When It's Time to Cut

How do you keep public employees optimistic and productive when budget surgery brings staff reductions? There are ways, writes Frank Fairbanks.
August 6, 2008 AT 3:00 AM
Frank Fairbanks
By Frank Fairbanks  |  Contributor
Frank Fairbanks was a GOVERNING contributor. He has served as city manager of Phoenix since 1990 and was named one of GOVERNING's Public Officials of the Year in 1994.

Recent economic disruption and rapidly declining revenues are forcing major cuts in local-government staffs. How can remaining staff overcome the budget surgery and energetically get back to work serving the community? How can the organization avoid post-operative depression?

Like most Western cities, Phoenix is heavily dependent on sales taxes. The falling economy and rising gas prices have drained disposable incomes and triggered double-digit tax-revenue declines. This revenue free fall forced the elimination of 500 city positions over the last year. Despite the cuts, though, morale is fairly high and employees are committed to dealing with heavy workloads.

So how is Phoenix keeping its remaining workers optimistic and productive? There are several important aspects to our strategy:

Value ongoing relationships. Positive, ongoing relationships with employees are crucial as you head toward cutbacks. Like most local governments, we work hard to build relationships with employees and develop multiple communications paths. Good relationships give you a chance in tough times.

Communicate, communicate, communicate! Early, frequent, and complete information sharing builds trust and combats rumors. Taking the time to communicate is in itself a statement to employees about their importance. Employees are savvy. They listen to outside economic news and are aware of internal rumors about revenue. If information is not promptly and fully shared, rumors will be rampant.

Everyone deserves to know why these bad things are happening. Early, honest communication lets employees prepare psychologically and financially for the future. Frequent updates in employee newsletters are an easy method to share information. The city can use e-mail to share key budget information with employees. Revenues can be discussed in staff meetings at all levels.

Declare a hiring freeze early. Although hiring freezes put pressure on employees and can slowly weaken services, they bring many positive benefits to a cutback situation. In a real way, they communicate to employees that the financial situation is serious and action is being taken. Hiring freezes save money, and can reduce the size of the impending cut. Hiring freezes create vacancies. Some of the vacancies may be cut in budget-balancing, but some can be used to place employees whose current positions are cut.

Prepare an appropriate transfer/severance/retirement program early. Officially approve a package that makes sense before any specific positions are even identified to be cut. This is a tough balancing act. Fairness is important not only for the departing employees but also for the employees who are staying. Plush severance packages will increase the number of jobs that must be cut, but fair severance packages demonstrate the organization's real commitment to the employee.

We created a retirement incentive, which we offer only if a retirement saves a layoff. We do not pay that incentive if it does not save a job. This is no time for rich giveaways.

Cut promptly. The sooner a cut is made, the fewer the cuts needed, because the savings can be achieved over a longer period. This benefits the community by mitigating the impact on services. It benefits employees by cutting fewer jobs. In Phoenix, the mayor and city council cut the budget effective in April, rather than July, allowing 15 months to achieve the savings. This meant our cuts were 25 percent less than if we had waited. Indecision costs community services and employee jobs.

Create a workable schedule and stick with it. The schedule should identify key decision dates and action dates. A sense of inevitability brings comfort during uncertainty.

Truly involve departments in preparing cuts. Departments that are actively involved in preparing budget cuts will be more committed to making the cuts work. We all want input to our future and we dislike things being done to us.

Discuss the specific position cuts early with unions. This is often a requirement in union contracts. But do more than you are required! Unions have enormous credibility with employees and efforts taken to resolve union questions are crucial to partnership in this tough time. It should be a priority to give the unions copies of all reports and to sit down with them early and often to share information. Don't expect them to agree or be happy; their role is to care for their members. Let them know you respect them and their role and that you want to work with them.

Make counseling services available to employees. The cut process is incredibly stressful both on those who leave and those who stay.

Work hard to place employees. We work with each employee who loses his or her job to help them find a different city job. Hiring freezes create vacancies in areas that are not cut. But we only place employees in positions they can handle. Employees will not be successful if they are asked to do something beyond their skill level.

Encourage departments to welcome placed employees. Transfers and career changes are traumatic. Encourage all employees to help each other by welcoming transferred employees and helping them to be successful.

In a previous Management Insights column, I wrote about the importance of working with the community in developing budget cuts. It is even more critical to work carefully with employees. It is a time when an organization must demonstrate that it cares about its people. In the end, employees will form their own judgments about your commitment to them, and these judgments will determine the future success of your organization.