DROP Dead?

The mayor changes his tune on the DROP program. Sort of.

by Ralph Cipriano

During the past three years, the city has paid out $40.9 million to 825 city employees who have retired under the costly, experimental pension program known as the DROP (Deferred Retirement Option Plan).

That’s an average cash payment of $49,618 per employee, according to documents released by the mayor’s office in response to a Freedom of Information request from City Paper.

In a follow-up to a City Paper cover story ("Street to Unions: DROP Dead," July 24, 2003), Mayor John Street went on the record, saying, "We will ultimately end the DROP program." On Tuesday, however, Street maintained that he never meant to give the impression that the DROP was officially dead.

"We can’t keep it in its current form," he said. "We might be able to have some form of the program, but it’ll have to be significantly modified."

City officials see the DROP as a cost-neutral way to retain more experienced employees. The city’s unions, in an election year, are unanimously behind it and two City Council members have already proposed legislation that would create a newer and -- as some critics say -- more expensive version of DROP.

In addition, Sam Katz, Street’s Republican opponent for mayor, has said he would meet with union officials after the election to try and figure out a way to reduce the cost to taxpayers and keep the DROP.

The list of payments released by the mayor’s office this week include $54,292 to former City Councilwoman Augusta A. Clark, who retired this past April from her job as secretary of boards and commissions. Clark, who was in the DROP for less than seven months, received the cash payment in addition to her annual salary of $99,192, according to the records.

The highest payment went to Bruce J. Forstater, a police inspector who had an annual salary of $61,008. He received a cash payment of $225,405.

The list also includes $125,626 paid to Joseph J. Herkness, the former $66,576-a-year executive director of the city Pension Board and one of the officials who set up the DROP plan four years ago.

Clark could not be reached for comment, but Forstater said, "I think for the employees, it’s a wonderful program. It seems like a once-in-a-lifetime opportunity."

Agreeing is Herkness, who added, "I would keep it. I don’t know of any DROP plan in the country that’s been terminated."

The DROP, which has been successful in cities like Houston, Dallas and Baltimore, is a great deal for veteran employees. In essence, it’s a legal double dip, allowing veteran city employees to collect both their pensions and salaries while working up to four final years on the job. The wrinkle is that while employees collect their regular paychecks, pension money is set aside in a tax-deferred account that pays 4.5 percent interest. That pension money is handed to the employee the day he or she walks off the job.

Previously, the city released a list of 3,484 city employees enrolled in the program. If they all stay in the program for the maximum of four years, the workers would be paid an average of more than $132,000, for a total of $461 million, according to the records.

The new $40.9 million list covers employees who did not stay in the program up to the maximum four years but retired prematurely, according to city Finance Director Janice Davis. It’s made up of "lower-paid people," Davis said.

"There’s a lot of people like school crossing guards, custodial workers, semi-skilled people who have had much smaller pension amounts and much fewer years of service," she explained.

If city projections for future payments to the 3,484 employees currently enrolled in the DROP are accurate, including the $40.9 million already paid out to 825 employees, the total bill for DROP payments would exceed $500 million.

There’s a price, however, for taxpayers. City contributions to fund pensions are projected to rise from a total of $222.8 million in fiscal year 2004 to a total of $378.9 million by 2008, an increase of $156.1 million, or 70 percent. (The figures include contributions to the pension fund and debt service owed on pension bonds.)

Davis, the finance director who previously criticized the DROP as an unnecessary program that will extract a "very high price" on the city pension fund, also sounded a conciliatory note last week.

She said she plans to sit down with City Councilman James Kenney, one of the sponsors of legislation to create a new DROP, to see whether the cost of the program could be reduced in an effort to keep it.

"We are actually working together to see if we can have something that’s cost-neutral," she said. In spite of her earlier criticism of the program, "I’m willing to listen. My only concern is cost neutrality."

While Kenney was unavailable for comment, Davis added that if there was a way to make DROP cost-neutral, "I would be the first to cheer it on."