BILL NO    A09106A

SAME AS    Same as Uni. S 6180-A

SPONSOR    Lancman

COSPNSR    Pheffer, Colton, Cusick, Schimel, Young, Farrell

MLTSPNSR   Benedetto, Peoples

Amd S242, Mil L

Enacts the soldier salary act; relates to the salary payments of public
officers and employees who serve in active duty.

BILL NO    A09106A

06/12/2007 referred to governmental employees
06/18/2007 reported referred to ways and means
10/17/2007 amend (t) and recommit to ways and means
10/17/2007 print number 9106a
10/23/2007 reported referred to rules
01/09/2008 referred to governmental employees
02/26/2008 reported referred to ways and means
05/13/2008 reported
05/15/2008 advanced to third reading cal.992
05/19/2008 substituted by s6180a
           S06180A AMEND=  GOLDEN
           06/12/2007 REFERRED TO RULES
           10/17/2007 AMEND (T) AND RECOMMIT TO RULES
           10/17/2007 PRINT NUMBER 6180A
           10/22/2007 ORDERED TO THIRD READING CAL.2188
           10/22/2007 PASSED SENATE
           10/22/2007 DELIVERED TO ASSEMBLY
           10/22/2007 referred to ways and means
           01/09/2008 died in assembly
           01/09/2008 returned to senate
           01/09/2008 REFERRED TO VETERANS, HOMELAND SECURITY AND MILITARY AFFAI
           03/04/2008 1ST REPORT CAL.442
           03/05/2008 2ND REPORT CAL.
           03/10/2008 ADVANCED TO THIRD READING
           03/27/2008 PASSED SENATE
           03/27/2008 DELIVERED TO ASSEMBLY
           03/27/2008 referred to ways and means
           05/19/2008 substituted for a9106a
           05/19/2008 ordered to third reading cal.992
           05/19/2008 passed assembly
           05/19/2008 returned to senate

BILL NUMBER:A9106A

TITLE OF BILL:

An act to amend the military law, in relation to enacting the public
servant soldier salary act

SUMMARY OF PROVISIONS:

This bill makes changes in law with respect to salary paid to New York
City employees called up to active duty.

Section 1. Names the act the "citizen soldier salary act".

Section 2. Creates a new subdivision 5-a of section 242 of the military
law, "Pay for employees of a city with a population of one million or
more," to govern the calculation of compensation and repayment by public
officers or employees of New York City who are engaged in the perform-
ance of ordered military duty.

Repayment Terms:  The bill changes repayment terms for individuals who
(1) were called up and have already returned, or (2) entered into agree-
ments and will return after the effective date of the bill, or (3) will
be called up after the effective date, as follows:

1. For those who were called up and returned before the effective date
of the bill, and

a. are still in city service, the new repayment schedule will be 7.5% of
base salary, which is the salary the individual received on the date of
return, and a ten year repayment schedule from date of return.

b. have retired, the payment is 7.5% of their pension with a term of ten
years from the date of return.

c. have separated from city service for reasons other than retirement,
the base is 7.5% of their last year of city salary.

2. For those called up and returned after the effective date of the
bill, and are still in city service, the new repayment schedule is the
same as for the previous group, except that for those who have left city
service for reasons other than retirement, the base is 7.5% of the city
salary as of the year of return.

3. For those called up in the future, after the effective date of the
bill, there will be no required repayment.

4. For those who die in the performance of ordered military duty the
bill eliminates any requirement for repayment.

Hardship & Insurance:  In each case where repayment is required, the
city is required to provide insurance and a hardship exception on a case
by case basis.

1. Insurance, the city is required to provide far the continuation of
health insurance benefits, to the public servant soldier and to such
public servant soldier`s family, if the family had been included in such
coverage prior to the public servant soldier beginning ordered military
duty, under the same terms and conditions as applied to such public
servant soldier prior to leaving city employment for ordered military
duty.

2. Hardship, hardship relief will be provided on a case by case basis
under certain conditions including but not be limited to any material
unforeseen or compelling changes in circumstances affecting the individ-
ual`s ability to repay that occurred since the individual elected the
"Full pay/repayment plan." This includes but is not limited to injuries
sustained while on ordered military duty, or a determination by the
implementing agency that the public servant soldier is or will be expe-
riencing severe economic hardship due to a change in circumstances.
Relief may include (i) an extension of the repayment term or (ii) a
reduction in the percentage of salary dedicated to repayment, or (iii) a
determination that the requirement for a balloon payment will create
economic hardship and amelioration.

