Employee Buy-Out

There has been considerable discussion of the City’s Employee Buy-Out plan that was passed by the Board of Alderman on April 17, 2008. The discussion that has ensued for almost four months since has included considerable criticism, and in part because of Budget Director Jon Angel’s sudden departure, the City has not been able to immediately respond with the degree of precision and thoroughness that the questions merit. However, those answers will be coming. Since the moment of truth has passed, and the decision has already been made, the short wait to obtain the economic analysis of whether and to what extent the buy-out will save the City will not cause any harm to anyone.

Prior to the City’s passing the Buy-out program, the undisputed analysis of the City Budget Director and of outside counsel, Whiteford, Preston & Taylor (who has some expertise in these matters) was that the 2-year buy-out proposal would save the City money. No one disputed this. I was personally in favor of the Buy-out proposal because it offered significant potential savings to the City. Jon Angel’s projections were that over 30 years, with 75% participation it would save the City a net of $8 million. We now are in a better position to determine what the projected savings will be—although it will still be a projection, because the actual savings are subject to multiple variables. At this point, until the new projections are completed, it doesn’t help to speculate on the matter. We’ll just have to be patient. I do expect the new projections to show that the 2-year buy-out will be a net economic savings for the City.

The major issue of debate was whether the buy-out should be a 1-year or 2-year deal. I supported the 2-year buy-out because Jon Angel’s projections were that the City would have 75% participation (versus 25% participation in a 1-year buy-out) and that this would result in significantly greater savings for the City. As it turns out, there was about 90% participation.

Much of the criticism of the buy-out program is directed at what are called the “double dippers,” that is people who accept the buy-out and then return to work for the City. While a majority of the Board of Aldermen expressed the thought that NO ONE WHO ACCEPTS THE BUY-OUT SHOULD COUNT ON BEING REHIRED by the City, we also pointed out that the City should retain the right to make such arrangements as it deems best for the City with respect to departing employees. For example, the City might want to contract with or rehire certain employees with critical institutional knowledge.

As it turns out there have been a number of employees who took the buy-out and who then have returned—but these are for varying reasons, for varying times and under varying arrangements. While there is in the eyes of many people a feeling that such “rehires” or “double-dippers” results in an unfair and wasteful expense on the part of the City—I would point out that this is a generalization that is not correct.

Additional comments added June, 2009: Those who have been re-hired have come back at the lowest pay level for their grade. This results in a year-by-year savings to the City. Also, for as long as they work, the City does not have to pay additional health insurance benefits for a new employee. The City can also benefit from the institutional knowledge that is retained. Some of those who returned to the City will only be here for a short time. Currently, I understand that 24 of the 67 employees who took the Buy-out have returned to work for the City. This number is greater than I expected, but the Mayor is charged with determining which of the retirees to rehire and why.

One of the reasons why the ERIP was projected to save the City money is projection that the City would not be rehiring for all of the positions that were to be vacated by the retirement. Mr. Angel projected 4 positions would remain vacant. In fact this has happened. When this factor is included in the financial analysis of the Buyout, the Buyout is projected to save the City over a million dollars. The MKSH Report does not dispute this. At this point in time, I have not seen any analysis that refutes this.

Having said all of this, at this point in time I understand that all of the Board of Aldermen have said that if they could do it over, they would not have approved the two-year buyout. Why no one has made the case that it has cost the City money, the ERIP was too generous. If I were to consider it again, I would have supported a 1-year buyout. The buyout has cause a lot of promotions within the City, and has had a positive effect on the morale and performance of city employees.

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