percent of that total. Since 2005, the state’s workers collected $1.4 billion for accumulated leave, calculated at their last pay rate, regardless of when the time was accrued. New Jersey Governor Chris Christie calls such payments “boat checks” because they can be large enough to buy yachts.

“The people making decisions are clearly letting this happen,” said Steven Frates, research director of Pepperdine University’s Davenport Institute on public policy, based in Malibu, California. “It starts with the governor and the legislature and wanders down the line. These people are playing with the taxpayers’ money.”

The lump-sum retirement payments, seldom granted in private industry, mirror a broader trend in which California’s public employees receive far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base salary to overtime. California, the world’s ninth- biggest economy, has set a pattern for lax management, inefficient operations and out-of-control costs, the Bloomberg data show.

Photographer: Noah Berger/Bloomberg

A prisoner awaits processing at a prison in Tracy, California. Close

A prisoner awaits processing at a prison in Tracy, California.

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Photographer: Noah Berger/Bloomberg

A prisoner awaits processing at a prison in Tracy, California.

Routine Accumulation

Managers and employees throughout California government routinely ignore a rule limiting accrued time off to 640 hours, or 16 weeks. The accumulation of vacation hours accelerated in California from 2005 through 2010, fueled by a state policy forcing workers to take unpaid time off, or furloughs, before using paid leave.

That requirement helped reduce short-term payroll costs and balance budgets under former Governor Arnold Schwarzenegger, a Republican, and current Governor Jerry Brown, a Democrat, while deepening the state’s future obligation.

Unused leave grew to $3.9 billion in 2011 from $1.4 billion in 2003, according to state financial reports, partly because of staff shortages and around-the-clock needs at agencies such as prisons that forced employees to put off vacations.

‘Last Resort’

“Furloughs were never meant to solve the state’s structural budget problem or save money in the long-run,” Schwarzenegger said in an e-mail. “They were a drastic, last- resort option to conserve cash in the short-term and keep state programs up and running.”

Since 2005, more than 1,390 full-time California state workers collected “boat checks” that were greater than their annual base pay, data compiled by Bloomberg show. Those workers were paid a total of $141 million, or an average of $101,274.

“The cumulative effect of these numbers is going to spur voter outrage,” said Dan Schnur, director of the Los Angeles- based Jesse M. Unruh Institute of Politics at the University of Southern California. “Californians just voted to raise taxes on everyone who makes over $250,000 a year, and the prospect of state employees making much more than that isn’t likely to sit well with them.”

New Jersey caps lump-sum payments at $15,000 per state employee, and such limits are common at private companies. No other public employee in the 12 states providing data to Bloomberg took a lump-sum payment greater than $190,000 last year, while 22 in California did.

Fiscal Burden

The payments add to the fiscal burdens facing deficit- plagued states such as California, where voters last month agreed to pay more taxes to avoid deep cuts to schools. Four public employees got separation checks of more than $300,000 last year, even as lawmakers andBrown slashed funding for the needy.

More than 19,000 lump-sum payments totaling $275 million were issued in California last year, an average of $14,110 each. The average payment in the other 11 states was $4,764.

In California, recipients included a pair of prison dentists who cashed out $784,000 combined, and a highway patrol chief who took a $280,258 check when he retired.

Lottery Winner

Employees in agencies that operate around the clock with staffing shortages and overpopulation, such as prisons and mental hospitals, collected some of the largest checks. Yet engineers, lawyers, agency managers and executives, an air pollution specialist and a lottery agent also cashed out with six-figure payments, the data show.

Of the 100 biggest payments in 2011 in the dozen states, all but 10 went to California state workers. The average payout for the top 100 was $178,267, in addition to regular wages.

Outside California, Pennsylvania (STOPA1) ranked second in lump-sum payments, including 33 state police officers receiving more than $100,000 each. The executive director of that state’s lottery retired with a $107,000 separation check, the data show. In contrast, the biggest payment in Texas (STOTX1) was $69,271.

In Pennsylvania, accrued and unused sick time for most employees is paid on retirement after 25 years of service or in the event of death with seven years of service, said Dan Egan, a spokesman for the state’s Office of Administration. In general, the maximum sick days that can be carried over is 300, except for state troopers, who can accrue up to 410, he said.

Pays Nothing

Texas (STOTX1) doesn’t pay for unused compensatory time or holiday time, and unused sick time is paid only in the case of an employee’s death, to the worker’s estate, said R.J. DeSilva, a spokesman for the state comptroller’s office.