Plans: The plans will also be different The current play is the "Full
pay/repayment plan" under which public servant soldiers elected to
receive city salary while on military duty, and are required to repay
the lesser of their city salary or their military salary to a city upon
return from military duty. The new plan is the "Differential pay" plan,
which pays the difference between a public service soldier`s military
salary and city salary. "Military salary" is the gross salary paid to a
soldier without regard to such extra or additional stipends as hazard
pay, housing or food allowances, or other similar additions.

These provisions will only apply to "Covered operation," which are mili-
tary operations designated by the federal government in support of
"Operation Enduring Freedom", "Operation Iraqi Freedom", "Operation
Noble Eagle", or successors thereto, or operations specifically
connected by federal designation, action or implication With Homeland
Security.

The bill also provides that a soldier called up will receive, city sala-
ry for up to 30 working days in any one calendar year and not exceeding
30 working days in any one continuous period. This provision will extend
until August 1, 2010, unless the mayor extends the date.

JUSTIFICATION

New York City like other municipalities has a program that pays its
employees who perform ordinary National Guard and Reserve military
service up to 30 days per year, a period extended by 60 days for employ-

ees ordered to active duty in connection with the 9/11 terrorist
attacks.

Although state statute and executive order establishes uniform rules for
all localities to follow when it comes to employees performing reserve
duty no statute or regulation establishes uniform requirements or rules
for a system of differential pay for employees ordered to active mili-
tary service for durations of longer then 60 days, such as those employ-
ees mobilized for Iraq or Afghanistan. Each locality is free to adopt or
not adopt a system of differential pay for such employees, and is
completely free to adopt its own system of rules for administering such
a program.

New York City`s Pay system has resulted in hardship in some cases,
because of the way the repayment system is applied. The City`s differen-
tial Pay Program is structured in such way the City employees are often
required to pay back a significant amount of money when they return from
deployment. These problems ore resolved in the current bill.

FISCAL IMPACT:

None to the state.

EFFECTIVE DATE:

120 days after it becomes law.

Issues affecting

The New York City Extended Military Benefit Program

1.                  Current Collection Practices:  Grossly inappropriate and require immediate change.

a.                  Threats:  Currently employees trying to retire have been told by city agencies following DCASs direction that they cannot retire until they pay off their full debt.  Indentured servitude is still illegal in this country.  This need to stop immediately.

b.                  Coercion:  Currently DCAS is sending letters telling employees that if they do not sign the contract DCAS has provided they will garnish 10% of the employees gross pay.  DCAS is taking 10% of the gross pay from after tax earnings making the true charge closer to 15% of their paycheck.  There is nothing in any agreement signed by any reservist that authorizes that.  These figures are purely made up by DCAS. 

c.                  Changing contracts:  Following September 11, 2001, former Mayor Guiliani created a unique military differential pay program for NYC employees.  The program required reservists to repay some of the money they would receive from the City while mobilized.  When a reservist was mobilized they were asked to sign a repayment agreement immediately prior to their deployment.   These agreements provided no clear details on how the repayment would be calculated or administered when the reservist returned.  Since these agreements were the only way offered to continue medical coverage, reservists signed these agreements even with many unanswered questions.   From 2002 until 2006, returning reservists were told by their City agencies that there was no program in place to collect any monies from any returning service members.  DCAS was given the responsibility of developing a repayment program in 2001 by Mayor Guiliani and again in 2002 by Mayor Bloomberg, yet DCAS failed to do anything until 2006.

In 2006 DCAS was again directed to take control of the existing program, and this time retroactively applied new rules and regulations and demanded reservists sign new contracts agreeing to the retroactive terms.  After 5 years of inaction the City demanded reservists sign a new contract within 30 days or face severe disciplinary action or garnishment of their salaries as well as other penalties.  Every time DCAS changes repayment policies or procedures, they consistently demand that employees sign new contract(s), pretending the previous contract never existed.  People who have already signed contracts and have been making payments have been denied hardship applications because DCAS demanded they sign new contracts with new terms even to apply for the hardship.  People who have paid their debt have received revised letters telling them that DCAS has changed the terms of their payoff (from nine months earlier) and now they have to pay more to DCAS and to taxes and have to sign a new, retroactive agreement to cover DCAS.   Based on the persistent gross negligence of DCAS they are no longer credible as a city agency to work with to resolve the problems created by DCAS itself.

