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The Implication of Long-Term Pay Freezes for States, Localities

Many public employees have waited years for salary increases, and recent surveys indicate pay freezes are continuing to persist. The implications have been far-reaching, from hindering employee retention to hurting morale.

When Florida state employees receive an approved pay increase later this year, it will be the first raise for most in seven years. In Philadelphia, city workers haven’t seen a general pay increase since 2007. New Mexico state workers are slated to get a meager 1 percent pay increase this summer – their first across-the-board raise in four years.

They aren’t alone; numerous state and local governments enacted pay freezes while budgets were trimmed during the Great Recession, with some still in place. The implications of these long-term pay freezes have been far-reaching, from hindering employee retention to hurting morale.

Public employees in some jurisdictions are just now getting their first raise in years. But for a sizable share of the sector, pay freezes continue to persist. A recent Governing survey of senior state and local officials found that 42 percent of them had pay freezes during the past year. Similarly, 33 percent of International Public Management Association for Human Resources (IPMA-HR) members reported pay freezes in another survey published in May.

“You can only do them for so long before you’re really out of step with the market,” said Neil Reichenberg, IPMA-HR’s executive director.

With an uneven recovery, the extent to which money has flowed back into municipal coffers varies, so some workers are waiting longer for a raise than others. Those areas hardest hit by the recession simply can’t afford the added expense. Some governments with the largest deficits are even imposing salary reductions, such as the 10-percent pay cuts imposed by the city of San Jose a few years back. Nine percent of participants in the recent Governing survey reported pay cuts.

In some cases, extended pay freezes led to an odd disparity: front line union workers making more money than their managers.

Before this year, approximately 13,000 non-union Pennsylvania state employees hadn’t seen a general pay raise since 2008. Over the same time, net pay for union employees climbed 12.75 percent, according to the state Office of Administration.

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This led to union members’ salaries often surpassing those of management. About a quarter of non-union managers were supervising at least one union employee receiving a higher paycheck earlier this year, according to a state report.

This pay disparity created quite a few challenges for the Commonwealth.

Jim Honchar, Pennsylvania's deputy secretary for human resources and management, said some managers actually left their jobs for union positions. A number of those with advanced skill sets, particularly engineers and information technology professionals, also made the jump to the private sector.

Other states faced similar challenges with both employee retention and recruitment.

While the Corbett administration has indicated it wants to give comparable raises to both union and non-union workers, it’s unclear whether the Commonwealth will be able to make up for the long-stagnant pay that managers incurred.

“The budget difficulties that led us to the pay freeze in the first place haven’t entirely abated,” Honchar said.

Although many governments couldn’t approve across-the-board salary increases, some agencies found ways to boost pay or at least deliver cost-of-living increases. Other employees earned salary bumps based on merit.

Reichenberg said that more states and localities could have provided broad across-the-board pay increases in recent years, but their elected officials lacked the political will to deliver.

“There’s a sense of government workers still being fat cats,” Reichenberg said. “When coupled with this anti-government mentality, it becomes tough to raise salaries.”

On the other hand, those officials not backing pay or cost-of-living increases were often met with fierce opposition from labor unions.

In Philadelphia, where some labor unions are going on four years without a contract, municipal workers have responded by waging public protests. When Mayor Michael Nutter gave his annual budget address earlier this year, they shouted over him, forcing an early end to the speech.

But as the economy recovers, so too have many state and local budgets. Some have started to unfreeze pay or restore cuts implemented during the recession, accordingly.

Back in 2009, city of San Diego officials closed a budget gap by imposing a 6-percent reduction on employee pay and benefits, averting potential layoffs. Union leaders there recently reached a five-year agreement with the city that would restore compensation over time, increasing health benefits and eliminating furlough days.

In Florida, the state has not issued an across-the-board pay increase for union and non-union state employees since Jeb Bush was governor (2006). A few agencies awarded raises since then, but pay remained frozen for most state employees.

This will soon change. State lawmakers approved general pay increases earlier this year, providing employees earning less than $40,000 an additional $1,400; salaries for all other workers will rise $1,000, along with the potential for performance bonuses.

IPMA-HR’s Reichenberg and others cited a toll on employee morale caused by such long-term pay freezes.

Sharon Larson, Florida’s director of human resource management, said state workers realized they weren’t alone as the state's economy took a hit during the recession. “I think employees understood why the situation was what it was,” she said.

Larson said the administration responded by creating various employee recognition programs and promoting staff development within agencies.

“Employees know where they stand and how their contributions are affecting state government as a whole,” she said.

Workforce Survey Results
This survey represents a random sample of 223 senior state and local officials who are members of the Governing Exchange research community, conducted between April 11 and May 10. Please note that survey participants are not representative of all government employees; only senior-level administrators working in state and local governments.

Which of the following workforce changes has your government implemented during the past calendar year?
Layoffs    20%
Hiring freeze:    39%
Pay reduction:    9%
Pay freeze:    42%
Reduction in benefits:    34%
Increase employee pension contribution or reduction in retirement benefits:    37%
Furlough:    16%
No changes:    22%

What changes, if any do you anticipate in staffing levels for your government in the upcoming fiscal year?
Increase in staffing:    15%
Decrease in staffing:    39%
No change:    40%
Don't know:    6%

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