Ohio (STOOH1) pays 55 percent of accrued sick time to employees who retire and 50 percent to those who resign, Molly O’Reilly, a spokeswoman for the Ohio Department of Administrative Services, said by telephone.

In California, Agcaoili, now 79, cashed out 2,893 hours of annual leave when she retired in August 2011. That meant she had accumulated the equivalent of 72 weeks’ worth of time off.

Her lump-sum payment brought her total wages for the year to $770,870, according to the controller’s office. Since 2005, she had been paid $2.4 million as a state worker. She now receives a $199,000 annual pension, according to the California Public Employees’ Retirement System.

‘My Prerogative’

“It was my prerogative,” Agcaoili said in a brief telephone interview from her home in Napa. “I did not go on vacation.” She declined to comment further.

Because California has been reducing its workforce and frozen hiring, state managers have been deterred from forcing employees to be away from work long enough to use up accumulated leave, said David Gay, a spokesman for the Human Resources Department.

“Requiring employees to take all of their leave would have increased overtime costs at state prisons and hospitals, lowered reimbursements in tax collection and other fee-generating programs, and reduced services in other settings,” Gay said in a statement.

“Governor Brown is developing policies to cut leave balances at the same time that he’s stabilizing the state’s budget,” Gay said. “A balanced budget will lessen the need for furloughs and similar programs that have provided short-term fiscal relief but that have imposed longer-term obligations in the form of deferred employee compensation.”

Less than 10 percent of state workers exceed the limit for accrued leave, according to data from the California Human Resources Department.

New Deal

Still, Brown approved a new two-year contract with prison guards in 2011 that allows them to accrue an unlimited amount of unused vacation as well as granting additional days off. Brown at the time said the 640-hour cap had to be removed because the furlough policy under Schwarzenegger meant correctional officers were exceeding the cap anyway.

According to the state’s nonpartisan Legislative Analyst’s Office, the average prison guard has accumulated 19 weeks of unused vacation, a liability estimated at $600 million.

State employees can choose to be paid for the unused vacation or simply stop working while continuing to be paid until the leave time is exhausted, the analyst’s office said.

Workers who accumulate vacation days over many years and then retire are paid at their last rate of pay, rather than what they were earning when they accrued the time.

Bruce Blanning, executive director of the Professional Engineers in California Government, a union of 13,000 workers, said lump-sum payments come at no added cost to taxpayers because the state pays for those hours regardless of whether the person takes the time or cashes them out at retirement.

‘Time Earned’

“It is time earned, and the fact that the employee when they retire is using up vacation that they could have used some other time, and not been at work, has no real extra cost to the taxpayer,” Blanning said in an interview.

“It’s true they get paid for their vacation buyout at the salary at the time they retire, which may or may not be higher than when they earned it,” he said. “If it’s higher, it’s probably because of inflation. But because of furloughs and added pension costs, it may not be higher when they retire.”

The state’s mental hospitals and prisons have been ordered by federal courts to improve medical, dental and psychiatric care while grappling with staff shortages and cost-saving furlough days that forced workers to accumulate vacation.

Since 2005, four state agencies -- prisons, highway patrol, mental health, and forestry and fire protection -- accounted for more than half of the $1.4 billion paid for accrued leave and vacation. Prisons accounted for a third, or $490 million in payouts in the last seven years.

Dental Gold

Nolan Nelson retired last year as the chief dentist at a maximum-security psychiatric hospital in Atascadero. He collected a $274,999 lump-sum check even though he always used his 30 days of leave each year, he said.

America's Great State Payroll Giveaway: Read Bloomberg's full reporting on how out-of-control pay burdens states around the country.

Nelson said he was able to claim the money because the state awarded him five hours of vacation credit every time he worked as the on-call dentist. Over 15 years, he said, he accumulated so much extra vacation that he couldn’t burn it off fast enough. Had he tried to use more of the time off, he would have left the department understaffed and required another dentist to work overtime, he said.

“I worked for that,” the 74-year-old Nelson said in an interview. “It’s hours that I worked in overtime during a period of 15 years. It wasn’t just accumulated in one year. It took me 15 years to accumulate that money.”

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; Rodney Yap in Los Angeles at ryap@bloomberg.net

To contact the editor responsible for this story: Jeffrey Taylor at jtaylor48@bloomberg.net

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