Goldwater: Tempe firefighters illegally spike pensions

• Tempe’s veteran firefighters can exchange sick and vacation days for salary
• Critics contend the practice violates state law

Tempe may be violating a state pension law by allowing firefighters at the tail end of their careers to exchange annual sick leave and vacation time for increased salary, according to an Arizona Republic examination of city pension practices.

By turning those sick and vacation hours into dollars, firefighters can boost their salaries over their final work years, the same years used to calculate their monthly pension checks.

Those higher salaries translate into fatter retirement checks, which can wind up costing taxpayers millions of dollars extra over the years.

Over the past three fiscal years, Tempe paid about $670,000 in direct payments to firefighters who cashed in their annual vacation and sick time and about $242,000 in additional pension costs because of the practice, according to city records.

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Pension spiking in other Valley cities

Pension spiking isn’t unique to Tempe. Phoenix and other Arizona cities have struggled with the issue for years in various forms.

In 2012, Phoenix stopped counting unused sick leave toward an employee’s pension. Unions sued and last month a Maricopa County judge ruled against the city, saying Phoenix didn’t have the authority to unilaterally enact those changes.

The Goldwater Institute, a conservative think tank based in Phoenix, said Tempe’s treatment of firefighters’ sick and vacation hours violates a nearly decade-old state law.

“That should not count in any way, shape or form,” said Jon Riches, a Goldwater Institute attorney, when his organization was asked about the issue. “This is a clear, unlawful expenditure of public funds.”

But proponents say the practice conforms with state law, rewards longtime firefighters with extra pay and offers an incentive for employees to refrain from calling in sick, which saves money on overtime.

“The critics of performance pay are critics of firefighters and of rewarding hard-working, longtime employees of the City,” wrote Don Jongewaard, president of the Tempe Fire Fighters Union in an e-mail to The Arizona Republic. “They are trying to make a political issue of out something that is perfectly legal.”

The practice in question was until recently called “payment in lieu of medical and vacation leave” and has been a part of firefighter contracts for years.

It allows firefighters with 17 years of experience and above the opportunity to exchange whatever sick leave or vacation time they could earn in a given year for salary. Employees can participate in the benefit for up to six years.

Veteran firefighters can earn up to 268 vacation hours and about 134 sick leave hours a year and can get paid for all of those hours.

State law forbids cities from counting “payment for unused sick leave (and) payment in lieu of vacation” toward an employee’s pension, and up until recently the words “in lieu” were used to describe the practice in Tempe.

But the most recent contract that the firefighters union negotiated with the city, which went into effect on July 1, 2014, and runs through June 2016, instead calls the practice medical and vacation performance pay, although the specifics of the practice remain largely unchanged from previous contracts.

Jongewaard said performance pay is a better description and an important distinction.

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“Performance pay is not payment for unused sick leave (or) payment in lieu of vacation,” Jongewaard wrote. “The difference is critical. Payment for unused sick leave or payment in lieu of vacation is when an employee exchanges or trades already-accrued sick or vacation hours for income at the end of their career. That is not happening here because employees are not selling their sick or vacation hours for pay. They are opting out of accruing more hours that they do not need, and opting in for a salary increase.”

Critics still take issue

But the rebranding doesn’t make it any more legal, Riches said.

“They have converted something that has nothing to do with retirement into retirement enhancers,” Riches said. “One day of sick leave is one day of sick leave, a day’s pay. But if it’s used to artificially inflate an employee’s pension for the entirety of that employee’s retirement, the taxpayers are on the hook for that for 40 years-plus in many cases.”

In a statement to The Arizona Republic, Tempe’s City Attorney’s Office said it has been examining pension funding practices and will present the findings to the City Council at a later date. The city does not currently have an analysis or a legal opinion on firefighter performance pay.

The city has relied on a 2005 letter from the Public Safety Personnel Retirement System administrator “that implied the payments could be considered pensionable” as one way to justify the practice.

“If legal issues arise surrounding our practices, they will be examined,” the statement read.

A PSPRS spokesperson said cities can decide what to count toward a pension since they are ones who have to pick up the tab.

“As long as the compensation or benefits offered do not violate state law, PSPRS doesn’t have an opinion,” the spokesperson wrote in an e-mail.

Off-duty work no longer counted

Tempe recently put the brakes on another form of pension spiking that involved city police officers.

For years, the city counted off-duty work for traffic control at churches, and security at shopping centers and special events toward an officer’s pension.

In the past three years, third-party businesses paid officers about $3 million for off-duty work, according to city records.

Assuming officers received that entire amount, the city would have paid roughly $1 million over that same time span toward officers’ pensions.

But the city stopped counting those dollars toward pensions just last month.

City Attorney Judi Baumann wrote an opinion advising against the practice because the state statute “appears to exclude retirement contributions for off-duty work … (performed) for private, third-party entities.”

Even though the state law has been amended over the years to rein in pension costs, Deputy City Manager Ken Jones said the city wasn’t intentionally disregarding the law.

Instead, it moved slowly on a murky law because it didn’t want to wind up in legal trouble.

“It wasn’t our intent not to comply with the law,” Jones said. Rather, the city was trying to avoid a scenario in which it interpreted the state law too strictly and failed to pay retirees their due. “We didn’t want to get sued six years later and have to pay it back.”

Tempe surveyed other Valley cities such as Phoenix, Mesa and Chandler to see what they counted toward a police officer’s or a firefighter’s pension.

None of the cities that responded counted either off-duty pay or in lieu of vacation or sick leave pay toward their pensions.

Reporter Dustin Gardiner contributed to this article.