State personnel job losses feared amidst recovering economy in the future

By Marianne Goodland
THE COLORADO STATESMAN

The state of Colorado may face a host of disconcerting personnel problems in the coming year while the economy begins to recover — the end of federal stimulus funding, massive budget cuts and the resulting possibility of lay-offs — all coming at a time when 30 percent of experienced state employees are eligible to retire and others may be looking for better opportunities in a recovering market.

Last month, the Associated Press reported that during the first three months of 2010 more people quit their jobs than were laid off, which the story said pointed to signs of an improving economy. “Such optimism was rare in 2008 and 2009, when employers cut more than 8 million jobs…” The report also said that worker morale has declined during the recession, when companies “squeezed more work out of their employees.” That could be one of the reasons people are quitting their jobs — “overworked employees could jump at the chance to switch jobs as new opportunities arise.”

And the workers who are quitting for other opportunities are frequently the best ones. A survey covered in the May edition of The Harvard Business Review said 25 percent of companies’ top performers are planning to quit their jobs within the next year. A similar survey in 2006 said just 10 percent were planning to leave.

According to a state performance audit of DPA last year, the International Public Management Association for Human Resources (IPMA-HR) has said “the stakes are high for public sector organizations to recruit and retain people with appropriate skills and experience to deliver quality services.” The audit reported that, “without talented, qualified employees, the State of Colorado cannot provide critical services to its citizens.”

State employees in Colorado have had little to cheer about in the last several years. It started with pay for performance, in legislation passed by the General Assembly in 1996, and through a series of fits and starts, was implemented in 2001.

Prior to Colorado Peak performance, state employees passed through the pay ranges via “steps.” Each step represented a 5 percent pay increase and a new employee, with satisfactory evaluation, could move one step per year for the first six years, and a last step at the 10th year. The previous system had been in place for more than three decades and many, including legislators, felt it was outdated. In addition, the step system primarily rewarded newer employees; long-term employees got no step increase after ten years of service, although they did get annual salary survey increases that were based on comparisons with the private market. As a result, long-term employees were trapped in salary compression; new employees could be hired at more than what an older, current employee made.

The first performance awards were given in 2002, but contrary to legislative intent cost the state less than the old system, by about $2.75 million. That meant some low-paid employees rated as outstanding got very small awards (as little as $1 per month) and employees rated as meeting or exceeding expectations got nothing at all. That created a credibility issue for the state with its employees, according to then-DPA Executive director Troy Eid.

The legislature, and most notably, the Joint Budget Committee, has wrestled with the pay for performance issue every year since it was implemented. In some years, the committee voted, as part of its budget-setting process, to give no performance awards and instead shift it to salary increases; in other years, when the state was in recession, state employees got no increases of any kind.

That’s been the case for the last two fiscal years — performance pay and salary increases have been suspended, and based on prior legislative history there’s little chance that those increases will ever be restored.

During the 2010 legislative session, lawmakers passed a bill to replace the current system (lambasted as “pay for personality” by Colorado WINS) with one that would be based on merit, beginning in 2012. But Gov. Bill Ritter vetoed the bill, House Bill 1409, stating that it wasn’t the right solution but he also acknowledged that the current system is broken. Gov. Bill Ritter, in his veto message, said he would direct DPA to come up with a new performance pay plan for state employees, and which will be submitted along with his budget request on November 1.

Last year, a total compensation audit said that state employees on average made 6 percent more than the private sector or government employees in other states. However, that comparison failed to take into account benefits such as health insurance or retirement, which DPA said would bring Colorado’s employees on par with the comparison groups.

And that advantage, if any, evaporated in the last year — during 2009-10 year, all state employees except for essential personnel (primarily public safety and corrections) were required to take eight furlough days without pay. Beginning with the July 31 payroll for monthly-paid employees, those enrolled in the Public Employees’ Retirement Association also will see their pay reduced by 2.5 percent, to cover a 2.5 percent reduction in the state’s contribution.

