Budget Cuts Test State Personnel Policies

Forced to dramatically cut payrolls, some states are finding low-cost ways to boost employee morale, even as they struggle to maintain basic human resource functions such as training, recruiting, hiring and regular performance reviews.

Utah moved to a four-day work week, getting rave reviews from workers and savings on utility bills; Maryland added an extra day to two holiday weekends and got a similar efficiency lift. Virginia expanded its telecommuting program, rewarding beleaguered employees and easing congestion on the state's highways.

Innovative cost-cutting measures such as these appeal to just about everyone. But pouring time and scarce resources into broad workforce development programs is not as easy to justify.

In 2009, more than 800,000 state employees were affected by budget cuts - mostly through unpaid days off, or furloughs. Hundreds of workers were laid off and thousands of positions were left unfilled, putting additional stress on those left behind. For the fiscal year that began July 1, states already have announced payroll cuts affecting at least a million workers and the numbers are expected to spiral even higher.

  STATES TURN TO EMPLOYEE FURLOUGHS
Sources: Stateline.org reporting

Despite these pressures, the Pew Center on the States is urging state policymakers to find creative ways to ramp up proven personnel practices so that shrinking state workforces have the support they need to continue to deliver quality government services.

In a new set of recommendations, People Forward: Human Capital Trends and Innovations ," Pew's Government Performance Project analyzed data from a 2008, 50-state survey (Grading the States 2008) to highlight successful human resource practices the group says will help states strategically manage their workforces during this recession. (Like the performance project, Stateline.org is part of the Pew Center on the States.)

The new report's advice: State human resource professionals - even as they manage the biggest employee downsizing in a generation - should continue to aggressively recruit new talent, stem voluntary departures and develop and hire people with the skills needed to achieve the state's future goals.

If that challenge is not enough, personnel agencies can expect to accomplish all this with much smaller staffs. According to National Association of State Budget Officers director Scott Pattison, the lion's share of upcoming payroll cuts will be in back-office agencies such as accounting and personnel.

In 2008, states such as Utah and Virginia were ahead of the curve, receiving high marks from Pew for their ability to retain employees, conduct meaningful performance reviews, train and develop their employees and plan for future staffing needs. Others, such as Indiana and Maryland, were on the cusp of developing new statewide staffing plans and management training programs.

Now, as states enter a second year of budget deficits, personnel officers are testing these programs.

"Absolutely no one in the personnel department had any experience with this kind of thing, because nothing like this had happened in more than 15 years," said Maryland's deputy personnel director Catherine Hackman. Even so, Hackman says she and others were amazed at the favorable reaction to the furloughs. A hotline established to take comments on the cuts showed few negative reactions, she said. "Most workers were thankful they had a job and citizens generally approved."

Today, she says, her staff is busy preparing for the next round of cuts - taking online courses in such topics as performance evaluation, leave management, union negotiation and employee incentives. Under plans just announced by Democratic Gov. Martin O'Malley, state employees will be forced to take as many as 10 days of unpaid leave over the year ahead, and more than 200 will be laid off.

Virginia, which excelled at workforce planning, employee retention, training and development and employee performance reviews before the recession, is facing a 15 percent cut on top of a previous 22 percent cut in its human resources budget.

"We're up against a wall," said personnel director Sara Wilson. "There's not going to be a lot of low-hanging fruit. We've already been down that road."

There's no question government services will suffer, Wilson said, but her office is looking for savings that will allow them to continue most of their workforce development programs. For example, she saved millions on an employee wellness program by bringing it in-house and assigning it to a group of employees who work from their homes.

Wilson, whose agency provides all state training programs, also cut costs by providing most courses online and partnering with state colleges and universities to maintain high-level management and leadership classes. An employee suggestion line was moved to the governor's office and combined with constituent services to free up one of her staffers.

As for strategic workforce planning, Wilson says the time-consuming process is well worth the effort. "It started out as a new idea, but now it's top of mind for every manager in the commonwealth. I'm glad we've had some emphasis on this in the past, because managers have that experience as we go through this process."

In the face of unrelenting gloom, Indiana personnel director Daniel Hacker says the recession offers a few bright spots. The state's poor private-sector job market - worse than the national average - has lowered voluntary turnover and made state government the employer of choice. Financial worries have also stanched a retirement boom that had threatened to drain the state of much of its institutional knowledge.

Looking forward, Indiana plans to maintain its rigorous performance reviews, despite a statewide salary freeze. "People really want acknowledgment for outstanding performance," Hacker said. "If there's bonus pay attached, that's even better."

Indiana's salary freeze provides an added incentive for employees to strive for promotions and exemplary service, because that's the only way they'll see a pay increase, Hacker added.

  WORKFORCE INVESTMENT IN HARD TIMES
Source: Abstracted from "People Forward: Human Capital Trends and Innovations," by the Government Performance Project, a division of the Pew Center on the States.

In Utah, the state grabbed national headlines for its switch to a four-day work week, but less noticed was the absence of statewide furloughs and layoffs. Despite a nearly 4 percent staffing cut, the state managed to avoid disruptive across-the-board payroll reductions by allowing agencies to come up with their own downsizing plans tailored to their needs and funding sources. For example, people in agencies funded by the federal government were spared, in favor of cuts that helped plug the state deficit.

"Rather than using a sledgehammer, we took a surgical approach," said Utah personnel director Jeff Herring.

Still, as states' financial woes worsen, personnel cuts will get deeper and experts say most states will not likely return to pre-recession workforce levels in the foreseeable future. As a result, some are concerned that productivity-enhancing human resource practices will fall by the wayside and government services will suffer.

According to Pattison, states may cut their overall payrolls by about 7 percent this fiscal year, but schools, corrections and health care will be largely spared. To make up the difference, administrative agencies could see cuts of 20 percent or more, he said. "Frankly it comes down to what's more politically justifiable."

With more looming budget pressures ahead, Pew's Government Performance Project director Neal Johnson, said, "We hope that by highlighting human resource practices that have held states in good stead over the years, the new analysis will give personnel officers the ammunition they need to convince governors, legislators and the public that despite the financial crisis, workforce development is more important now than ever."