DROP: Can Nutter’s Report Be Trusted?

BY JOE SHAHEELI/ First commissioned in September of 2009 by Mayor Michael Nutter, the “official” release last week of the Report on the Deferred Retirement Option Plan, known to all as DROP, has split City employees and their unions from the Administration.
While most publications took the report at face value and ran with the numbers quoted for the overall cost, the Philadelphia Public Record found the Center for Retirement Research at Boston College – which was given the chore of determining the impact of DROP on the City budget – actually released a report on Jun. 15, 2010 to the Administration. That report placed the cost at a number $100 million below what was quoted in the Jul. 29, 2010 version.
In a third version, uncovered by Inquirer writer Jeff Shields and dated Oct. 30, 2009, the cost was not quantified but simply said, “Has a substantial cost to the Employer.”
That initial report came out a month after the Boston research group was given the go ahead to do the study, though their contract was not finalized until December of last year.
While there can certainly be a debate over the merits of the program, these facts raise the following questions:
Whose report is this really?
Why was the report modified?
Can it really be used to determine the viability of the program?
All indications are the authors are well respected in their field and have done some outstanding work in past studies. Unfortunately, this study was conducted without key requested materials being provided by the City, as requested on page 10 of the report.
The authors admit to using only about half the participants’ data and to spreading the information across the entire study.
Administration officials have been quoted as saying the first reports were simply works in progress, but a review of the three versions reveals no real or substantive differences other than the amounts listed for the costs of the DROP Program.
In fact, the Jun. 15 report lists the period covered as 2003-2008. In the version given to the public on Jul. 29 was a footnote on pages 21 and 22 in which the authors say they excluded data from the period 1999-2002 and also data from the year 2009, which only leaves the period from 2003-2008, as stated in the earlier report. So there were no added statistics in the official version now being debated.
The report deals with behavior of employees and possible retirement choices, but refuses to answer the question of whether the program is of value to the city’s taxpayers. In its final analysis, the author closed with, “such a conclusion is outside the scope of this study.”
Many people have talked about elected officials’ participation in this program and it should be stated that no newly elected official is eligible to participate in DROP. Council has passed legislation removing them from eligibility.
What current elected officials who are enrolled in this program will do remains to be seen.
The regulation states DROP is irrevocable, but a City Solicitor’s opinion has allowed for a candidate to run and be reelected.
The savings to the pension fund and the citizens in this situation would be approximately $120,000 a year for each person remaining in office, due to the fact while serving, the salary is paid and the pension payments are frozen.
If the elected official retired, they would be receiving a pension and the citizens would be paying the salary plus benefits for someone new to fill the position. Hence, savings did result from those who successfully were reelected after a one-day “retirement.”
The report dealt with past experience. It did not deal with future costs.
The basic overview of the program is employees of the City pick a date four years in the future when they will retire and then continue to work until that date. At that time, the employee officially retires and receives a lump sum equal to what their pension would have been for the four year period, plus 4.5% interest.
For this advance notice, the City is supposed to be able to do better succession planning and budget more accurately for workforce expenditures.
While the Mayor has declared DROP dead, many others like Councilman Darrell Clarke and economic activist Brett Mandel said much more information is needed and maybe the Program should be “amended, not ended.”
Councilman Frank DiCicco, who authored the original bill and has now decided to kill the program, had asked for a special session of Council to deal with this issue. Council leaders said they will study the situation upon return from summer recess.
A review of the minutes from the City Council session dated Jun. 8, 1999 reveals many Council Members were happy to support the DROP program then. Some even questioned why the program didn’t pay more interest to the participants. Then-Councilman Michael Nutter and Councilman Brian O’Neill led the questioning.
In the end, O’Neill offered an amendment to raise the interest rate for all DROP participants from 3.5 % to an adjustable rate as high as 10%, but no lower than 4.9 %.
Councilman Jim Kenney made the motion to move the bill creating DROP out of the Committee with a favorable recommendation.
We now know Mayor Nutter has changed his view. Kenney also has changed course by calling for the end of the program.
Before Nutter made his announcement of his intention to drop DROP, only 16 people had enrolled in the program this year. Following his announcement, an additional 397 City employees were reported as filing in the past week for the DROP program.
There’s a bright side to this. It should give the City administration the opportunity to learn how to effectively reduce costs and train 397 replacements, if replacements are necessary.

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