Cincinnati program created to save money — but will it?
A city of Cincinnati program in which taxpayers pay city employees to retire early is supposed to save money to help the city’s pandemic-ravaged budget, but an early look shows those savings won’t come anytime soon.
And some inside City Hall are worried about who will do the work left behind by the 254 employees leaving under the program because there’s a hiring freeze.
A loophole may allow employees to double dip, a practice that lets people retire and collect their pension, but keep working for a paycheck at the same time.
“The City says the ERIP (early retirement incentive program) will save money, but that is doubtful,” said Chris Jenkins, a lawyer for Cincinnati Organized and Dedicated Employees, a union that represents 850 of the city’s professional workers. “This is using taxpayer money to pay people not to work. And it’s not a little bit, it’s a lot.”
How we got here
Back in May the city was facing a possible $80 million deficit due to falling earnings tax revenues because so many businesses had been shuttered for safety as the coronavirus spread across the country. The city budget included cuts to nearly every department to balance the fiscal year 2021 budget, which began July 1.
One of the cuts came via the early retirement incentive program.
Here’s how it works: Typically city employees pay 9% of their salary into the pension system and the city pays 16.25%, bringing the total pension contribution to about 25 percent of a person’s salary.
When somebody takes the early retirement program and stops working, they’re given two years of the city covering both parts of the pension contribution. So if an employee’s salary is $100,000, under this program the city would contribute $25,000 a year, or $50,000 over two years.
The city had estimated 499 of its roughly 6,000 employees were eligible to take early retirement. The deadline to apply for the early retirement program has passed and city officials said 254 people signed up. The program was for anyone who had at least 28 years of service.
The city is calculating the savings now, said Assistant City Manager Chris Bigham, who is also the city’s budget director. “The savings comes from the elimination of vacated and vacant positions,” he said.
A memo to council members detailing the program estimated that if 50% of the people eligible to take early retirement the city did so – and nearly half did – the city would save a total of $8.4 million. But, only $3.5 million of that savings would come from the general fund, which pays for basic services like police and fire and is used to fix roads and bridges. The rest is savings to other budgets like waterworks and MSD, which don’t have the same shortfalls and issues the general fund budget does because the customers have remained steady.
Additionally, on the way out the door, employees collect unused sick and vacation pay, which if everyone took the buyout would have total another $10 million, $3.2 million of it from the general fund.
Using that formula – saving $3.5 million, but paying out $3.2 million – shows there’s little savings in the short term. Not replacing employees is where savings would come later but Jenkins said he doubts it’s possible to go on without replacing at least some of the employees.
In fact, 12 of the 254 are participating in the program, but won’t leave for some time because their jobs are deemed so essential nobody else can do them. Their pension kicks in when they leave.
No one double-dipping yet
The early retirement incentive program creates a loophole that could pave the way for employees to double dip, the practice of retiring and collecting a pension while working the same or similar job and drawing a paycheck.
Some defend double dipping as a good public policy that allows governments to retain experienced employees and saves taxpayers money because the pension program covers health insurance. Others, however, criticize it as an unnecessary drain on strained pension funds. The practice allows public officials to do something most private sector workers can’t: Draw two checks – a pension and a paycheck – for doing the same or a similar job they did before retiring.
In 2008, the city of Cincinnati banned double-dipping, calling it bad public policy and with concerns that it could put a strain on the then-ailing pension system. But in 2013, in a 5-4 vote, City Council repealed the ban so the city could hire retired city employee John Deatrick to oversee building the streetcar.
They meant it to be a one-time-only deal to hire the most qualified person.
When Cranley ran for re-election in 2017 against then-cincinnati City Councilwoman Yvette Simpson, he ran a campaign ad critical of Simpson’s support of the streetcar, with this language in the campaign advertisement related to Simpson’s yes vote to hire Deatrick, “She even voted to allow him to doubledip on his government pension.”
“There have been no waivers granted as of today,” Bigham said. “If the need arises, the city manager may approve an employee if necessary but again, there have been no waivers requested or granted.”
Jenkins called the loophole “an invitation for the kind of corruption, cronyism and favoritism that has so often created problems in the City service. The city prohibited double-dipping before it repealed it so one person could come back and run the streetcar. It was wrong then and it’s wrong now.”