Citing unknowns, Modesto won’t give pandemic pay to retirees. Why does expert say pay is OK?

The Modesto City Council voted not to issue bonuses to about 90 now-retired employees who worked for the city during the pandemic because the city says it could not get an answer from the U.S. Treasury on whether this was a permissible use of its federal pandemic relief funds.

“The bigger question (is) we don’t have clear guidance on whether it’s allowed ...,” Human Resources Director Christina Alger said Tuesday before council members voted 6-1 against the bonuses. (Councilman Jeremiah Williams cast the “no” vote.)

“... We did attempt to reach the (U.S.) Treasury and ask the question,” Alger said, “but we’ve been unsuccessful in getting an answer. That probably would be the larger issue here.”

But The Bee received an answer within a few days of asking — Modesto can pay bonuses, known as premium pay, to its retirees.

A Treasury spokesperson said providing premium pay from the city’s American Rescue Plan Act funding to employees who are now retired but worked through the pandemic is allowed.

“Current employment status is not a factor in eligibility for premium pay for work performed during the public health emergency,” the spokesperson said in an email. The Treasury Department oversees the American Rescue Plan Act.

The spokesperson included in the email some of the final guidance in spending the funds, including: “Treasury encourages recipients to consider providing premium pay retroactively for work performed during the pandemic, recognizing that many essential workers have not yet received additional compensation for their service during the pandemic.”

But Modesto spokesman Andrew Gonzales said Friday that city officials “were not aware of any intentions to further address the issue of premium pay.”

The City Council considered Tuesday whether to pay retirees after it voted unanimously March 7 to pay bonuses of as much as $7,500 each to about 1,000 city employees who worked during the pandemic.

The bonuses cost Modesto $6.7 million of its American Rescue Plan Act funding. Premium pay is an allowable use of the funding. Modesto received $45.9 million in American Rescue Plan Act funding in total in 2021 and 2022.

Alger told council members March 7 that about 89 retirees who worked for the city during the pandemic would qualify for ARPA premium pay totaling about $522,000 based on the same formula used for the current employees.

The council then decided to consider discussing paying retirees at a later meeting. But they decided not to provide premium pay to the roughly 200 employees who worked for Modesto in the pandemic and had left the city for other reasons, including going to work for another organization.

The agenda item for Tuesday’s meeting was listed as “Discussion of the uses of ... ARPA funds to provide funding ... to retirees and possible direction from Council.”

The council discussion focused on how Modesto could not pay the retirees. No council members asked staff to come back at a later meeting with more information about how the city could issue the payments.

Councilman Chris Ricci said it would be complicated for Modesto to issue premium pay to retirees and asked Alger to expand upon that.

She said besides figuring out how to pay the taxes related to the payments, the city would have to temporarily reinstate the retirees in the city’s payroll system. Alger said that could trigger questions from the California Public Employees’ Retirement System (Modesto is a member) and that could lead to an audit by CalPERS.

Pay not issue for CalPERS

CalPERS spokeswoman Amy Morgan said in an email to The Bee that Modesto can issue premium pay to retirees who worked as city employees during the pandemic. Morgan said Modesto does not have to report the payments to CalPERS.

Alger told council members the city received the same response from CalPERS but would want an official determination letter from the state retirement system if the council decided to pay the retirees.

Councilman Jeremiah Williams cast the one vote against not paying the retirees and said he did so to show his support for them. “I wish there was a way we could compensate them with the ARPA funds, but it’s out of our hands to do so,” he said in an interview.

Councilman Nick Bavaro raised the issue at Tuesday’s meeting that no other local governments had issued premium pay to retirees. Alger agreed Modesto was not aware of any.

The Bee reported in March that six of Stanislaus County’s eight other cities had issued premium pay to employees but they did so in 2021 and 2022 when they received their American Rescue Plan Act funding.

Modesto waited until now to issue the premium pay.

Did the city wait because it did not want to do anything that might risk Measure H — the 1 percent sales tax increase the city put on the November ballot? “The answer is no,” Alger said in a March story. “We didn’t wait until the sales tax measure passed.”

Voters approved the tax increase, which is expected to bring in $39 million annually, reversing more than a decade of annual service reductions.

Modesto set aside $8.1 million of its ARPA funding in July 2022 because it was not sure whether it would need it to help balance its budget. The city is using an additional $4.5 million in ARPA funding to help balance its current budget.

Alger said in March that because Measure H had passed, the city had the opportunity to acknowledge its employees for working through the pandemic. The $6.7 million in premium pay for current employees came from the $8.1 million.

The city has spent or committed the balance of its American Rescue Plan Act funds on such efforts as reducing blight, homelessness, economic development and its own needs, including setting aside $2 million for maintenance at Fire Station No. 1.

Other jurisdictions pay

Modesto retirees were watching in the council chambers and online Tuesday. The online viewers included Vicki Rice, who worked for the city for nearly 29 years before retiring in July 2022 as the city’s recycling program coordinator. She said she would have qualified for a $6,000 bonus under the guidelines the city used for current employees.

Rice said she did a quick Google search after the council vote and found a city in Tennessee and a county in Maryland that issued premium pay to their employees who worked through the pandemic and then retired.

Clarksville — a city of about 170,000 residents about 50 miles northwest of Nashville — announced on its website in September 2022 that it would provide premium pay to retirees. It estimated 76 retirees would qualify. It also would provide premium pay to the survivors of nine employees who had died. A city official confirmed that it issued the premium pay.

The County Commission in Washington County, Maryland, approved in September 2021 providing ARPA premium pay to employees who worked in the pandemic but had since retired, according to the minutes from the commission meeting. The county estimated two dozen retirees would be eligible for the pay, according to a media report. County officials did not respond to requests for comment.

Rice said she is frustrated and disappointed the City Council made a decision without having enough information and wants council members to take this up again. “... They should honor what we are requesting,” she said.