Then there are layoffs. Despite claims by some legislators to the contrary, Colorado’s state agencies are laying off employees. According to the Center for Budget and Public Priorities, Colorado is just one of 45 states cutting public services in K-12, higher education, and public health. A Center report on state budget cuts issued in May noted, for example, that the University of Colorado will lay-off 79 employees in FY 2011; this is on top of at least 50 employees, most of them in the state personnel system, who lost their jobs in the previous fiscal year.

Losing employees doesn’t mean a cut in workload; to the contrary, layoffs result in more workload on fewer employees. One state employee who did not want to be identified said her workload recently increased to take on the tasks previously assigned to two employees laid-off from her department, and other state employees have similar tales. One state employee recounted his concerns on the blog of former state Treasurer Mark Hillman. “MacRainey” said there is little incentive for state workers to stay, given the lack of pay increases, changes to PERA and the increased workload from employees who were getting out before the PERA changes went into effect. Another state employee, commenting on a Denver Post story about a bill during the last legislative session to set up a new pay for performance system, said she was already doing the work of two people and getting nothing extra for it.

Retirement also may contribute to a state personnel vacancy problem next year. According to state audits, 30 percent of state employees are now eligible or will be eligible to retire in the next five years.

The combination of pay cuts, morale issues and lack of pay increases for solid performance or even cost-of-living increases raise concerns about the quality of state service in the coming years and the state’s desirability as an employer.

State personnel directors have been sounding the alarm on the state becoming the employer of last resort for several years. Eid noted back in 2002-03 that the state would become the employer of last resort because it could not compete on benefits and salary and hence the quality of state services could be impacted.

And the state auditor has said the state has not done enough to plan for the coming shortages.

In a 2009 audit of the Department of Personnel and Administration, the state auditor recommended DPA do more to assist state agencies with “succession planning” for those who will retire. According to an FY 2008 report, the median age of the state’s classified workforce is 47 years, and at that time 12 percent of the workforce was retirement eligible, with another 27 percent eligible in the next five years. Every state agency and higher education institution would be affected, the audit said, but took special note of the looming shortage in the professional and financial services job class, where nearly half of the 10,800 workers will be retirement eligible in the next five years. That job class includes, for example, IT professionals, accountants, human resources personnel, business managers, public information officers, librarians; college advisors or other student services staff; and purchasing agents.

It may not be just the retiring workers that have to be replaced. New state employees don’t stay very long. According to a 2009 DPA workforce report turnover for state employees with a year or less of service is 28 percent. Employee under the age of 25 are the most likely to leave with just a few years under their belts; the report said “this may show that younger workers are gaining the knowledge and skills they need to look for other positions and better opportunities elsewhere.”

“The cost of hiring new employees, substantial in normal years, is multiplied in the case of mass turnover,” the 2009 workforce report said. The agency feeling the pinch hardest may have been the Department of Human Services; it reported in 2009 that primarily because of retirement or voluntary separation it lost 10.6 percent of its workforce, or 584 employees. Although smaller in size, Mesa State College had the highest percentage of turnover among its classified workforce; it lost 23 percent, mostly due to retirements.

One agency that has struggled with this for years is the Colorado Department of Transportation. Spokesperson Stacey Stegman said that salaries aren’t competitive with the private sector or even with local governments, especially in the mountain communities. “We expect to lose people when the economy bounces back,” Stegman told The Colorado Statesman. “We don’t have the ability to do much with salary or benefits” and if employees keep getting furloughs or increased contributions for PERA, when the economy comes back,” it will be less attractive to be in state government,” she said. CDOT lost 3 percent of its employees in 2009 to voluntary resignations; another 2.5 percent retired in 2009.

So far, state employees who are retirement eligible are sticking around, up to about three years beyond when they’re first eligible, according to several sources. Julie Postlewaite of DPA said while the economy is down, state employees appreciate the security of a government position. But when the economy improves, people will be drawn to the private sector with hopes of higher pay and better offers. Postlewaite tried to put a good face on such changes, saying it spoke well “for the state being a good training ground” for the private sector, but added that the state will have to develop new approaches to keep its best employees.

But even in the face of higher workloads and lower pay, “state employees are a hopeful group,” said one state employee. “They’re willing to hang in there to see if things turnaround.”

Marianne@coloradostatesman.com