The Vacancy Game

A few weeks ago, skimming through the Washington Post, we came across a story on what the state of Maryland would be doing to overcome a $2 billion shortfall next year. Among the items Governor Martin O'Malley had on his list was the elimination of 1,000 vacant positions within state government.

We would have skipped right over it had it not suddenly struck us: What would the average reader make of the idea that a state could save money by eliminating job slots that weren't filled? Many might think that a vacant position wouldn't cost anything -- after all, there's nobody in the job to actually cash a paycheck. It kind of reminded us of our Uncle Melvin, who used to periodically give up smoking in order to save money. The only catch was that he had never smoked in the first place.

But folks who have been around government budgeting or human resources understand what's going on when cities or states say they'll save money by eliminating vacancies. In many places, once a job has been included in the budget and funded, the agency gets the cash to pay for it in its annual appropriation. This is true whether or not a human being has been hired to fill the job. Sometimes agencies retain a huge number of vacancies year after year, effectively creating a kind of all-purpose fund that isn't constricted with sticky little line items or specific legislative descriptions. This is particularly useful in hard times when governors start insisting on agency-level cutbacks.

A year ago, for example, the Maryland Department of Budget and Management released a study called "Report of Appropriateness of Agency Vacancy Rates." It confirmed the notion that agencies "were holding positions open to offset budget shortages."

But in many instances, it can be a shell game. Agencies provide solid justification that they need money for salaries, for example, but the money may wind up being used to pay for new laptops or for systems development. We're not suggesting that cities, counties and states are wasting the money that's being moved from one shell to another. No doubt in most cases the cash is being well spent on needs that would be appreciated by the majority of the population.

The practice raises questions about transparency, however. "If you're going to spend $5 million a year on developing new systems," says Walter Smiley, a section manager at Virginia's Joint Legislative Audit and Review Commission, "why not put it in the line item for system development?"

Beyond the loss of transparent budgeting, there are other costs to agencies that use vacancy-related money to sustain their operating budgets. The Virginia State Police raised the following point in their FY 2009 strategic plan: "In order to accommodate budget shortfalls caused by the rising cost of gasoline, vehicles and insurance, the department has been forced to leave a number of authorized sworn positions vacant. These vacancies have an adverse impact on both public safety and officer safety."

Assuming that the vacant jobs were actually justified in the first place, it may mean that other workers are doing double duty or that services suffer. On the other hand, "vacancies, in and of themselves, aren't always an indication of bad management," says Erik Christian, assistant director of Human Resources in Illinois' Peoria County. Jobs for which shortages are chronic, like nurses, are often vacant, as agencies eagerly search for qualified candidates.

For cities or states that want to keep a handle on agency openings, there are some good models to emulate. Vermont, for example, used to have a significant problem with human resources dollars being diverted in unpredictable ways via the roundabout vacancy route. Back in 2004, legislative fiscal officer Stephen Klein told us, "There's a huge issue in how we budget vacancy savings. We're working on it."

The solution they came up with? The state established a so-called "vacancy pool," so that open positions in all the agencies were fungible. If there were long-standing vacancies in an agency, they'd be placed in the statewide pool. When another agency had an unanticipated need for a new position, it could then tap that pool. This had the positive impact of ensuring that old vacancies didn't remain open while new jobs were created. Unfortunately for Vermont, this clever approach has come to matter less lately, as the state's desperate fiscal situation has forced it to cut back on positions altogether.

Then there's Phoenix. For years, that city has discounted agency personnel budgets by 3 to 4 percent, on the assumption that there would inevitably be vacancies. The precise percentage change depends on outside factors. Andrea Tevlin used to be deputy city manager in Phoenix. She is now an independent budget analyst in San Diego and has helped bring the Phoenix approach to her new city. "I appreciate that departments want flexibility," Tevlin says, "but if you're cutting libraries and police academy classes, the departments can't have the luxury of a lot of flexibility anymore." Her bottom line: "If you need money, you should get it through a public process."