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RI Owes $81 Million in Unused Sick, Vacation Time

Friday, January 04, 2013

 

Rhode Island owes an estimated $81 million for unused vacation days, sick time, and other compensated absences earned by state employees, with an estimated $67 million of the total liability due within a year, according to the latest state financial statements, released at the end of 2012.

Over a decade, the liability for compensated absences has grown significantly—even as the size of the state workforce has shrunk, state records show.

In June 2002, the liability stood at $54.6 million, when the workforce consisted of 12,547 state workers. As of June 2012, the state workforce was down to 10,495 full-time employees, according to the financial statement for that year.

“I think it’s a big area of concern, especially sick time and vacation time,” said state Rep Joe Trillo, R-Warwick. “It’s way out of line with the private sector.”

“It is clear that public sector employment provides generous benefit packages that generally compare more favorably than average private sector employees’ ability to carry over unused vacation [and] sick time,” said OSTPA spokesperson Lisa Blais.

State workers can build up sick, vacation time

The bulk of the $81 million liability is unused sick and vacation time, according to state controller Marc Leonetti, whose office produces the annual financial statements. Earned and unused vacation time can be carried over from year to year, with some restrictions. Unused sick leave, on the other hand, is normally paid out to a state employee who is retiring—up to certain limits, according to state auditor Dennis Hoyle.

The total liability figure also includes deferred amounts stemming from furlough days and deferred says that have not been discharged. Most are from recent years, but some go as far back as the early 1990s, according to Hoyle.

State collective bargaining agreements spell out how workers can accumulated unused leave time.

For example, state troopers who have worked at least five months earn 13 days of vacation time. After a year, vacation time goes to 21 days. Those who have been on the force ten or more years earn 28 days annually. Vacation time can be carried over to the next year, but has to be used then. Any unused time is paid out to the trooper, according to the current contract.

As for sick time, it’s unlimited for state troopers. The State Police Superintendent can deny a sick leave request but only for “reasonable cause.”

State workers who are part of AFSCME Council 94, initially receive vacation in smaller increments, starting out with 10 days for employees who have worked at least six months but less than five years. At 10 years, workers become eligible for 18 days; they don’t get 28 days until they’ve been on the job 25 years. Vacation time can be carried over year to year, but not more than two years’ worth.

When it comes to sick time, AFSCME workers can bank up to a maximum up to 125 days, or between 875 and 1,000 hours, depending on their weekly work schedules. But they are allowed to cash out only 30 percent of the accumulated time, according to the union president, J. Michael Downey.

Union leader responds

There’s a good reason why Council 94 members can accumulate their sick time, Downey said. He said the state has opposed temporary disability insurance for its workers. As an alternative, Council 94 has negotiated sick day benefits, including the right to accumulate time from year to year, Downey said.

The ability to carry over sick time may invite criticism from fiscal conservatives, but Downey said the practice actually serves as a deterrent against the abuse of sick time. “If you have a case of ‘use it or lose it,’ you may have … people using it when they don’t need it,” Downey said.

Trillo argues that the amount of sick time offered in contracts is due to years of labor leaders advocating for increased benefits for their members. “We’ve just let it go unchecked,” Trillo said. “Now we’re in the situation we’re in … We just can’t afford it anymore.”

Downey, however, said the specific provisions on vacation and sick time have remained the same for years.

Trillo said he hopes the state takes a closer look at those benefits as it tries to tighten its budget, but he acknowledged that it can be “very difficult” to take away a benefit that has been granted. Downey said any changes to the benefit should be negotiated—a position that has been a major sticking point between labor advocates and supporters of the most recent pension reform effort.

The total liability for unused sick and vacation time comes out to an average of $7,724 per employee, but Downey said his members aren’t getting payouts like that. He said the amount a retiree would receive is tied to how much they earned while on the job, meaning that management, not the rank-and-file, stand to land the biggest payouts for unused leave time.

Increasing liability

When asked why the liability has increased while the state workforce has decreased, officials offered differing explanations.

Doyle, the state auditor, said that the liability is calculated at the current hourly rates of pay, as of June 30, 2012. “There would be normal expected inflation of the amount due to overall increases in salaries over the ten year period,” he said.

He also noted that recent furlough and deferred days could be another factor.

Downey said the growing seniority of a state workforce that has not been replenished with new hires could also be driving the increase.

Blais worries about how much more the liability will go up in the next decade and beyond. “[T]axpayers’ current liability will likely grow larger in the future since the stats are just a snapshot in time,” Blais said. “Everyone should be clear that the liability is a moving target that is tied to future increased earnings and so, the question becomes, when will leadership admit to the fact that taxpayers cannot sustain government benefits as they grow?”

The City of Providence shows what can happen when unused sick and vacation time are allowed to become increasingly burdensome to the budget. In late 2010, GoLocalProv reported that Providence had a total liability of $32,982,000 for unused leave time and had not put aside any money for future payouts—nor was it even accounting for annual payouts in its budget.

Blais suggested the state can’t afford to make the same mistake. “We face a structural deficit and we can’t tax the private sector enough to feed the appetite for many of the promises made in various collective bargaining agreements with the unions that represent public sector employees. Why do we operate as if we believe that money grows on trees?” she said.

Another unfunded liability?

The state liability for unused sick and vacation time is not offset by any long-term assets, according to Hoyle. He said there are “no specific assets that have been set aside” similar to a pension trust fund. However, he noted that the majority of the liability will be eliminated when employees use their vacation credits in the year after they are earned, rather than by the issuing cash payments.

“Employees leaving state service are paid for earned but unused vacation credits; only employees who retire are eligible for cash payment for a portion of accumulated sick credits,” Hoyle noted.

Also, unlike Providence, the state does budget for its compensated absences payments each year.

“The main components, which are sick and vacation time, are included in the wages section of the annual appropriated budget,” Leonetti, the state controller, said. “The retiree payout is covered by the assessed fringe benefit which is part of the annual appropriated budget.”

But one good government watchdog says states like Rhode Island should be more transparent about how it accounts for such costs over the long term.

Sheila Weinberg, the founder and CEO of the Illinois-based Institute for Truth in Accounting, said that showing compensated absences as a liability on financial statements is a way states can hide deficits and present their budgets as balanced. “They’re not saving for the future,” Weinberg said, referring to compensated absences. “Future taxpayers have to pay them, but they’re not going to receive any services or benefits.”

She said it’s something Rhode Island has done in the past—although not in the past year, when the liability actually dropped from a high of $89 million in June 2011.
 

 

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