CITY OF TALLAHASSEE
CITY COMMISSION AGENDA ITEM
ACTION REQUESTED ON: June 10, 2009
SUBJECT/TITLE: Reduction in Force Policy
TARGET ISSUE: Financial Viability of Government
STATEMENT OF ISSUE
As part of the April 15, 2009 budget update, the City Commission was provided with projected budgetary deficits for fiscal year 2010 with continuing budget deficits projected for FY2011 and beyond. Subsequent to the workshop, the Office of Budget & Policy directed departments to submit FY2010 budgets with targeted reductions ranging from 5% to 7.5%. Over the last few months the Office of Budget & Policy has been working with departments to identify targeted reductions for fiscal year 2010. The Executive Team has also been reviewing proposals and making preliminary recommendations on potential reductions. Based upon continuing updated revenue projections, it has become apparent that the city will have to implement a significant number of reductions in programs and staffing levels in order to provide a balanced budget for fiscal year 2010 and begin addressing shortfalls in 2011.
One of the proposals aimed at addressing projected deficits discussed with the City Commission during the April 15, 2009 budget workshop involves implementation of voluntary separation incentives. This agenda item presents survey information on what other municipalities have implemented. Additionally parameters for a voluntary incentive package are also presented to solicit input and feedback from the City Commission.
RECOMMENDED ACTION
Option 1: Provide feedback on a proposed voluntary separation incentive program and direct staff to formalize and bring back a separation incentive package at the June 18, 2009 budget workshop.
FISCAL IMPACT
It is estimated that any costs associated with a voluntary separation incentive program will be offset by the savings generated from either hiring vacated positions at lower salaries and/or eliminating vacated positions.
Raoul A. Lavin, Director, Department of Management & Administration
Anita Favors Thompson, City Manager
For information, please contact: Raoul Lavin, ext. 8488
SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES
On April 15, 2009, the Office of Budget and Policy presented the Mid-Year Update on the FY2009 Budget and Preliminary FY2010 Budget Projections, which projected a funding gap of $7.4 million in the general fund in FY2010. Since the last budget workshop staff has been working on proposals for potential budget reductions. The Executive Team has also reviewed proposals and made preliminary recommendations. Over the last few months, it has become evident that in order to balance the fiscal year 2010 budget, significant reductions will have to be implemented. Current proposals being considered include various reorganizations, consolidation of programs to increase efficiency in service delivery, elimination of programs, and various revenue enhancement opportunities. Furthermore as salaries and benefits make up 62% of the budget, it will be difficult to address the deficit without impacting staffing levels.
One proposal that has been previously presented to the City Commission involves implementing a Voluntary Separation Incentive program. A Voluntary Separation Incentive Program could mitigate the need for some of the extensive layoffs that are currently being considered as well as minimize the need for additional reductions in FY2011. Under such a program, the City would offer incentives for employees to separate their employment with the City of Tallahassee. As a result of such voluntary separations, the employee’s position could be either filled at a lower salary, eliminated, used as needed to facilitate departmental reorganization or job restructuring, or temporarily held vacant until work demands increase and/or the economic climate improves.
Although the United States Office of Personnel Management and several states had VSI Programs in place prior to the current economic downturn, municipal governments in Florida historically have not commonly utilized voluntary separation programs. However, this is changing with the magnitude of budget reductions they are now facing. Staff has surveyed various municipalities in Florida to determine what types of incentives have been offered. The incentives offered varied widely among those who responded to our survey, as reflected on Attachment # 1. Organizations have opted to provide lump sum cash payments, payments tied to length of service, extended medical coverage or a combination of the three. In some cases, the Voluntary Separation Incentive Programs were structured to require the organization’s approval of the employee’s request for separation under the program; in other cases, all employees who accepted the offer and resigned by the target date received the incentive. Additionally, these programs have been offered either as an early retirement incentive for positions eligible for retirement within the various organizations or have been offered to all employees regardless of whether or not they were eligible for retirement. Other variations include offering the incentive package only to those employees whose salary is near or at the maximum hiring rate. Staff believes that all these variations need to be considered when developing a plan.
There are also specific federally designated timeframes that need to be established in order for a program to be implemented. Employees must be given 45 days to enroll in the program. Once enrolled, employees must also be given a 7-day revocation period. Therefore it is possible that the City would not fully know the impact of offering such a program until after the 52 days have expired. If the city were to begin offering this program in late June, the program would have to be open until late August to meet federally established guidelines.
It should be noted that Leon County offered a Voluntary Separation Incentive program as part of their budget process last year. This program was targeted to a select group of employees eligible for retirement and the county maintained the right to accept or deny participation in the program. The total incentive package included 6 months base salary or $25,000, whichever was greater and 50% of the total costs of 18 months of health insurance. Under their program 129 eligible employees were identified, 20 applied, and 12 employees, or 9.3% of eligible employees, were approved for the incentive package. Employees that were not approved were deemed to be essential to the continuing operations of the County.
In trying to structure a Voluntary Separation Incentive (VSI) program for the City, staff looked at what other municipalities have offered. The following are suggested guidelines for a city program.
Eligibility for VSI
All regular full-time or part-time general employees in permanent status would be eligible to apply for a voluntary separation incentive program. Any eligible employee who accepted the VSI offer, tendered a resignation, and exited their position on or before September 30, 2009 would receive the incentive.
Payment Incentives
Employees enrolling in a voluntary separation incentive program would receive a compensation package, consisting of a lump sum cash payment tied to annual base salary, and a continued City contribution toward the cost of health insurance. The calculation for the lump sum cash incentive payment would be based on base salary only. The continued City contribution toward health insurance would be based on the employee’s level of coverage upon enrolling for the voluntary separation incentive program, and would be contingent upon the employee continuing to pay his/her share of the premium contribution.
Additionally, upon termination of employment, the employee will be paid for any unused personal leave, compensatory leave, and for a portion of the balance of their sick leave, (50% for General Employees).
Two VSI options are presented for consideration:
Staff has attempted to provide some estimates on the costs and potential savings relating to a voluntary separation incentive program. These numbers are based on the two options presented for consideration above. Additionally participation rates are based on what other communities have experienced. We have also considered the current economic downturn and potential employment opportunities in the community during our estimate of potential participation in such a program.
The following table provides the estimated cost of the proposed VSI options, at participation rates of 3% and 5%. The savings figures reflected estimated annual savings and that at a minimum 50% of the positions vacated are eliminated. Note, that although figures have been included for Police and Fire personnel, we would not be able to offer them any voluntary separation incentive without first engaging in the bargaining process.
This analysis excludes DROP participants. It may be feasible to consider offering this incentive to DROP participants with mandatory service end dates beyond October 1, 2010.
Implementation of a Voluntary Separation Incentive Program has both benefits and disadvantages as follows:
Pros –
· Could mitigate potential layoffs.
· Provides opportunities for new employees to come into the organization with different perspectives, ideas.
· Increased productivity as new employees will not have leave balances, etc.
· Opportunity to restructure programs/service delivery.Cons –
· Potential brain drain in the organization/loss of institutional knowledge.
· Disruption to customer service if too many employees take advantage of program.
· Savings could be minimized if commitment to hire at a lower salary than the incumbent is not adhered to.
OPTIONS
1. Provide feedback on a proposed voluntary separation incentive program and direct staff to formalize and bring back a separation incentive package at the June 18, 2009 budget workshop.
2. Do not approve a voluntary separation incentive package program.
3. Provide alternate direction to staff.
ATTACHMENTS/REFERENCES
Attachment 1 - Voluntary Separation Incentives (Comparable Municipal Governments)