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As Calif. Goes Bankrupt, State Employees Rake In Vacation Time, 6-Figure Severances

State officials have let employees amass vast amounts of leave time and end their careers with six-figure payouts – one topping $800,000, an investigation has found.
 
 
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Amid a crippling fiscal crisis, managers throughout California’s government have routinely allowed their employees to amass unused vacation time, enabling hundreds of workers to end their public-service careers with payouts topping $100,000, a California Watch investigation has found.

One worker combined vacation and compensatory time to walk away with more than $800,000, records show.

In the past four years, nearly 500 government workers earned six-figure paychecks mostly for unused vacation. In total, the state spent $486 million between 2006 and mid-2009 to pay more than 52,000 employees for time-off benefits – which includes a small percentage of unused comp time and holidays that weren’t taken.  

Many of those cash payments appeared to violate rules designed to limit how much vacation time state workers can accumulate during their careers. Most employees are allowed to bank 80 days worth of unused vacation, but records show that supervisors routinely allow them to exceed that amount.

And the problem is growing, state payroll officials said. Personnel documents estimate that as of December 2008, more than 14,000 active state employees had already exceeded their vacation caps.

In one case, James C. Tudor Jr., the former president of the State Compensation Insurance Fund, cashed out six times more vacation time than regulations allow, taking home more than $550,000 after he was fired in 2007 in the wake of an internal probe that “uncovered serious abuses at the highest levels,” according to state Senate documents.

Another state employee was allowed to accumulate large amounts of comp time in addition to unused vacation days, taking home $815,000 when he left state service. The payout for Kim Nguyen, a former doctor at the prison substance abuse facility in Corcoran, includes more than twice the allowable amount of vacation time and nearly 10 times the limit of comp time for physicians, records show.

In an interview, Nguyen said a heavy workload kept him from using his vacation, and his supervisors paid for extra shifts in comp time instead of overtime, leaving him few options.  

“They never hired enough doctors,” he said. “I never complained so they thought we could handle it. … They kept asking us to work more.” 

These large payouts were made during a tumultuous time for the state budget, when lawmakers trimmed programs for child welfare, elder care, domestic violence and other state services to help eliminate multibillion-dollar budget gaps. This year, lawmakers are scrambling to make even more cuts in the face of a $20 billion shortfall.

Amid this, Gov. Arnold Schwarzenegger has instituted mandatory furlough days that most state workers must use before their vacation days. The result, according to several large departments, is that workers are banking more time off than ever, offsetting short-term savings with long-term liabilities.

Though some departments argue that their employees must work long and unpredictable hours, critics say the payments highlight a system defined by lax management and generous benefits unavailable to most workers in the private sector. 

“This is part of the whole milieu of excess compensation packages in the public sector,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. 

Managers failing to follow state regulations  

Most state employees build up vacation and annual leave at a rate of between 7 and 20 hours a month, depending on the type of leave, bargaining unit and years of service.  

State regulations cap the amount of vacation time most employees can accrue at a maximum of 80 work days, or 640 hours. Some employees collect “annual leave time,” which includes both vacation and sick days that is subject to the same limits.

The cap is higher than at least three other large states – New York, Florida and Texas, none of which allow employees to cash out more hours than California. It also dwarfs caps at some of the state’s largest private employers, including Oracle, Western Digital and Nestle USA, records and interviews show. Nestle in Glendale, for instance, caps its longest-serving employees at 280 hours.  

If a state employee goes over the limit, “there must be a plan” to reduce the balance before the next year, according to the state employee handbook. Managers are supposed to ensure that their employees stay under the cap except under “extenuating circumstances,” which gives managers broad latitude to grant exceptions.

When they cash out vacation days, state workers are effectively getting paid twice – once for the day they worked when they could have been on vacation and, when they retire, again for that vacation day they didn't use.  

Employees are paid for their cashed-out vacation at the salary they received when they left the state, meaning that the payments typically get more expensive for the state over time. Once an employee earns vacation – even if they exceed the cap – state law entitles them to cash out when they leave their state job.  

It is impossible to calculate precisely how much the state has paid over the allowable limits because some select workers are subject to different caps. Payroll data collected by California Watch from the state Controller’s Office doesn’t distinguish between unused vacation time and payouts for other time-off categories, such as comp time.

But public records and interviews with department managers suggest the state likely paid at least $100 million, and perhaps tens of millions more, to state employees who exceeded the 640-hour ceiling between 2006 and mid-2009, the period examined by California Watch.

Julie Chapman, chief deputy director of policy at the state Department of Personnel Administration, acknowledged that the estimated $100 million in payments over the limit – more than one-fifth of the $486 million in total leave payments – constitutes a fair estimate. 

The actual amount of vacation payouts over the limit could be higher: Not included in the total are university workers or state employees who left their jobs but continued to draw a state paycheck until their unused vacation time was exhausted.

The Department of Personnel Administration, which manages workplace issues for the state’s 237,000 employees, proposed cracking down on the vacation-payout cap during contract talks in 2005 but later abandoned the idea in favor of other concessions, Chapman said. 

During negotiations, union representatives pointed fingers at managers, who were exceeding the cap more often than rank-and-file workers, Chapman said. Indeed, state documents estimate that nearly 20 percent of non-union workers, who are typically managers, had surpassed their caps as of late-2008, compared to about 4 percent of union employees.

