Monday, July 14, 2008 | Five years ago, finance director Richard Knott was one of nearly 1,500 employees who took a bonus to leave San Diego Unified. By replacing expensive senior employees such as Knott with younger, lesser-paid workers, the school district estimated it would save $7.7 million by 2008.
The school district gave senior employees 7 percent of their final salary to depart, whether or not they formally retired. For Knott, that totaled an extra $16,799 a year, spread over nine years — a payout that will eventually exceed $150,000.
But though Knott took a buyout, he was still in demand. An expert in California school finance, Knott was quickly asked back to consult San Diego Unified on budget issues. Over the past five years, he has earned more than $480,000 to help navigate the confusing world of school finance, on top of nearly $82,600 he has already earned for leaving San Diego Unified in the first place.
Knott is one of at least 14 high-ranking San Diego Unified employees who left with the “golden handshake” and later returned to earn more money. Over the past five years, San Diego Unified has paid more than $1.8 million to rehire senior employees with special skills, compensating for the brain drain caused by the bonuses. Those same workers have already earned more than $1 million in bonuses for departing in 2003.
Rehiring employees who took the buyout is a unique iteration of a widespread practice known as “double dipping,” or paying retirees on top of their pensions. Though not all of the San Diego Unified employees who took the golden handshake actually retired, all are earning a monthly paycheck for leaving the school district. Those who retired are receiving their pensions as well.
Double dipping is legal, can save employers money on benefits, and is common in government agencies. But what San Diego Unified did is slightly different: It paid to prod senior employees to leave. And then it paid to bring them back.
Employees who took San Diego Unified’s golden handshake can return and keep their bonus as long as they are hired as substitutes, hourly employees, consultants or “professional experts” — anyone with special expertise doing a temporary job that doesn’t normally exist. They earn the same pay, broken down hourly, as when they left the district.
Many of the rehired administrators came in temporarily to fill emergency vacancies as principals or vice principals; one helped guide the math department at Mira Mesa High School. Only one employee, superintendent’s assistant Cathy Ginsky, has given up her bonus to return to work for San Diego Unified, said Ken Leighton, the school district’s accounting director.
“If you have to cover a school, there’s no one better than a retired principal to do that job,” said Bruce McGirr, president of the local Administrators Association. “But when it crosses over to full time — I don’t know. It’s a whole another question for the pension system.”
Retired educators can earn up to roughly $28,000 working in public schools before the teachers pension system starts cutting back their pensions. But retirees can break that rule and earn unlimited pay if their school district asks the California State Teachers’ Retirement System to exempt them.
Out of roughly 26,000 retirees working in California public schools in 2007, about 9,100 got exemptions. Until this January, any educator could come back and earn unrestricted money if they retired from school employment for at least a year. No approval was needed.
Even with the golden handshake, it’s debatable whether returned retirees really cost San Diego Unified. Retirees cost an estimated 17 to 20 percent less than ordinary workers because they don’t get benefits or pension contributions, said Chief Human Resources Officer Sam Wong. And if nobody in the school district can do the work, hiring a retiree costs the same as hiring an outside employee or group, Knott said.
“The real question with bringing someone back is whether the work is necessary for the district,” said Ron Bennett, president of School Services of California, which consults school districts on management and finance. “And if it’s necessary, whether they hire a young part-time teacher or a retiree, the economics are pretty much the same.”
But rehiring employees who are still reaping paychecks for leaving the school district frustrates parents such as David Page, who questioned the wisdom of the golden handshake. Page leads a district committee for schools that receive federal funding for low-income students, and told federal investigators to study whether federal funds were misspent on the bonuses.
Comebacks are a hidden cost of golden handshakes that go unnoticed in budget calculations, he said. Though San Diego Unified estimated beforehand that it would save $7.7 million, Leighton said the school district hasn’t calculated how much the golden handshake ultimately saved — or cost. Rehiring the workers chips away at any savings, Page said, and it illustrates the brain drain that San Diego Unified suffered by paying away its most senior employees.
“All these peoples with master’s degrees and years of service left, and then they hurried up and found them again,” Page said. “What did that cost us?”
Offering the golden handshake was considered a gentler way to cut employees than laying off the newest teachers and classified staff, as San Diego Unified did this year. But when Knott returned to counsel San Diego Unified on how to weather this year’s budget crisis, he dissuaded the school board from offering another exit bonus.
“You’re paying somebody to do something they were going to do anyway,” Knott said. That can help in a single tough year, but when budget problems persist, speeding up retirements means you have fewer retirees in following years. “And they didn’t factor in costs for having to bring people back.”
The phenomenon also raises questions about protections against gaming the teachers’ pension system. Retired employees who go back to work in public schools must get approval to earn above a roughly $28,000 limit while keeping their pension. If they don’t, each dollar they earn above the limit is deducted from their pension. Human resources chief Wong said CalSTRS demands exacting evidence of why a rehired retiree should keep their full pension — an emergency vacancy, for example.
But CalSTRS spokeswoman Sherry Reser said the pension system doesn’t police who gets the exemptions. While the system has guidelines about when school districts can grant exemptions, it doesn’t judge whether employees meet those criteria, “only the completeness of the paperwork,” Reser said. School districts decide which employees are eligible to keep their full pensions while earning above the limit.
Exemptions are “fairly routine, and I’m not sure it’s a good idea,” said school board member John de Beck. “I can’t remember the state ever telling us no.”
Because school districts have already paid for pensions when retirees return, they have little stake in stopping abuses of the pension system, said University of Arkansas economics and education reform professor Robert Costrell. And it’s not the employees’ fault, he said. When retirement incentives push useful employees out the door, it makes economic sense to come back and keep earning.
“You push these expenditures onto the system as a whole, and it has some impact for individual [districts] — but a very small one,” said Costrell. “The problem is when everybody ends up doing it. … Double dipping is a rational response to an irrational system.”