Employee Compensation & Benefits April 2009 Update - Executive Summary

To:          Washtenaw County Board of Commissioners

 From:    Robert E. Guenzel, County Administrator

Re:         Consideration of Employee Compensation and Benefit Modifications

The economic downturn has put significant fiscal constraints on nearly all public organizations nationwide.  The Board of Commissioners have instructed County Administration to take a conservative approach in its revenue projections, resulting in a projected shortfall of nearly $26 Million for the 2010/11 budget if spending continues at past levels.  A multi-faceted approach is being taken to bring the budget into balance, including:

• Revenue Generation
• Reducing the Cost of Doing Business
• Organizational Restructuring
• Collaborations
• Service Level Reductions in both Mandated and Non-Mandated Programs
• Elimination of Non-Mandated Programs
• Employee Compensation & Benefits

With the cost of personnel comprising over 60% of the General Fund budget and even more with support through appropriations to Non General Fund programs, it is imperative that part of the budget balancing solution include some modifications to employee compensation and benefit levels provided to county employees, and possibly retirees. 

The county has approximately 1350 employees within 17 unions, as well as non-union employees to consider.    Just over 80% of the organization is unionized.  Negotiations have recently been completed with all bargaining units, with current labor contracts extending until the end of 2010 for most and 2012 for a few.  Any modifications will need to be agreed to by each bargaining unit.  This can be accomplished through an agreed upon Letter of Understanding and Board of Commissioner resolution.

A comprehensive review of employee compensation and benefit levels has been completed as part of the 2010/11 budget development.  This started with a brainstormed list of options, which was developed by a workgroup dedicated to this process (the Employee Compensation & Benefits Workgroup), discussions at Labor Management Team meetings as well as through employee suggestions raised at Town Hall Sessions or through eCentral.  These options were categorized as follows:

1. Number of Positions
2. Salaries & Work Hours
3. Time Off Banks
4. Benefits Medical
5. Benefits Retirement
6. Benefits Retiree Health Care (VEBA)
7. Benefits Other
8. Miscellaneous

Each category was discussed with the Employee Compensation & Benefits Workgroup to identify potential organizational impacts if such changes were implemented.  Financial analysis was completed where data is available internally.  An external consultant assisted with data for retirement and retiree health care since the county costs for these are actuarially determined each fiscal year.  County Administration with the assistance of Labor Relations and the Budget Office developed scenarios of possible modifications.  Information is being provided to commissioners that includes the following:

• Scenarios for Consideration with Estimated Fiscal Savings
• Review of Each Category of Modifications with Potential Organizational Impact
• Informational Materials on Current Benefits with Historical Costs

The scenarios for consideration are only provided for illustrative purposes and are not recommendations.  Any combination of salary and/or benefit level modifications can be reviewed and quantified for potential savings.  It is important to note that all estimated savings assume all other variables remain unchanged.  The amounts provided in this analysis will change as the number of FTE is reduced.  In addition, a change in one area (salary, medical, retirement, etc) may result in a change in costs in another area.  In some cases, cost savings will materialize immediately upon implementation and others will be delayed.  Final analysis will be conducted during negotiations to determine a reasonable and appropriate level for budgeting purposes.   A case by case evaluation will need to be done for Non General Fund appropriations to determine if the remaining appropriation level fully meets any local match requirements.

When entering negotiations it is important to realize the environment of the organization along with the needed outcomes.  The county moved to interest based bargaining in the development of the 2002 2007 union contracts.  These parameters should stay before us at all times during these delicate discussions.  The countys interests need to include:

• Minimize loss of jobs
• Maintain services and programs for the community
• Short-term cost reductions to assist with balancing General Fund budget
• Long-term structural cost savings to assist with long-term fiscal stability
• Offer reasonable pay and benefit levels using comparables with other entities
• Consistency and equity with all employee groups
• Avoid staff compression

Many factors need to be taken into consideration.  It may be easier to obtain short-term savings if a commitment is made for increases in the long-term, although this needs to be balanced with an uncertain fiscal environment.  The countys negotiating strategy may need to be different for any changes in 2010 as existing contracts are in place.  A more extensive negotiation can occur during the 2010 fiscal year for implementation 1/1/2011, or as negotiated.  The alignment of non-union modifications is also very important and sensitive.  Implementing changes to non-union can simply be accomplished through action of the Board of Commissioners at any point in time.  However, as consistency is a goal of the countys to maintain equity as much as possible between employees, it is important to implement changes to non-union that are deemed reasonable in light of assumed changes to union staff.

County Administration needs the Board of Commissioners assistance in developing the negotiating strategy on April 1st.  Feasibility of success in negotiations should be weighed along with estimated savings, cost to individual employees, impact on retention and recruitment, and potential change in county culture (both short-term and long-term).  Establishing guidelines and expectations for negotiations is critical, as is allowing for some level of administration flexibility as negotiations are always fluid.  Following the April 1st Executive Session, the county will conduct an information session with all unions combined.  It will then be determined if the unions want to move into negotiations as separate bargaining units or in a combined session.  If the unions decide to move forward individually, the county will pursue negotiations with AFCSME 2733, our largest union.  In either event, the county will tell the unions that any modifications to employee compensation and benefits for 2010 will need to be known by June in time to incorporate as a strategy for the 2010/11 budget.  If an agreement cannot be reached by this time then County Administration will proceed with developing a recommended budget without any assumed contract modifications for 2010, and with some to be determined estimates for the new union negotiations that will impact the 2011 fiscal year.

The accompanying materials are meant to provide information and support to the commissioners in determining a labor and budget strategy.  Please let us know if any additional materials are needed.