“The unions screamed mighty heavily,” Chapman said. “They specifically told us that it wasn’t so much of a rank-and-file problem as it was a management problem.”

But when the department proposed a similar crackdown among management, organizations such as the Association of California State Supervisors pushed back, Chapman said, leaving enforcement of the vacation cap off the bargaining table. It hasn’t been brought up since.

Schwarzenegger spokesman Aaron McLear referred questions about the cash-outs to the Department of Personnel Administration.

Vacations present challenge for some state agencies

Many departments – particularly public safety agencies – argue that the unique and unpredictable nature of their work demands that employees take less vacation time than they earn, leaving them to accumulate large totals.

California Highway Patrol officers might be forced to cancel their vacations during emergencies, for example, or department managers might be understaffed and overworked, allowing vacations only in short spurts.

In other situations, asking an employee to work extra time and bank their vacation could cost a department less money than paying another worker overtime to cover this shift, some managers argued. 

“There’s the spirit of the law and the letter of the law,” said Ramona Prieto, assistant commissioner of the Highway Patrol. “The letter says ‘here’s our limit’; the spirit says we’re a 24-hour safety organization.”

Even smaller departments that don’t serve a public safety function, such as the Governor’s Office and the Air Resources Board, reported spending more than $1 million on cash-outs between 2006 and 2009.

When employees retire, department officials said they typically cover the cost of their unused vacation and leave time by finding money within their budgets. Often, that means delaying the hiring of a replacement, which can lead to work being stalled.

When he was the director of the now-defunct California Electricity Oversight Board, Erik Saltmarsh said state rules would not allow him to take long vacations because no subordinate at the agency was ranked high enough to legally fill in on his behalf. 

“It got to a point where I literally had to appoint an acting executive director and have that approved for me to go on extended vacation,” said Saltmarsh, who records show received a lump-sum payment of $162,000 when he left state service after 16 years in 2008. “So I ended up taking vacation one or two days at a time.”

For other state workers, the payouts can mean financial security and a reward for decades of hard work. 

With the security of a pension, health care and a $221,000 check for unused leave, former Highway Patrol sergeant Michael Teixeira is now running for sheriff of San Luis Obispo County. The 36-year veteran has promised to donate 20 percent of his salary to gang diversion programs if he is elected.

“They just kill you on taxes,” Teixeira said of the vacation payment. “I almost hate to say it, but we got so much time off that it got to be that you couldn’t use all that you earned.”

Largest payments went to doctors, insurance fund director

Of the more than 52,000 employees who left state service with a check for unused leave, nobody left with more money than Kim Nguyen, a doctor at the state’s substance abuse facility and prison in Corcoran. When he retired in 2008, Nguyen left with two checks totaling more than $815,000.

Nguyen’s case is unusual because he accumulated so much comp time in addition to vacation days. Vacation time constituted the majority of the payouts made by most state departments.

A series of raises given to prison physicians in order to attract new applicants nearly doubled his salary over two years, Nguyen said. “And that almost doubled the value of my vacation time.”  

Nguyen built up the time, according to prison health care officials, by working regular on-call shifts and banking the time as comp because the prison did not allow overtime. The accruals were approved by three chief medical officers during Nguyen’s 10 years with the state: Rene Iway, Edgar Castillo and most recently Perlita McGuinness, according to the receiver’s office.  

Luis Patino, a spokesman for the federal receiver that took control of California’s prison health care in 2008, said the facility has had problems recruiting and retaining employees, which has caused doctors at the facility to work an extraordinary number of extra shifts. The current receiver, J. Clark Kelso, was not in place during Nguyen’s tenure.

Although Tudor, the fired State Fund president, took home slightly less – $550,000 – nearly all of his payment was for unused vacation time. Fund spokeswoman Jennifer Vargen said Tudor, whose salary was $273,000, cashed out 488 days of unused annual leave time, compared to 38 days of holidays and personal leave.

“He certainly had a reputation for working around the clock,” said Vargen, who also argued that because the agency is funded through employer premiums, taxpayers did not fund Tudor's payment directly.

Tudor did not respond to numerous interview requests.

Audits find multiple abuses of overage system 

Although department managers and former employees argue that long hours and hard work cause most of the overages, state audit reports are filled with stories of lax management and employees who have abused the system.

In a 2008 report by the California State Auditor, investigators described a California Department of Justice manager who in 2006 allowed four subordinates to informally take, but not record, 727 hours of comp time. The manager “did not verify whether his employees’ time reporting was accurate because he trusted his employees to track their own time,” the report says.  

A 2006 inspector general’s report for the California Department of Corrections and Rehabilitation claimed that antiquated accounting systems made it impossible to verify whether one employee had indeed banked the 2,376 hours of leave he collected – totaling $116,000 if cashed out. The same employee claimed to have taken no vacation or sick days for more than six years and to have worked every holiday during that period.

“Unfortunately, there are people who manipulate the system to get a huge amount of (banked vacation),” said Teixeira, the retired Highway Patrol officer.

Departments have not yet studied the impact of Schwarzenegger’s furloughs on banked leave, but a state Senate investigation last fall estimated that corrections workers have banked at least five times more vacation than usual since furloughs began.

“The vacation time that we have is basically growing and growing and growing and we feel that’s going to hold the state liable to pay us down the road,” Juan Nolasco, a psychiatric technician at Coalinga State Hospital, told Senate investigators. “They’re going to have to pay us.”

 
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