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California state workers hoarding vacation days, creating $3.5-billion debt for taxpayers

SACRAMENTO, CALIF. - OCTOBER 26, 2017: Capitol building in Sacramento. (Myung J. Chun / Los Angeles
Last year, the state paid its employees nearly $300 million for time off that wasn’t used, according to a Times analysis of payroll data from the state controller’s office.
(Myung J. Chun / Los Angeles Times)

After 36 years as a California government transportation engineer, Bijan Sartipi retired with much more than a goodbye party: He was paid $405,000 for time off he never used — one of more than 450 state workers who took home six-figure checks when they left their jobs last year.

And Sartipi didn’t top the list — a prison surgeon in Riverside pocketed $456,002.

In a trend that stems from lax enforcement of the state’s cap on vacation accrual, more and more state workers are able to retire with massive payouts for unused vacation and other leave. That could become a budget breaker for California as an aging workforce heads into retirement. During the next recession, California will be obligated to continue the payouts, forcing lawmakers to cut programs to balance the state budget.

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(Los Angeles Times)
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Last year, the state paid its employees nearly $300 million for banked time off, according to a Times analysis of payroll data from the state controller’s office. The data include most agencies and departments, but not legislative employees or other taxpayer-funded institutions such as the public university systems. That means the actual cost to taxpayers for unused vacation is much higher.

The total unfunded liability also does not account for employees who used stockpiled days off at the end of their careers to remain employed while not actually working, boosting the value of their pensions.

All told, state workers had $3.5 billion in unused leave as of 2017, the most recent estimate available. The blame, said Stanford public policy professor Joe Nation, rests entirely on government mismanagement.

“It’s like having a speed limit but not enforcing it,” he said. “This is not a good way to run any organization.”

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California mandates that vacation balances for most employees be capped at 640 hours. Sporadic enforcement of the rule, coupled with an increasing number of state workers retiring, has led to a 60% rise in the number of six-figure payouts since 2012, when 280 employees each cashed in unused paid leave totaling $100,000 or more, The Times’ analysis found.

Even so, said Brian Ferguson, a spokesman for Gov. Gavin Newsom, “the state has made significant strides in recent years in reducing unused leave balances.”

Some departments have offered workers a chance to cash out up to 80 hours accrued time off each year in hopes of reducing the liability of larger payout when workers retire at a higher salary. According to the Department of Finance, the state wrote checks totaling $111 million over a three-year period ending in 2017 to help reduce vacation balances — an effort started under former Gov. Jerry Brown.

Most private-sector employers cap vacation between 40 hours and 400 hours and do not allow time to be earned beyond those limits.

In California, public-sector union contracts are negotiated at the direction of the governor and must be approved by the Legislature. Any changes to how much vacation employees could store would have to be negotiated and such concessions would not come easily. The state’s powerful and deep-pocketed public-sector unions showered Newsom with contributions, and labor is also among the biggest donors to Democratic lawmakers, who have supermajorities in both houses of the Legislature.

State Sen. John Moorlach (R-Costa Mesa) said revising the vacation policy would help California contain its liabilities, but did not believe that was politically feasible.

“I doubt Gavin Newsom will go to the bargaining table to see if he can fix it,” Moorlach said. “Our governors are very reliant on public employee union contributions, so this is just not going to happen.”

State workers also enjoy another vacation perk most public sector workers have not heard of. When employees cash out their banked leave, the state government pays them not just for the hours they have on the books, but also projects how much additional time they would have earned if they had taken the days off. That means a person with 640 hours of vacation would also be paid for all of the vacation and holidays they would have earned had they taken those 80 days off.

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For some, vacation payouts can surpass annual salaries. And since state labor code requires employers to compensate workers for unused days off based on final pay rate — not what they were earning when the time was accrued — the actual cost of each vacation hour increases over time.

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(Los Angeles Times)

The top 20 employees with the largest payouts in 2018 took home a combined $5.9 million, with all but three receiving raises in the year before they left state service. The raises increased the employees’ leave payouts by an average of $7,500 apiece, The Times’ analysis found.

“That’s in line with pension spiking,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn. — likening it to boosting retirement pay with last-minute salary increases, a practice banned in many cases under a 2012 reform law. “It’s an abuse and it should be corrected with legislation,” Coupal said.

Sartipi took home an additional $15,000 for unused time off thanks to a 4% raise in his final year of work.

The onetime district director for the California Department of Transportation in Alameda County received $405,119 for banked time off — the equivalent of more than 4,400 hours of vacation, or two years of stored leave, according to The Times’ analysis. His annual salary when he retired was $191,208.

When asked for comment, Sartipi declined.

The state controller’s office would not provide the number of vacation days for individual employees, saying the information was confidential, but did provide how many hours agencies had on the books as of 2017. But of the 20,400 workers who cashed out their time off last year, nearly 6,200 received at least $10,000. The majority of vacation payouts were less than $5,000, the analysis showed.

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Many who received large payouts worked in prisons or public safety positions, where staffing shortages and emergencies can make it difficult to schedule vacations.

“I would have rather had been taking time off than taking a payout,” said Kim Zagaris, the former fire and rescue chief for the Governor’s Office of Emergency Services.

Zagaris, whose state career spanned three decades, received $218,000 from unused vacation when he retired last year. He said the tax bite out of that lump-sum payment was around 40%.

The number of vacation hours banked by state workers jumped in the years after 2009, when California furloughed workers during the recession. The forced unpaid time off meant many did not need to use vacation or could not afford to.

In 2016, the Department of Human Resources began tracking the amount of unused leave accumulated and working with managers to have those over the cap create plans to use the time up. A spokesman said the department plans to post the state’s total number of unused vacation hours and the cash value of that liability online later this year.

As of 2017, state workers had accrued 75 million hours of paid leave, according to the controller’s office.

The Department of Rehabilitation and Corrections accounted for a third of those hours, which carried a $1-billion price tag. The California Highway Patrol had $396 million in unused leave on the books, the data show; Caltrans was on the hook for $366 million.

When J.J. Jelincic was ready to retire from the California Public Employees’ Retirement System in January 2018, he opted to take his vacation time instead of a lump-sum payment. Jelincic, who has been on vacation for more than a year, said that was the smarter investment.

Because while on vacation, he has received a 4% raise that went to everyone in his job classification. And since he is still an employee, he is increasing his total state service. The net impact will mean an increase of his pension. Jelincic is also accruing more vacation time while on vacation — and receiving holiday pay.

The state requires employees to get a manager’s approval to burn down their vacation before retiring instead of receiving a lump-sum payment.

Mike Genest, who served as budget director for former Gov. Arnold Schwarzenegger, said there are times when large payouts to hardworking state employees are warranted.

“But, I would say most of the time it is abused,” Genest said.

He received $37,000 in unused time off when he left the Department of Finance in 2009.

“I have no guilt for the taxpayer that I was milking the system,” Genest said. “People knew I worked ungodly hours most of the time.… It could be looked at as abuse, but I tell you I deserved it and I have no qualms saying that as a fiscal conservative.”

melody.gutierrez@latimes.com

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