At last nights Sealy City Council meeting, the focus was on the city’s Paid Time Off (PTO) policy and the growing financial impact of accumulated employee leave. A major driver behind the discussions was the implementation of new accounting standards that could significantly affect how Sealy, and other cities, must account for unused employee time off. With the city facing nearly $594,000 in liability from accrued PTO accumulated over the past 30 years, the council debated policy changes to control costs while adhering to new governmental regulations.

Understanding GASB Statement No. 101

The new regulations referenced during the meeting stem from GASB Statement No. 101, issued by the Governmental Accounting Standards Board (GASB). The purpose of GASB 101 is to provide a unified approach for how state and local governments report compensated absences, such as vacation, sick leave, and paid time off (PTO). Prior to this update, there was inconsistent application of how these absences were reported, leading to confusion and discrepancies between financial statements.

Effective for fiscal years beginning after December 15, 2023, GASB 101 requires that liabilities be recognized for:

  1. Unused leave: Governments must record liabilities for leave earned by employees if it is likely that the leave will be used for time off or paid in cash.
  2. Used but unpaid leave: Liabilities must also be recognized for leave that has been taken by employees but has not yet been paid.

The purpose of this standard is to increase transparency and accuracy in government financial reporting, ensuring that taxpayers and officials have a clearer picture of the city’s financial obligations. For cities like Sealy, this means that there is an increased liability on the balance sheet because compensated absenses are accounted for more rigorously than before.

 

 

Proposed Changes to Sealy’s PTO Policy

To manage the financial burden posed by these liabilities, Sealy’s city staff proposed several changes to the existing PTO policy:

  • Mandatory Usage: Employees would be required to use at least 50% of their vacation time earned annually. Any remaining unused vacation under this amount would be forfeited, reducing the city’s liability.
  • Accrual Caps: For 8-hour shift employees, vacation time would be capped at 300 hours, while those working 12-hour shifts would have a 450-hour cap.
  • No Sick Time Payout: Sick time accruals would be capped at 480 hours, with no payout upon separation from the city.
  • Elimination of Holiday Time Accrual: Holiday time accruals would be eliminated to further reduce liabilities.

The intention behind these changes is to address the growing financial liabilities resulting from unused employee time off. By capping accruals and requiring employees to take their vacation time, the city can prevent future budget shortfalls in the event an employee separates from the City and will reduce the
increased liabilty resulting from GASB 101.

Financial Strain and Council Concerns

While the council agreed that these changes are necessary, there are concerns about the speed at which the new policies are being implemented. Some councilmembers expressed unease about moving forward without holding a workshop to fully explore the impact on both employees and the city’s finances. They stressed the importance of balancing financial responsibility with fairness to employees who rely on these benefits.

The consensus was also that the financial strain of accumulated leave has already reached a critical point.  Worst case scenario the City is facing a potential $700,000 liability, and without changes, this figure could continue to grow. It was also noted that the city might need to borrow an estimated $305k from the enterprise fund to cover PTO payouts, which could affect the city’s water and sewer budgets in the event of an emergency.

 

 

Public Impact and Next Steps

For the public, the implications of these changes are significant. Taxpayers expect the city to be financially responsible, but at the same time, there is concern about how these policy changes might affect the morale and retention of city employees.

To address these concerns, the council decided to table the proposed changes until further discussion could take place. A workshop will be scheduled to allow for input from all parties, including research from the Texas Municipal League (TML) and examples from neighboring cities. The council hopes to create a balanced policy that manages financial liabilities in a fiscally responsible way while maintaining fair compensation for employees.

You can watch the discussion starting at the 00:30:45 mark of the video below:

 

 

Floating Vimeo Video