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Recession's Effect on Local Governments Public Problems Persist

November 5, 2010

In California, Stanislaus County has cut 857 jobs since 2007, closed a wing of its jail this year and cut the hours for the assessor’s department, library and tax collector’s office. Seeing the local economy devastated by sharply lower property and sales tax revenue, 13 employee unions agreed to take 13 unpaid days off during the next year.

“We expect to restructure county government to a significantly lower revenue base,” says Patricia Hill Thomas, chief operations officer. “Virtually every program will change in one way or another. Some may be eliminated.”

Like Stanislaus County, cash-starved governments across the U.S. are renegotiating contracts, mandating unpaid furlough days and paring back their workforces. Unlike the private sector, which is experiencing a slow recovery from the recession, many public agencies remain too cash-strapped to even consider boosting compensation. Public-sector workers who did receive raises this year saw paychecks increase less than 1 percent on average compared with an average of about 2.7 percent for private-sector employees.

“This recession has really cut into the public sector, not only in employment but in terms of pensions and health care benefits and every form of compensation,” says Gary Chaison, professor of industrial relations at Clark University in Worcester, Massachusetts. “Usually the public sector sort of floats above what’s going on. This recession was so deep and so long and is being felt so much on the local level and state level in terms of tax revenues that it’s really getting to the public sector.”

Local governments shed 76,000 jobs and states cut 7,000 in September, according to the U.S. Bureau of Labor Statistics. What’s more, 60 percent of state and local governments across the country have frozen wages, according to a survey by the International Public Management Association for Human Resources and compensation-consulting firm Fox Lawson & Associates.

In Nebraska, for example, Gov. Dave Heineman isn’t giving raises to nonunion employees and has ordered two unpaid days off for the 10,800 state employees who belong to the state’s two largest unions, which had rebuffed wage freezes.

In New York, Gov. David Paterson tried to impose a one-day furlough earlier this year, but a federal court blocked it from taking effect, saying it was unconstitutional. Most recently, Paterson said the state would pursue layoffs by the end of the year because it didn’t save enough money through an early retirement incentive to close a budget shortfall.

The Civil Service Employees Association immediately filed a grievance with the New York Public Employment Relations Board, saying the state had signed an agreement that said “in plain English, no layoffs or threat of layoffs.”

In some cities and states, unions have returned to the negotiating tables to try to save jobs. Twenty-two percent of cities reached agreements with unions to reduce pay or benefits, according to a survey by the National League of Cities. For example, Seattle and unions representing 6,000 municipal workers agreed to give their members a 0.6 percent cost-of-living increase in January instead of the minimum 2 percent required under the original contracts.

The fortunes of government likely won’t improve quickly, in part because of daunting obligations. A $1 trillion gap existed at the close of fiscal 2008 between what states had set aside to pay for retirement benefits and their obligations, according to the Pew Center on the States. The shortfall equals $8,800 for every household in the United States.

The public sector must find a way of conducting business with fewer employees. That means ending the era of narrowly defined job descriptions and embracing flexibility, says James Fox, managing director of Fox Lawson. “The city councils and the county boards need to wake up to the administrative systems that they have,” he says. “The ones that they have are simply not sustainable in the long run.”

Governments also need to adopt pay-for-performance systems, he adds, and they should review their total compensation to make sure it’s “competitive but not too competitive.”

Workforce Management, November 2010, p. 34 -- Subscribe Now!