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New York City’s Reservists Are Asked to Return Iraq Pay

ANDY NEWMAN / New York Times | September 24 2006

When they were called up for military service in the wake of 9/11, hundreds of uniformed city workers in the Reserves faced the suspension of their city health and pension benefits. The city offered them an option: it would keep paying their salaries and continue their benefits, but when they returned they would have to repay the city their city salary or their military pay, whichever was less.

On its face, the offer made sense. And many reservists had only a few days to get their affairs together before shipping out — hardly enough time to consult accountants. Nearly all took the deal. As the war dragged on, more than 1,600 city employees, mostly police officers, signed up for the benefits program.

Now the bills from the city are coming due, for far more than many veterans imagined they would have to pay — as much as $200,000 — and often for more money than they ever received.

The city is demanding that the veterans repay their gross salaries, even though they never saw about a third of the money, which went for taxes and other deductions. The commissioner of administrative services, Martha K. Hirst, said veterans should be able to get back the difference between gross and take-home pay by amending their tax returns. But several tax accountants said the city had created an accounting quagmire.

David Gitel, a tax accountant in Manhattan, said that if the employees paid the money back over several years — which many will have to do — rather than in a lump sum, they could lose thousands of dollars in income-tax and social security payments.

“It’s an interesting experience,” Mr. Gitel said.

For now, the Police Department, which waited as much as four years to begin asking for the money back in the spring, is stepping up its collection efforts. On Thursday, hundreds of officers received letters in their pay envelopes threatening legal action if they did not make repayment arrangements within 15 days.

A city official, who was unwilling to be identified lest he incur his colleagues’ anger, gave an explanation for the delay. “People have been talking about it here for some time, about getting around to doing it,” he said. “It’s probably the hero thing. Why make a top priority of telling somebody to give back money when they just went off to war?”

Under the terms of the deal, nontaxable military housing and food allowances also count as military pay. Those allowances can nearly double military pay, in some cases making it more than city pay. Many veterans who did not read the fine print said they thought they would have to repay only their modest military take-home base salary.

On Monday, the City Council will consider a resolution by Councilman Michael E. McMahon of Staten Island to ask Mayor Michael R. Bloomberg to stop counting military allowances as income.

Assistant Police Chief Michael Collins said that after the letters went out on Thursday, many officers contacted the department to begin repayment. The department hopes to recover more than $15 million, he said.

Other officers said the system needed to be overhauled. “We have to change it,” Detective David Goodman, treasurer of the Police Department post of the Veterans of Foreign Wars, said at a gathering on Tuesday of about 50 officers at the Army base at Fort Hamilton in Brooklyn, “so that when you come back you’re not paying money for having gone to war for your country.”

Detective Goodman added that since the war effort relies increasingly on reservists, it behooved the city to make enlistment attractive.

Ms. Hirst said the city was “looking at” the possibility of not counting military stipends as income, but she thought that in any case the benefits program was an excellent one.

“The city works out very, very friendly repayment agreements,” she said.

Many officers said the four-year delay had reinforced their impression that the city did not intend to come after them for the money at all.

Officer Jake Marino, a five-year police veteran who was in the Military Police in Iraq in 2004, recalled that while he was preparing to go, his contact in the department’s military-leave office told him, “As far as paying back the money, I don’t think you have anything to worry about.”

Many officers put one of their two salaries right in the bank, and some used it to make up for the loss of overtime pay. Others who started out saving the excess began to spend it when they did not hear from the city as time went by.

“Like most middle-class Americans,” said Michael Donohue, a police sergeant, “you get a windfall, you fix the roof and the sidewalk and pay off credit-card debt.” Sergeant Donohue, a command sergeant major in the Army Reserves who spent much of last year at Abu Ghraib, estimated that he owed the city $100,000.

The benefits plan was intended to let employees keep the larger of the two salaries. An officer paid $80,000 by the city and $60,000 by the military would owe the city $60,000 upon his return. And an employee paid $80,000 by the military and $60,000 by the city would also owe the city $60,000.

Administrative Services officials said that employees who pay the money back in a lump sum get an amended federal W2 tax form for the year they drew two salaries and would be able to get a full refund of the excess taxes they paid.

Employees who pay the money back by payroll deduction, though, could deduct the money from their income only in the year in which they pay it back, officials said.

This causes two problems, said Mr. Gitel, the tax accountant. One is that an employee would probably be in a higher tax bracket during the year she drew two salaries than when she paid the money back. The other problem, Mr. Gitel said, was that there was no way for the employee to get back the extra Medicare and Social Security contributions she made while drawing two salaries. These shortfalls could easily total $10,000, he said.

An Administrative Services official said last night that the city had just obtained commitments from accounting firms to provide free advice to veterans.

The city could have set its plan up differently. The state has a similar plan for its employees, but it pays them the difference, if any, between their military and state salaries, so they do not have to pay anything back. The state employees’ contributions to their pension accounts are not made while they are on leave, but the much larger state contribution is still made.

Laurence A. Levy, deputy counsel to Mayor Rudolph W. Giuliani in 2001, said the city’s method seemed a better way to protect the employees’ benefits. “In Operation Desert Storm, many of the families didn’t get health benefits, and it caused tremendous financial hardship,” he said. “We wanted to keep them whole.”

Sergeant Donohue said he appreciated the city’s good intentions. “We’re not asking for a pity party or a handout,” he said. “But maybe there’s a little more reasonable way for them to be approaching this.”

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