Fuzzy Math

That Boston College DROP study missed a few things.

by Ralph Cipriano

Evan M. Lopez (CLICK IMAGE FOR LARGER VERSION)

[ good government ]

Last Tuesday, with great fanfare, the Nutter administration released the $80,000 report it commissioned on the city's Deferred Retirement Option Plan (DROP). In contrast to the investigation done by this newspaper [Cover Story, "The Billion Dollar Boondoggle," Ralph Cipriano, April 22, 2010], which tracked more than $1 billion in present and future payouts under DROP, the Boston College report argued that since its inception in 1999, DROP had cost taxpayers only $22.3 million per year, or about $258 million total.

If only that were true. As it turns out, that report overlooked a few significant costs: For instance, Boston College left 48 elected officials out of its study of the retirement habits of some 63,000 city workers. Included in that group are 13 elected officials who are either enrolled in DROP or have already cashed their bonus checks: City Council members Anna Verna, Marian Tasco, Frank DiCicco, Jack Kelly, Donna Miller, Frank Rizzo and Joan Krajewski, former Mayor John Street, former District Attorney Lynne Abraham, City Commissioner Marge Tartaglione, Register of Wills Ron Donatucci, Sheriff John D. Green and former Clerk of Quarter Sessions Vivian T. Miller.

These 13 officials alone have received or are scheduled to receive a total of $4.7 million in DROP bonuses, an average of $364,592 each.

DROP is the legal double-dip that allows city employees to collect their regular salaries and a cash bonus the day they leave equal to up to a maximum of four years of their pension benefits. A total of 8,745 former and current employees have enrolled in DROP and have received or will receive more than $1 billion in payouts.

The study commissioned by Mayor Michael Nutter was a narrow academic exercise that looked at only the pension side of the double-dip, contrasting the debts of the pension plan under DROP with statistical projections of what the costs to the pension fund would have been without DROP. The study ignored the salary end of the double-dip.

Thousands of employees are still eligible to sign up for DROP; if they apply for the program before City Council acts, they will not lose their cash bonuses even if Council acquiesces to Nutter's demand — made after the Boston College report gave him political cover — and abolishes DROP. The Daily News reported last week that the day after the mayor announced his intention, 106 employees signed up for DROP. Assuming they're all approved, and they collect what other employees have averaged in the past decade, $109,277 each, there goes another $11.6 million in DROP bonuses — in just one day.

The Boston College study also did not include what taxpayers are spending to fund a $1.25 billion bond issue taken out in 1999 — six months before enacting DROP — to boost the city's chronically underfunded pension plan. Without that bond issue, the pension fund, which in 2009 had $4 billion in assets and $10 billion in debts, would be in even worse shape. Between 1999 and 2010, the city spent more than $850 million to pay down its debt on that bond issue, and the city will spend more than $100 million annually to pay off that debt for the next 19 years. As Nutter has noted, since the city adopted DROP, the taxpayers' annual cost to fund pensions has risen from $200 million to more than $600 million.

Anthony Webb, an economist and one of the authors of the Boston College study, was asked at a press conference last week what benefit taxpayers had derived from the money spent on DROP. "The DROP program is obviously popular with the city employees," he said with a nervous smile. "If the city offers a DROP program, it undoubtedly makes it more attractive to a higher quality of employees."

That's it, folks: That's apparently what you've purchased for $1 billion. Or is it? On the June 30 front page of The Philadelphia Inquirer, however, DROP's defenders advanced a different argument. As the Inky put it, "Others said [DROP] offered less valuable employees who would work to the grave incentive to leave."

So DROP, according to its proponents, rewards our most valuable employees and weeds out the deadbeats. And maybe it is, as Nutter suggests, a good management tool. But in this city, where we're closing down firehouses, not hiring 200 new cops and raising property taxes 10 percent, a good management tool that costs even $258 million is too expensive to keep.

(editorial@citypaper.net)