When Anchorage’s city government unleashed its new SAP payroll software on Sept. 11, 2017, it was bombarded by unforeseen errors on employees’ paychecks.
In some months, there were more than 1,000 errors, and many went unfixed for months on end. Those errors are costly. The penalties are different for the nine bargaining units for the city’s 2,162 unionized employees, but all the agreements include teeth.
For the International Association of Firefighters Local 1264, the penalty is $50 “for each day after the next full pay cycle during which the error in pay remains uncorrected.” Some units had more enforcement than others, and some have more employees.
Some are eight hours of pay per day if the error isn’t corrected by the next pay cycle, others are a flat fee as high as $75 per day.
One unit alleged the city owed its members more than $2 billion, Jason Bockenstedt, Mayor Ethan Berkowitz’s deputy chief of staff, said.
“We can’t do that," he said. "That’s just not possible.”
Bankrupting the city is not in the interest of its employees, so union and city officials negotiated less devastating deals to give the employees non-cashable leave.
“If you went just by the letter of what was written in their (contracts), it would have meant people getting laid off,” Bockenstedt said. “Ultimately, that money comes out of the individual department’s budget.”
The details of those agreements, including how much they will cost the city, have not been made public despite requests from the Anchorage Daily News.
“Legal is advising us that disclosure of these settlements will adversely impact the municipality’s ability to negotiate with each of the unions and could result in significant additional costs to taxpayers,” Bockenstedt wrote in response to an email from the Daily News requesting the settlements.
City Attorney Becky Windt Pearson said the city is reviewing one remaining grievance and expects to release the remaining settlements by Thursday.
The Daily News obtained a copy of the firefighters union settlement. The union is the second-most-impacted unit after police, Bockenstedt said. The firefighters’ union has about 380 members, President Mike Stumbaugh said.
“Kelly shift" employees, which run the fire trucks and ambulances, got 216 hours of non-cashable leave. They work 56 hours in a week through rotating, one on, one off, 24-hour shifts followed by four days off, and account for about 300 of the department’s employees, Stumbaugh said. Dispatch employees — there are about 20 — got 160 hours of non-cashable leave. The roughly 30 administrative employees got 120 hours.
Stumbaugh said the union agreed to the settlement because he and his members had no better option. He said the city owed the union members a collective $5 million, and the leave they got is worth about $2 million.
“Almost every single person had errors and they didn’t address them for 18 months," Stumbaugh said.
Employees promoted from union-represented positions to executive positions before the settlement was finalized received 40 hours of paid time off. Employees who left the department before the deal was signed were compensated for 40 hours of work.
All the leave is non-cashable, meaning the employees can’t request 120 hours of pay rather than vacation time like they can with other paid time off. However, anyone who leaves the department in 2019 can have their non-cashable leave converted and cashed out.
The city also paid the union $40,000 for legal fees. The deal was signed Dec. 30, 2018. Bockenstedt said the IAFF settlement is similar to the other eight agreements. The city has worked with some of the unions to amend the collective bargaining agreements to allow for much more flexibility on unintentional payroll errors.
IAFF isn’t one of them, and Stumbaugh said he will fight hard to keep those penalties in the new CBA, which is being negotiated in the spring. He said the whole point of adding them in the current agreement, which took effect in July, 2015, was because the union foresaw the payroll errors. The penalties are the only reason the city addressed the issue, he said.
“What would be my incentive to get rid of it?" Stumbaugh asked.
The agreement gives the city a month to resolve payroll issues before penalties kick in. Stumbaugh said there never should have been penalties.
As the errors snowballed, the city focused on stopping them from happening, rather than fixing individual checks. Errors big enough to impact paying bills were remedied by off-cycle checks.
“Our focus for quite a while was actually fixing the underlying problems so that we knew that the problems had already occurred," Bockenstedt said. "We wanted to prevent them from occurring in the future, and then we would come back and make sure that everything was fixed in the past.”
The payroll software is part of a much larger SAP software suite that is ingrained in nearly every function of the city. The decision to move from outdated software to the SAP suite came in 2011 during former Mayor Dan Sullivan’s tenure. The price tag was $10.6 million.
Bockenstedt said the previous administration hired third-party contractors to get the program up and running, but all failed. By the time Berkowitz came in, little progress had been made, Bockenstedt said.
“A lot of that was wasted and of no use to us," he said of the previous attempts to get SAP online. "We kind of had to come in and start from scratch.”
Berkowitz took office in 2015, four years and about $45 million into the project. His team assessed the situation, in part due to known failures of SAP rollouts from other cities and large businesses.
“We’re all very aware,” Bockenstedt said. “Other cities are very well aware of the rough time that a lot of people have with the implementation of SAP.”
The administration decided to move forward, but contracted with SAP rather than third-party vendors to work out the bugs. Additionally, internal staff became adept at working out the system’s kinks. In total, the city has spent about $81 million on the project. The administration recently asked the Assembly to consider spending some of the proceeds of its sale of Municipal Light & Power on the SAP debt.
When the payroll function was launched in 2017, about 460 of the city’s 2,800 employees at the time reported errors on the first check.
In October 2017, there were 1,280 errors reported. Over the next three months, there were about 1,000 errors reported per month. Since then it’s tapered down. Today, the city has around 50 errors per pay period, which is similar to what it experienced before SAP.
Bockenstedt said for the most part, the software is the culprit, not the city’s rollout. As payroll issues were ballooning, SAP did step in and help, mostly free of charge. He said the city is still deliberating how to handle the issue, and whether to sue the company.
"I think all options are still on the table, I don’t think a decision has been made on that,” he said.
According to Bockenstedt, the city doesn’t know the true cost of the SAP debacle. He isn’t aware of anyone calculating the cost of the settlements, in part because it’s complicated. Different employees received different compensation, and some could lose the non-cashable leave if they quit before using it.
The payroll errors have created tertiary problems for the city, especially with the fire department, which is nearly $4 million over budget. The department routinely surpasses its overtime budget, but its financial woes have been compounded by firefighters using their bounty of non-cashable leave, causing the need for others to work overtime.
“A portion of the overage that the fire department is experiencing is a direct result of that issue, but it’s not nearly all of it,” Bockensdedt said.
In a Sept. 30 email obtained by Daily News, Fire Chief Jodie Hettrick told employees that when time off results in increased overtime, the department will decommission a fire truck and crew to save money.
“Once nine day staffing is set and any sick/hardship call results in overtime, the first apparatus that will be closed is a truck company,” Hettrick said. “The crew will be dispersed to eliminate overtime positions for that day.”
In an all-staff response, Stumbaugh was incensed that individual firefighters should bear the brunt of cost overruns in part due to the SAP settlement.
“Putting the budget deficit on the backs of the men and women of AFD is disingenuous at best and a complete fabrication at worst,” he wrote.
Correction: A previous version of this story incorrectly stated non-union employees received 40 hours of paid time off. Only employees promoted to executive positions before the deal was finalized received additional paid time off.