While pensions and retiree health liabilities garner lots of headlines as dramatic fiscal threats, a less-publicized, but still critical concern is leave liability -- the amounts that are paid out for unused sick or vacation leave to departing employees. We researched and wrote about this issue in a 2021 report for UKG, called Employee Leave in the Public Sector: Current Challenges and Solutions.
We're focusing on this today, thanks to a powerful new comptroller's review in New Jersey that points to the municipalities in that state's failure to comply with laws pertaining to leave, "leading to both actual waste and abuse of public funds, as well as substantial future liabilities for these municipalities.”
But first a little background: “No leave issue is more of a fiscal threat to governments than ‘Leave liability’,” we wrote in the UKG report. “Unused leave represents an often-escalating unfunded liability that comes due when employees retire or otherwise sever their relationships with their government employers.”
Over the years, governments have passed various laws that attempt to limit this liability. New Jersey tried to do this in 2007 with legislation that added a $15,000 cap to the amount of sick leave that could be accumulated for senior employees, a rule that was extended in 2010 to all employees hired after May 1 of that year. There were also other elements to these laws that barred annual payouts and payouts that were made when employees left government for reasons other than retirement. They also included some provisions on payouts for unused vacation time.
But policy doesn’t necessarily yield results when it is not implemented well – a problem uncovered this month by New Jersey’s acting comptroller, whose investigation of leave payouts in 60 New Jersey cities and towns found that many aspects of the 2007 and 2010 laws were widely ignored – and to a “startling degree”.
According to the comptroller’s review, “The laws have been ignored, sidestepped, and undermined in almost all of the municipalities reviewed.” According to the Office of State Comptroller, 57 of the 60 municipalities it studied “failed to fully comply with the laws."
“Legislators from throughout New Jersey thought they had reformed the state’s sick leave policies, but the reforms have largely failed with these 60 municipalities and likely many more,” acting State Comptroller Kevin Walsh said, according to a July 7 New Jersey Monitor article.
How many more is an open question. The 60 municipalities studied are but a small sample. The New Jersey 2007 and 2010 laws apply to “565 municipalities, 600 school districts, and 21 counties, as well as hundreds of other local entities like water, sewer, and parking authorities,” according to the comptroller’s office.
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