Port Authority Chief Executive Officer Paul Skoutelas must leave the financially troubled transit agency no later than Aug. 31, 2007, when his contract expires, unless the board makes an extraordinary offer.

That's because he participates in a special program that allows him to bankroll pension contributions of more than $9,000 a month in a separate account for five years, then walk away with that amount in cash.

	TRANSIT: A price to pay Wages, salaries and employee benefits eat up the biggest part of the financially troubled Port Authority's $282.7 million operating budget -- $212.6 million, or more than 75 percent. A three-part series examines overtime, pensions and a special retirement incentive for certain managers at the agency, which could make severe service cuts due to a budget deficit of $30 million. THE SERIES Day One: Strapped Port Authority calls wages reasonable Day Two: Liberal pensions start to hit authority finances

In the likelihood he leaves, Skoutelas will have his regular monthly pension, plus an extra $600,000 that should be built up in the account by that time.

What appears to be a bonus comes from his participation in a "deferred retirement option plan," known by the acronym DROP, a lucrative program accumulating special post-employment benefits for him and 43 other management personnel with at least 25 years of recognized service.

The plan, recommended by Skoutelas and adopted by the authority board in February 2002, provided a one-year time period for nonunion employees, many in specialized positions, to continue drawing salaries while collecting their pensions in separate, interest-bearing accounts.

A provision of DROP calls for mandatory retirement no later than five years after employees enroll in the program.

Skoutelas, 51, enrolled in July 2002, so his participation in the plan expires almost the same time as his contract.

Consequently, Skoutelas has no choice but to leave unless the authority board amends the DROP rules, allowing him and possibly others to accumulate even bigger pots of money or to negotiate a new contract worth his while to stay.

Authority board Chairman Jack Brooks confirmed Skoutelas' status.

"A lot can happen between now and then," he said.

Skoutelas became eligible for the plan after buying back previous service and combining it with service since he became chief executive officer in 1997. He had left the authority in 1991 to become CEO of the Orlando-based Central Florida Regional Transportation Authority after serving in various administration positions here.

When the last of two one-year options in his contract expires Aug. 31, 2007, Skoutelas' annual salary is scheduled to be at least $215,000.

He can walk away at that point with a monthly pension of more than $9,000, the largest at the Port Authority, and an estimated $600,000 in accumulated DROP payments that can be taken as a lump sum or rolled into an Individual Retirement Account.

In addition, he would receive fully paid health, dental, prescription and eye insurance plans until age 65, when the authority would pay for Medicare supplemental insurance, as it does for all retirees.

Skoutelas can't lose.

If the authority board acted to dismiss him "without cause" -- and there's not a hint that the board is dissatisfied with his performance -- he would have to be paid the remaining amount of his contract, up to a maximum of 1¹/₂ years, or about $300,000, in addition to the money in his DROP fund.

Skoutelas was vacationing last week with his family in Florida, where he maintains a residence, and could not be reached for comment on whether he intends to leave in 2007.

In recent years, the DROP supplemental benefit plan has been adopted by a small but growing number of public entities with early, liberal retirement programs.

In April, Michigan created a DROP to give state police an opportunity to continue working beyond their normal retirement dates.

Philadelphia has a DROP that requires employees to leave city employment within four years of enrolling. As at the Port Authority, those employees continue to earn pay increases, vacation time, sick leave and benefits.

DROP originated chiefly in plans for police and fire personnel, since they typically can retire, with full benefits, at an early age. In recent years, the plans have spread to other public sector pension programs, according to a 2001 study by the Employee Benefit Research Institute.

Before Skoutelas went on vacation, he said in an interview that the DROP was an effective way to retain the transit agency's most talented and experienced managers.

The plan costs no extra money since the authority no longer makes pension contributions for Skoutelas and other staff members enrolled in DROP. The money that would have been put in a pension is put in the separate DROP account, which earns 4 percent interest until the employee leaves.

"Those in DROP get no additional service time" that would increase their pensions, Skoutelas said. "They're officially considered retired, but they continue to work while their pension payments accumulate separately."

He said the authority board adopted the one-time program in 2002, when many top staff members were eligible for early retirement.

"We wanted to encourage people to stay without giving out bonuses," he said. "There is no additional cost to the authority in its operating budget or its pension plan."

Patrick McMahon, president-business agent of Local 85, Amalgamated Transit Union, which represents 2,500 bus-trolley hourly workers and 170 first-level supervisors, was surprised to learn that Skoutelas may not be around after 2¹*₂ more years.

McMahon also isn't thrilled about DROP.

"My problem is a lot of those people were able to buy time from other public agencies and count it toward their Port Authority pensions," he said. "Where I come from, you work for a living and earn your pension."

Skoutelas had 11 years with the Port Authority before leaving and he has seven years since returning.

He became eligible for DROP by buying back public service time with the Florida transit agency, as well as the New Jersey Department of Transportation and Bucks County, where he was a planner.

Consequently, he met the 25-year minimum and has been accumulating his monthly pension of more than $9,000 a month in DROP since July 2002.

Some employees say privately they think the DROP program has been abused. While 44 remain in the program, another seven have left or are in the process of leaving.

"They let anyone in to keep them quiet," said one staffer who claimed disclosing his or her identity would bring immediate dismissal. "It's a smokescreen. It starts at the top and goes down to the cronies.

"The people who created this include the same people you see on TV or read about in [Post-Gazette] articles who are fighting for more operating dollars to keep up a program that doubles some of their salaries."

Authority spokeswoman Judi McNeil said the informants appeared to be employees disgruntled because they missed the one-year window to enroll in DROP or because they were not included in the program.

Of the 20 highest-paid management employees in 2003, the latest year for which statistics were available, eight were enrolled in the DROP plan, including Skoutelas.

One, Laurie Andrews, retired as chief operations officer and formed a transportation consulting company, Clearview Strategies. She receives a $4,751-a-month pension; the lump sum she received from the DROP program was not available but is believed to be about $100,000.

Others still in the plan, and their salaries as of 2003, include Jason Fincke, chief of staff, $117,001; Jim Barthen, manager of governmental affairs, $105,056; Bob Brecht, director of civil engineering, $89,358; Terrence Henne, director of law, $86,316; Rich Charnock, controller, $82,977; and Terry Johnson, director of purchasing, $80,525.

The second highest paid administrator, Engineering and Construction Manager Henry Nutbrown, whose 2003 W-2 form shows $134,181 in authority wages, is not in DROP; however, he receives a state pension after a career with the Pennsylvania Department of Transportation, from which he retired six years ago as District 11 engineer.

While the DROP program was established to keep the best people and for continuity, it apparently only postponed the exodus by five years.

"Hopefully, we're starting a mentor program to groom people for those positions," McNeil said.