Details emerge on Cavazos’ pension
Ex-Phoenix manager, who left for job in Calif. this week, ‘spiked’ annual pension to $235,863
Former Phoenix City Manager David Cavazos was able to inflate his annual pension to an estimated $235,863, the second-largest retire- ment benefit in city history, public records show.
City officials on Friday released a breakdown Cavazos received at least a month ago showing his projected pension. The Arizona Republic had previously asked for projections indicating his pension amount, but city officials repeatedly said that an estimate did not exist and that no records indicating his pension amount would be available until his final retirement paperwork is completed in a few weeks.
Cavazos retired on Wednesday to lead the much smaller city of Santa Ana, Calif. The move allows him to collect a pension from Phoenix while he earns the same $315,000
salary in his new role. His new compensation package, which includes a housing allowance, will exceed a halfmillion dollars.
The records show that Cavazos can significantly boost his pension by including perks and cashing in more than $199,000 of unused sick leave, a practice known as “pension spiking” that city leaders had asked him to end. But his City Council-approved contract allows him to include such benefits in his final pension calculation.
Cavazos’ pension is second only to that of his predecessor, Frank Fairbanks, who retired in 2009. Fairbanks spiked his pension to $246,813 through bonuses, cashing in unused sick leave and vacation time and adding in other perks. Fairbanks worked for Phoenix for nearly 38 years, including about 20 as manager. Cavazos worked almost 37 years, four as chief executive.
It appears about half of Cavazos’ pension will go to his ex-wife, Julie Ann. Cavazos previously released a memo to The Republic and 12 News estimating that his pension would be $117,000 to $127,000, but he would not disclose the full amount, citing a sealed divorce agreement.
Cavazos, 53, could not be reached for comment for this article. He previously defended his pension and salary, saying, “You can never focus on cost. You have to focus on revenue. You have to focus on what it brings.”
Spiking elevates an individual’s annual pension payment by inflating his or her end-of-career compensation, a key factor in the formula used to calculate the annual pension benefit. The city’s calculation is based on years worked and final average salary, which can include other forms of compensation above base salary.
City Council members said Cavazos’ hefty pension sheds light on the need for pension reform. Mayor Greg Stanton and several council members have called for the city to eliminate spiking when it approves the next
‘‘ It (spiking) speaks to why we have to change the rules.”
JIM WARING Phoenix councilman, on David Cavazos’ pension
city manager’s contract.
However, council members have struggled to agree on how to define spiking.
One of the biggest factors in enhancing Cavazos’ pension is his $78,000 pay raise that the council approved late last year, retroactive to July 2012. The raise significantly increases the amount the city will pay Cavazos for his unused sick leave and vacation hours because those calculations will be made at his final hourly rate of $151.44, even though his sick hours were accrued when Cavazos was paid less.
“It speaks to why we have to change the rules,” said Councilman Jim Waring, who cast the lone vote against Cavazos’ pay raise.
Veteran council members have lamented that they did not pay more attention to Cavazos’ contract when they approved it four years ago but conceded that there is nothing they can do to stop him from spiking now.
Councilman Daniel Valenzuela, who was not on the council when Cavazos was hired, said although he agrees the city must stop spiking for the next manager, he does not begrudge Cavazos for taking advantage of the provisions in his contract. He suggested Cavazos was underpaid compared with chief executives of similar-size organizations in the private sector.
“David lawfully exercised his contract, and that’s the reality of it,” he said.
According to the city’s estimate and Cavazos’ contract, several forms of perks and benefits that could be considered spiking will boost his pension calculation. His projected pension includes:
» A lump-sum payment of roughly $199,000 for 60 percent of the 2,214 hours of unused sick leave he accrued before becoming city manager. Sick leave he cannot cash out can be added to his years of service, increasing that figure by almost half a year.
» A lump-sum payment of about $42,000 for 246 hours of unused vacation pay.
» A $600-a-month car allowance and a $100-a-month cellphone allowance, as well as annual longevity bonuses of $4,000.
» About $1,500 a month in extra pay he received in lieu of not acquiring additional sick-leave hours as city manager.
» Payments the city makes into a separate deferred retirement account, to which the city contributes about $35,000 a year, or 11 percent of his salary. Cavazos gets that money and has it factored in to his pension calculation.
The release of records showing the scope of Cavazos’ pension spiking comes as the council is expected to vote Tuesday on a plan to combat the practice citywide.
Supporters said the reforms strike the right balance, providing transparency for the retirement system and treating employees fairly. Many have said they worked years with the expectation that sick time would boost their retirement. There also have been concerns that clawing back accrued vacation and sick time would prompt a wave of senior executives to retire.
But critics say the proposal will do little to limit the cost to taxpayers and the city’s ailing pension system. The city would cap the practice going forward.
Pension spiking is a contributor to the city’s rapidly escalating pension costs, which have been influenced by poor investment returns during the recession and during the dot-com bust in the early 2000s. The city this fiscal year is expected to spend roughly $253 million to fund its pension system for general employees and its portion of the statewide pension plan for firefighters and police officers.
The Republic this week calculated that letting employees count unused sick leave, vacation time, cellphone allowances, overtime and other benefits increases the cost to the city’s retirement system by as much as $12 million a year.