Crying Time for State Employees

“Oh, it’s crying time again” for state employees.

All the usual stuff has been cut, after mid-year budget cuts by the Governor last year and appropriation cuts by the Legislature this year.

“Dear Agency Directors,” began Governor Haley Barbour’s unsettling October 19 letter. “Provide recommendations on how your agency can operate at funding 15 percent below FY11 appropriation levels.”

About the only thing left to cut are people costs.

“Eliminating unnecessary or inefficient programs, merging existing divisions or programs and streamlining operations may be suggested,” said the Governor.

Right.

The Governor pushed rightsizing a year ago so agencies could prepare for future cuts. Little, if any, rightsizing, was done. Agencies and legislators chose to hunker down, hoping things would be better.

They aren’t.

Revenue collections rose slightly in July and August, then fell back in September. Economists’ projections for state revenue are not rosy.

That brings us back to people costs. There are two ways to cut people costs – pay fewer people or pay people less. Unpaid furloughs fall into the “pay people less” bucket. But furloughs are a temporary solution to a long-term problem.

Businesses have used a combination of both ways to cut people costs. Industries laid off workers. Small businesses cut salaries, retirement contributions, and positions. For example, at the small non-profit where I work, we cut one position through attrition, then chose to eliminate retirement contributions and cut salaries to maintain our remaining staff. Salary cuts ranged from 31% at the top to 11% at the bottom in addition to the 10% retirement cut.

Agency heads and legislators are unlikely to take the business approach to cutting people costs. History shows that they will suggest a combination of: revenue enhancements (new or higher fees or taxes or tuition); using one-time money to prop up recurring costs (such as raiding the rainy day fund and special funds); temporary cuts (like furloughs); hiring freezes (where essential jobs may go unfilled while wasteful jobs continue); and overly optimistic future revenue projections (if you estimate high you push the cuts into the future by a few months and onto the Governor).

Rightsizing eliminates jobs. Revenue enhancements maintain jobs. How likely are either? Bureaucrats and legislators don’t cotton to rightsizing. The Governor will veto tax increases.

This stalemate could put state employee pay cuts on the table. Since 2000, state employees have received as many as four pay increases. These were offset somewhat by increases in employee retirement contributions and costs for health insurance (co-pays and dependent care).

Oh, but 2011 is an election year. You can’t cut salaries in an election year!

“I can see that far away look in your eyes.”



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