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Payrolls down but payouts up

  • Article by: MAYA RAO
  • Star Tribune
  • March 31, 2012 - 9:46 PM

Donald Holmberg's retirement as chief information officer for Hennepin County last year came with more than well wishes from his colleagues.

The county also paid Holmberg $87,776 for unused sick and vacation days that he had amassed over 38 years on the payroll.

Records show that it was among the $4.8 million in such payouts that Hennepin County made to departing public workers last year -- a number that has increased steadily over the past five years and 41 percent in all since 2007.

The jump comes even as the county has tried to control the rise of those payouts, which are given widely in Minnesota and around the country as an incentive to keep employees showing up to work regularly and a way to save on overtime expenses.

"Whether it's a benefit that we can sustain in the future is open for discussion," County Administrator Richard Johnson said.

The issue drew scrutiny at hearings in the Capitol in January, when some legislators criticized large payouts for state employees. Rep. Steve Drazkowski, R-Mazeppa, has introduced a bill that eliminates sick and vacation leave for state workers and creates one category of paid time off, while limiting the amount of hours that can be cashed in.

"We need to start moving and aligning the government sector with the private sector, because we can't afford the excesses," Drazkowski said.

Yet the longtime practice has received far less public discussion at the local level, where unused sick and vacation leave payments, like those at the state, are usually negotiated in union contracts.

A union official defended the compensation as an appropriate reward for "highly productive long-term employees" that is much less generous than the multimillion-dollar packages some receive in the corporate world.

Joyce Carlson, field director for ASCME Council 5, which represents thousands of public workers locally, said the amounts are capped for employees and the policy offers an incentive to work, rather than stay home just to avoid losing days off.

Still, "as budgets are getting tighter, I think it is something that cities are looking at, whether or not they can reduce the liability," said Laura Kushner, human resources director at the League of Minnesota Cities.

The expense is growing not just in Hennepin County. Minneapolis spent $13.9 million on payouts of unused sick and vacation leave from January 2007 through December 2011, a period when annual payments jumped about 15 percent. St. Paul made $6 million in such payments in the same five-year span, during which annual amounts jumped 32 percent.

Officials in those cities say the figures have not prompted much concern.

In St. Paul, employees must have at least 14 years of service -- and 75 days of accrued sick leave -- to receive a payout upon departure. About six years ago, the city, like Minneapolis, directed that the severance payments go into a retiree medical savings account.

"Severance has been in the contracts for a long time, and what we've tried to do is focus on the sick leave and reduce sick leave accrual," said Angie Nalezny, the city's human resources director. "On the other hand, employees not using sick leave is a good thing too, so I don't want to encourage people to use sick leave. It's kind of a double-edged sword."

St. Paul also pays an automatic $30,000 to departing police and fire workers who have 25 years of service and 231 unused sick days.

In Minneapolis, employees must have 20 years of service or be eligible to retire in order to be paid for unused sick leave, which is capped at 50 days, when they leave the city. But about half of the $13.9 million spent on unused leave went not to departing workers, but to employees who remained on the payroll and cashed in unused sick days as a reward for longevity and high attendance.

In Hennepin County, 2,431 departing workers received $19.7 million in severance payments during those years. While the median payout was about $1,730, the overall amount was driven up by the nearly 29 percent of public workers who received five-figure payouts.

Holmberg's was the largest.

"I was fortunate not to get sick and yes, it was a motivating factor in the last few years of my employment there," said Holmberg, 63.

Hennepin County estimated it owes $97 million to all employees who were promised these benefits but had saved up just $71 million for the expense as of Dec. 31, 2010.

The county caps the amount of unused leave it will pay for at 100 days, with roughly one-third of that amount allotted for any unused vacation time.

Efforts to convert workers to a less expensive plan have been slow to pay off.

Officials said that starting in 2005, the county directed new non-union workers to use a paid time-off system that does not distinguish between sick and vacation time and caps the number of unused days workers can be paid for upon leaving at 60. In December 2009, the county negotiated for union employees to have the option of switching to that system, too.

So far, just 10 percent of Hennepin County's 7,235 employees have done so. Creating incentives for more of them to choose paid time off will be discussed during contract talks in late 2013, said Bill Peters, the county's labor relations director.

In recent years Hennepin County, like other local governments, has negotiated pay freezes for employees, making severance pay less of a target.

"We're really focusing on more immediate cost savings," Peters said.

Maya Rao • 612-673-4210

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