Spiking a Practice Unfair to Taxpayers : * O.C. Cities, Agencies Paying Price for Inflating Salaries

The time to pay the piper has come in several Orange County cities and agencies that allowed employees who were soon to retire to inflate their salaries, and thus their pensions, through the maneuver known as “spiking.”

State Controller Gray Davis called the practice “legal larceny” two years ago, after an audit by his office of eight California cities, including Anaheim and Huntington Beach, found spiking widespread and costly to taxpayers.

His condemnation still echoes in Huntington Beach, where the City Council this month began exploring ways to stop spiking that may occur before a state law barring the practice takes effect July 1.

Though legal, spiking was wrong. It reinforced the erroneous belief that government employees are out to rip off taxpayers. The Legislature was right to outlaw the practice, and the state Public Employees’ Retirement System was correct to bill cities that had allowed spiking, even though the cities argued that PERS encouraged the practice.

The practice involved tacking on sick leave, vacation days, automobile allowances and other perks to salary, inflating the final bill and using it as the basis for pensions. It was bad enough to pay someone for not being sick. But it was worse to have it computed in pensions, which are paid year after year.

One man Davis cited as benefiting from spiking was William O. Talley, whose salary was increased from $97,390 to $159,109 before he resigned in 1987 as Anaheim city manager. That increased Talley’s retirement benefits to nearly the amount of his salary before the hike. Talley noted that PERS approved it and accused Davis of grandstanding.

In Huntington Beach, the audit cited a former deputy city attorney, as well as 15 of 16 other retirees as beneficiaries of spiking.

Since then, the numbers have grown. PERS, which administers retirement programs for more than 1,000 agencies across California, has billed Huntington Beach nearly $1 million in recent months to cover higher pensions for retirees. The total cost of spiking in the city is estimated at $2.7 million for 34 employees.

PERS argued that spiking does not give the system enough time to save money to pay inflated pensions, so it has begun collecting from cities and agencies throughout California. Others being dunned include Anaheim, Costa Mesa, La Habra, Los Alamitos, Newport Beach and the Santa Margarita Water District.

PERS officials said spiking primarily benefited higher-ranking city and agency employees. But in Huntington Beach, a number of low-level workers last year decided to add benefits to salaries to increase the pensions. City officials said spiking became part of labor contracts, although some unions have since yielded on the practice, as they should.

A Huntington Beach City Council study two years ago found that among nine comparable cities in Southern California, Huntington Beach allowed its employees the most generous retirement benefits due to spiking.

The public is better off being told upfront what it costs to run cities and how much employees are being paid, including benefits. No one wants to be surprised years later by larger-than-expected bills, especially when government budgets have already been frozen and some workers laid off in tough economic times.

Spiking is about to be outlawed. Now it will be up to governments to ensure some similar practice does not creep in to take its place. Spell out salaries and benefits, including pensions, so they are easy to understand. Level with the taxpayers.