The city doled out $5.3 million in cash-out payments in 2009 to workers in exchange for their unused sick and vacation days. Hundreds of workers took modest cash-out payments when they had worked more days than required — most less than $10,000 but some into the double digits. But the largest sums by far were given to some of the city's most seasoned veterans, many of whom retired last year amid tough contract negotiations.
Gayle Likens, a longtime manager in the transportation division of the city's planning department, led the field by receiving a $157,865 cash-out payment — a figure that boosted her overall salary to $250,792. Likens, who retired last year but came back to work for the city on an hourly basis, was one of five city workers whose cash-out figures reached six digits in 2009.
She was trailed by Utilities Supervisor Phillip Ignoffo (a $144,600 cash-out payment), Fire Deputy Chief Daniel Lindsey ($137,520), Fire Captain Kenneth Cardinale ($109,393) and custodian Ted Schroder ($106,069).
City Manager James Keene said the largest cash-out payments went to employees who were hired before 1983, back when the city had no limits on how many sick days and vacation days can be cashed out. Ignoffo, for example, was hired in 1966, while Lindsey and Cardinale both joined the city in 1981. All three retired last year.
"The big driver here is the ability for pre-1983 employees to cash out almost all of their accrued vacation and sick leave," Keene said.
In January 1984, the city changed its policy and set limits on the number of unused vacation days workers can swap for cash. Lalo Perez, director of the Administrative Services Department, said workers can no longer cash out their sick days and have limits on how many vacation days they can trade in for cash.
The Service Employees International Union (SEIU) workers, who make up more than half of the city's work force, can cash out up to three weeks of vacation leave per year. The management group, which doesn't get paid overtime, can cash out up to two weeks of vacation and can also trade in their two weeks of "management leave" (the time off they get as compensation for working extra hours) for cash.
The city's tough contract negotiations with the SEIU and the management group likely played a major role in driving up the cash-out payments last year, Perez said. Last year, the city imposed new (and less lucrative) conditions on the SEIU and stopped giving bonuses to management employees, prompting a wave of retirements.
But retirees weren't the only ones cashing in last year. Some of the younger employees also chose to take cash instead of vacation to compensate for the lack of pay raises and bonuses, Keene said.
The trend is expected to continue in the coming years as most salaries are expected to remain flat. Palo Alto is facing a $6.3 million budget gap in the current fiscal year, which ends on June 30. The gap is projected to gradually expand to about $19.6 million in fiscal year 2020 if the city doesn't cut costs or find new revenue sources.
The city spent $93 million on regular salaries — not including overtime or cash outs — in 2009.
Given the projections, Keene said salary increases for city workers are unlikely in the near future.
"I don't see us having pay raises next year and it's hard for me to see us even having pay raises in fiscal year 2012, given the financial state of the city," Keene said. "Our focus will clearly be on cost containment related to salaries."