2.                  Retirement issues:

a.                  Pension calculations:  Currently returning reservists who are within five years of retirement are being discriminated against in their pension calculations due to their wartime service.  New York City is not complying with USERRA pension calculation requirements.   USERRA requires that a reservist will not be discriminated against in their pension calculations due to military service.  The pension has to be calculated based on the earnings the individuals would have used for pension calculations (such as overtime and night differentials, etc) had they not been mobilized. 

b.                  Compensation Time, Vacation Days and Terminal Leave:  From 2001 until today hundreds of retiring NYC civil servants surrendered hundreds of thousands of dollars worth of "Time" to NYC when they retired because DCAS failed to provide any repayment program until 2006.    Now retirees are being told they simply lost that "time".  Had DCAS given them a bill before they retired they would have applied that time to their debt.   Currently retired civil service members with an outstanding debt to DCAS should have their bills reduced by the value of the time they surrendered to NYC when they retired.  It is discriminatory to make people who retired suffer both the loss of that time and have to repay their military debt in addition. 

3.                  FICA credits:  IRS revenue ruling 69-136 states that the "former" employer (NYC) who provides any benefit to its employee while mobilized does not have to collect either Social Security or Medicaid withholding (FICA taxes) from the money paid.  NYC also does not have to pay its matching contributions for FICA taxes.  This results in a savings to NYC of over 15% on any monies paid to mobilized employees.  NYC can recover these monies from the federal government.  This recovery would currently be in excess of 15 million dollars.  This only applies to the NYC monies provided.  Military salaries are still required to pay FICA contributions and cannot refund any of those contributions.

a.                  Currently DCAS is directing a reduction in military payback calculations by the 7.65% of FICA taxes paid while an employee was mobilized.  Unfortunately, they are directing this reduction be taken from the lesser of the two salaries received, which is predominantly the military salary.  The deduction can only be taken from the City salary.  DCAS is often subtracting the FICA taxes from the military salary.  This is improper.  The tax credit is only provided from the City salary and the debt repayment must be reduced by the FICA taxes paid from the City salary.

4.                  Paid Military Leave Days:  New York State law provides 30 calendar or 22 workdays per year or per deployment.  Most, if not all, New York City Union  contracts provide 30 calendar days per year or per deployment with pay.  Since no city employee is normally paid for their days off this means the city contracts provide a benefit above the State law minimum.  This benefit has not been applied to employees, and in fact employees have been discriminated against for years by city agencies that have not complied with the terms of their contracts.  These military leave days are due to reservists.  An audit of military vs. vacation day usage for all reservists would end up providing most reservists an additional eight days per year going back at least 10 years.  These days should be applied to the outstanding debt to the city and revised policy guidance should be sent to all city agencies directing them to comply with the terms of their NYC Union contracts.

a.                  The current proposed legislation does clarify this point going forward, but only until 2010, and makes no mention of the historical contractual agreements for these days.

b.                  New York State, under Executive Order by Governor Pataki, has been providing 60 days with full pay since 2001.  This is something NYC has consistently refused to follow, yet still demands full pay back.

5.                  Line of Duty Designation:  Currently if a mobilized employee is killed on active duty the decision to classify his/her death as a line of duty death for city benefits purposes rests solely with the Mayor.  DCAS has said he will make a case-by-case determination on the classification of death.  There is no current policy for how the city will address anyone wounded in combat and under what circumstances the city would classify that as a line of duty injury for the purposes of retirement benefits. 

a.         The Mayor has already created a de facto policy of classifying any combat death by a mobilized city employee as a line of duty death.    During WW II NYC also classified combat death as Line of Duty. 

b.                  The policy should be clearly stated that combat deaths will be treated as line of duty deaths, and combat injuries will also be treated as line of duty injuries.  Non-combat deaths and injuries should be treated the same as non-line of duty deaths and injuries by the city.

c.                  If the policy cannot be agreed on, then it should be proposed as city council legislation and subject to open debate and discussion.

