"I'm Not Going to Deal With That"

Verna and Nutter respond (sort of) to our DROP investigation.

by Ralph Cipriano

Evan M. Lopez

[ what, us worry? ]

City Council President Anna Verna looked shocked last week when a Fox 29 reporter asked about "The Billion Dollar Boondoggle," this paper's April 22 cover story on the city's Deferred Retirement Option Plan (DROP). Mayor Michael Nutter bristled when City Paper asked if he was concerned about the more than $1 billion in payouts under DROP.

Both Verna and Nutter said they hadn't read the story. But the media did. The Philadelphia Inquirer ran an April 27 editorial calling on the mayor and City Council to end DROP. The Daily News ran a cartoon two days later mocking Verna and DROP, and its own anti-DROP editorial April 30. Fox 29 ran seven stories in eight days about "the controversial DROP program."

As this paper reported, DROP allows city employees to double dip in their last four years on the job. Employees enrolled in DROP collect their regular salaries plus up to 48 months of pension benefits in a lump-sum cash bonus the day they walk out the door. Besides their regular salaries and cash bonuses, city employees retiring under DROP also get their regular pensions plus five years of health insurance. And the city has allowed a select few, including Verna — if she wishes — to retire for a day, collect their cash bonuses and go back to work the next day at their regular salaries.

Between 2000 and Feb. 1, 2010, this newspaper's investigation revealed, some 6,638 city employees retired under DROP and collected cash bonuses that averaged $109,277 each, for a total of $725 million. In addition, 2,107 employees, including Verna and five other City Council members, are currently enrolled in DROP. If they stay in the program the maximum four years, according to city records, the 2,107 employees will collect cash bonuses that average $160,525 each, for a total of $338 million.

That's more than a billion dollars in payouts.

"DROP is bad all over," said the Inquirer editorial's headline. "A lengthy story in the City Paper last week detailed a number of red flags regarding DROP. ... The plan has cost taxpayers hundreds of millions of dollars and provided little to nothing in return. ... Before trying to raise taxes, Mayor Nutter and City Council should end DROP for all employees."

Much of the reaction to the story focused on the cash bonuses, the largest of which is scheduled to go to Verna on Jan. 14, 2012 — $584,777. "That's fantastic, where do I sign up?" said Mike Jerrick, Fox 29's "Good Day Philadelphia" anchor.

Verna was not happy when Fox's Dave Schratwieser pointed a microphone at her after an April 29 City Council meeting. "We have a very challenging budget that we must deal with," Verna said. "That's what I'm going to focus on. I'm not going to focus on the DROP program."

"But they say that it's wasting millions of dollars," Schratwieser said.

"Who ... says ... what?" Verna replied, visibly angry.

"An analysis done by [City Paper] called it a boondoggle," Schratwieser explained. "The Inquirer did an editorial this week. There's a cartoon in the Daily News today."

"I did not read the article," Verna said as she was whisked away by aides. "I don't know what it says, and at this point in time I'm not going to deal with that."

Two floors below in City Hall, City Paper asked the mayor what his reaction was to the Inquirer editorial. "The DROP program is actually under study right now ... and we'll see what the results are," Nutter said, referring to an $80,000 Boston College study on DROP due in two weeks.

Asked about his views on DROP, the mayor said, "I'm concerned about the DROP program from the standpoint of how does it affect public employees' behavior. If you use it right it actually is a good management tool to anticipate longer-tenured employees who may be at a higher salary, to anticipate their retirement and replace them with, in many instances, possibly someone younger at a lower salary, or possibly not replace them at all.

"But we also don't know what the real impact is on employee behavior. Are people staying around longer because we have a DROP program? Are people getting into it just because it exists and retiring earlier than they might otherwise do? We'd like to know the answers to those questions."

(In 1999, the year the city adopted DROP, non-uniformed employees retired at an average age of 60.1 years. By 2005, non-uniformed employees, who constitute 67 percent of DROP enrollees, retired at an average age of 57, according to the most recent figures available.)

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Getting rid of DROP won't be easy. "The mayor's office is pretty powerful, but I don't get a magic wand to just do away with things," Nutter said. "DROP is a bill, it's a law. It would have to be removed through the legislative process if we decide to go in that direction. So I can't eliminate it by myself even if I wanted to."

Is he concerned about the billion dollars in past and future payouts?

"Of course," he said. "I did not read the story that you're referring to so I'm not going to get into details about a story that I haven't read. But one of the major fallacies of people who like talking about the DROP program is, a) they generally don't know what they're taking about; b) the money involved is the employees' money ... "

"That's not necessarily true," he was told. City employees contribute between 1.8 percent and 7.5 percent of their annual salaries to the pension fund, unless they're enrolled in DROP, and then they don't have to make any contributions at all.

"I'm not going to debate the issue with you," the mayor said. "I'm just telling you it's their money. They're getting it in different ways. ... But I do have concerns about the program. We're going to study it ... and we'll see what the results are."

City officials also continue to defend Kenneth A. Kent, the actuarial consultant who set up the original DROP program in 1999. As City Paper reported, Kent and his former employer, Mercer Inc., have been the subjects of negligence lawsuits in other parts of the country for making mistakes and statistical miscalculations. But everything's sunny in Philadelphia.

"We are very satisfied with the work that [Kent] is doing for the pension board," reiterates Rob Dubow, the city's finance director and chairman of the pension board, in an e-mail.

(editorial@citypaper.net)