6.                  Debt repayment with "Time" or Vacation Days:  Some, but not all, city employees are eligible to earn compensation time.  All earn vacation days.  Currently employees are allowed to repay all or part of their debt with compensation time and/or vacation days, but there are problems associated with how this is currently managed.

a.                  Two choices for the individual; either use the "time"/vacation days to reduce the number of days they have to pay the city back for or take the cash value of those days (based on an 8 hour day) and apply that cash value to the debt.

b.                  Reducing the number of days to pay back is simpler, but the city receives the value of the time in todays dollars while reducing the number of days you have to pay back based on the salary in effect when you were deployed.

c.                  Converting the time to cash value provides the full value of the time at todays salary but DCAS has decided to report this time as "income" and create yet another tax issue with the repayment.  This also raises pension calculation questions.

d.                  Reporting time as cash, but then claiming it is not pensionable is unreasonable, and may very well violate Federal labor and USERRA laws.   The choices should be either apply the cash value of the time to the debt without taxing it, and all would agree its not pensionable; or if declaring it taxable, then also admit it is pensionable. 

e.                  Terminal Leave:  Many city employees are eligible for two months terminal leave when they retire.  Currently reservists are not allowed to apply either the days or the cash value of those days to any remaining debt they have when they retire.  Due to DCASs multi-year delay in managing the program, retiring reservists who still have an outstanding debt should be allowed to apply those terminal leave days to the outstanding debt, up to the remaining debt balance.  Its only reasonable to apply all credits possible to an outstanding debt before retirement.   If this requires a narrowly written piece of legislation I believe we would all support it.

7.                  Tax problems created by the current program:  These are numerous and complex.  A tax attorney in Washington, DC described the programs problems as a "perfect storm."  The problems exist due to two fundamental problems.  First DCAS continues to claim the program is not "differential pay" and therefore is not subject to the IRS revenue ruling on tax withholding for differential pay.  The second problem is the fundamental disagreement over "pay received."  The program describes repaying the lesser of either the military or city salary received.  The program, which was created in 2001, was never clarified until 2007 when DCAS issued revised instructions on the program.  People enrolled in the program prior to 2007 understood that when the program said "pay received" that meant the pay they actually received - after taxes.  The city has claimed "pay received" meant the gross pay from the city, before any taxes were withheld.  This is a critical distinction, particularly in a program demanding money back.  There are  reservists who saved every dime they received from the city, only to be told they have to pay back 40% more than that because NYC wants the tax money back as well.

a.                  Amended Tax Returns.  One solution offered was the ability to repay money and file amended tax returns.  This is only available going back three years for individuals.  Everyone who did not receive any repayment information from DCAS in 2001, 2002, 2003 and 2004 cannot amend their returns.

b.                  Claim of Right.  The DCAS panacea to all the tax problems they create.  Only problem is this tax adjustment is also subject to the three-year adjustment rule.  It is also uncertain if the IRS will accept this is.  The Claim of Right is usually found on IRS websites under "frivolous tax returns" and any accountant consulted about it says it is an open invitation to an IRS audit.

c.                  Free tax preparations.  DCASs only other contribution to solving the tax problems they created is to tell everyone they have free tax preparations available from H&R Block and Jackson Hewitt.  Both companies have been sued in NY for issues over their business practices and neither one has anywhere near the requisite experience to handle the complex tax preparations associated with this matter.   DCAS has also said they will not come to any audits since they did not contract these companies, and continue to maintain the position that any tax problems caused by this program are the responsibility of the individual reservist and not DCAS. 

d.                  Tax Withholding.  Even today, NYC continues to withhold all taxes from the money it provides reservists under the current program.  This has been a cornerstone of the tax problems created by NYC.  Had NYC followed the IRS revenue ruling and provided gross pay without withholding taxes, then when the reservists returned they would have had that gross money available to repay to the city.   The program needs to be immediately changed to stop withholding taxes from city salaries paid to reservists. 

e.                  Failure to provide tax documents.  In 2006 over 80 people had entered into repayment agreements with NYC and were told that they would receive amended W-2s at the end of the year reflecting the amount of money they had repaid.  The documents were never prepared.  DCAS compounded the problem by lying to city agencies and the city council, telling everyone that DCAS would be providing amended W-2s for everyone.  In fact, DCAS provided no written documentation of any kind acknowledging what had been repaid during that year. 

f.                    Higher tax brackets.  Because the money provided by NYC was recorded as "income" it was also subject to taxes, but with two salaries combined most reservists found themselves paying more taxes due to higher tax brackets.  The tax code is not geared toward a program of providing money and then taking it back.  A few reservists found themselves subject to the Alternative Minimum Tax and ended up paying significantly more in taxes.  To date there has been nothing done to address this.

RECOMMENDATIONS FOR CURRENT DEBT REPAYMENT

1.                  Establish an oversight board to review DCAS policy and decisions.  A three person panel, one appointed by the Mayor, one appointed by the City Council and one appointed by the city unions.  This board would be a place for individuals to appeal the policies and decisions put out by DCAS.  It would address these problems directly with DCAS and advise the Mayor on recommended changes or identified problems. 

2.                  FICA.  Issue guidance clearly stating that the FICA credit will be taken from the city salary received.  Recommend NYC begin the process of collecting these monies back from the federal government.  (This may well be an area where support from NY Senators and Congressmen would be helpful).

3.                  Pension Calculations.  Comply with USERRA rules on pension calculations and issue written guidance to all pension sections.  This will require contacting employees who have retired to review their pension calculations to ensure they are receiving the full pension that they are entitled to.

4.                  Paid Military leave days.  Comply with current union contracts providing thirty days with pay.  Issue guidance to all agencies clarifying that paid days for military leave will only be charged to missed workdays.  (This is in accordance with current federal court decisions).

5.                  Paid Military leave days.  Issue guidance to all city agencies to audit military and vacation records and credit back vacation days improperly taken as military leave days.   These days should be applied to any outstanding debt first.  (These contracts go back at least 10 years; USERRA goes back farther than that).

6.                  Time payments for retired employees.  Credit retirees with the time/days they surrendered to the city.  These time credits would have been applied if DCAS had issued timely repayment guidance, so there is no cost to the city for this credit.

7.                  Time payments for current employees.  If time is taxed, it should be pensionable.  If time is not taxed, then it should not be pensionable.

8.                  Repayment calculations.  Consider either amending repayment to require repayment of taxable salaries from both the city salary and the military salary.  This compares the same type of salaries for repayment calculation purposes.  Those reservists deployed to combat theaters have significantly lower taxable salaries than those who were not deployed to combat zones, so this does not address the problem with everyones taxes.  Even for those deployed to combat zones there were usually several months before and after deployments that were fully taxed.

The other choice is to base calculations on after tax incomes.  Compare salaries after taxes and have the lower of those salaries repaid.  This provides everyone a tax credit for taxes already paid, but still requires the individual to repay the city any monies used for "voluntary" deductions such as union dues, supplemental medical coverage or individual savings plan contributions. 

There is a pending arbitration that centers on repayment.  This arbitration focuses on the argument that the City is only entitled to collect monies for missed work days and cannot require repayment of equivalent military salary for days that were not missed from City employment.  A soldier is paid for 30 days per month, but most City employees are only paid for, at most, 22 days per month. 

Another choice is simply to forgive the debt.  NYC has never recorded this as a debt in its budget.  The continued costs of collecting these debts over decades would create significant additional costs that could exceed the value of any money recovered.  The continued perception of City officials as "anti-soldier", "anti-reservist" or "anti-veteran" would also continue to loom over the City and elected officials.  Since DCAS created this problem, it seems reasonable that the City absorb the cost of their mistakes.

9.                  Military Leave Differential Pay program options:  There are four choices for a differential pay program for NYC in the future.

a.                  Do nothing.  Simply continue the same program currently in effect.  This would continue to cause significant tax problems for individual soldiers and require the city to lay out monies with a very long repayment timeline.

b.                  Continue the current program, but follow the tax rules for differential pay.  This would still require reservists to pay back money when they returned, but by following IRS revenue rules and paying gross pay, the returning reservist would have actually received the salary the city is talking about wanting paid back.

c.                  Adopt the MTA plan.  Place mobilized soldiers on half pay while they are mobilized.  Continue their medical benefits.  Require no repayments when they return.  Comply with IRS revenue rule on tax procedures for differential pay.  This program is the simplest for NYC to administer since it does not require extensive individual calculations.  This program also provides a pay benefit to every reservist who is mobilized.

d.                  Adopt a differential pay program.  Pay mobilized reservists the difference between their city salary and their military base pay.  Again, comply with IRS revenue rules.  Again, provide medical benefits.  This program should include overtime in the pay differential calculations, since most city employees live on their overtime, and that would make the differential much fairer for the reservists.  This is the most labor intensive to administer due to individual calculations of pay differential and shifting pay amounts in both city and military pays.