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F I S C A L   I M P A C T   R E P O R T

 

 

SPONSOR:

Varela

 

DATE TYPED:

0/12/03

 

HB

9/aHGUAC

 

SHORT TITLE:

Public Employee Cost of Living Increase

 

SB

 

 

 

ANALYST:

Gonzales

 

APPROPRIATION

 

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

FY03

FY04

 

 

 

$110,348.9

 

 

Recurring

GF

 

$15,394.5

 

 

Recurring

Various

(Parenthesis ( ) Indicate Expenditure Decreases)

 

Conflicts with Appropriation in the General Appropriation Act

 

SOURCES OF INFORMATION

 

Responses Received From

Commission on Higher Education (CHE)

State Highway and Transportation Department (SHTD)

State Department of Education (SDE)

Administrative Office of the District Attorneys (AODA)

State Personnel Office (SPO)

Department of Public Safety (DPS)

 

SUMMARY

 

     Synopsis of HGUAC Amendment

 

The amendment addresses the technical amendment noted in the original bill analysis, effectively reducing the original general fund appropriation in the bill by $4,935.9 due to an error. 

 

     Technical Amendment

 

On lines 16 and 17, the total appropriation also needs to be changed from $115,284.8 to $110,348.9 to track with the amended amount listed in the Appropriation Table above.

 

     Synopsis of Original Bill

 

House Bill 9 appropriates $115,284.8 from the general fund and at least $15,394.5 from various other agency funds to the Department of Finance and Administration for the purpose of providing a 4% cost-of-living salary increase to public employees.  The salary increases apply to public school employees, faculty and staff at public post-secondary educational institutions, executive classified employees, executive exempt employees, legislative permanent employees, judicial and district attorney permanent employees, and justices, judges, child support officers, special

commissioners and district attorneys.  The bill contains language to ensure employees whose salaries are funded from non-general fund appropriations will be covered by the same salary increase provision provided in this bill.

 

The cost-of-living increases would be effective the first pay period after July 1, 2003.

 

     Significant Issues

 

Salary increases were not appropriated for public employees for FY03.  The increase will assist all agencies and public school and higher education institutions to recruit and retain employees and help maintain equity and remain competitive with comparator markets.

 

The cost-of-living salary increase is important to help offset inflationary living expenses, such as the fast growing health insurance premiums and should help boost the morale of state employees.  Morale of state employees seems to be low due to a lack of salary increases in the current fiscal year with an increase in health insurance which ultimately has lead to a decrease in take home pay for most employees where many employees have experienced a 13% to 16% increase in health insurance premiums which are expected to increase by an additional 18% in FY04.  According to SPO, “on average” it would require at least a 3.3% salary increase for the average employee to restore the amount of pay they took home prior to July 2001 due to health insurance premium increase and lack of salary increase in FY03.

 

FISCAL IMPLICATIONS

 

The appropriation of $115,284.8 from the general fund and at least $15,394.5 from various other agency funds contained in this bill is a recurring expense to the respective funds. Any unexpended or unencumbered balances remaining at the end of fiscal year 2004 shall revert to the general fund or other designated fund.

 

The State Highway and Transportation Department is one agency that is non-general fund, therefore, according to SHTD operating costs and the Road Betterments Division that fund the construction and maintenance programs would be directly affected.   However, this is the same effect on this agency every year salary increases have been appropriated.

 

ADMINISTRATIVE IMPLICATIONS

 

Affected agency personnel staff including that of SPO and the Human Resource System Team at the Information Systems Division of the General Services Department can implement the proposed salary increase using the current Human Resource Management System.

 

CONFLICT

 

This bill conflicts with the duplicate General Appropriation Acts, as introduced, (HB7 and SB2) which include a 2% merit increase effective January 2004 for all public employees as referenced above.

 

TECHNICAL ISSUES

 

The appropriation needs to be reduced by $4,935.9 due to a technical error in calculating the increase for district attorney employees, which equates to a 16% increase rather than 4%.  Page 3, lines 4 and 5 should read $59.3 and page 3 lines 7 and 8 should read $1,586.0.

 

OTHER SUBSTANTIVE ISSUES

 

The bill does not contain performance criteria for the salary increase eligibility.

 

The State Personnel Office notes the following issues with regard to the executive classified system:

 

  • The current classified service salary structure (policy line) is set to represent 95% of the comparator salary market (market line).  State Personnel Office Compensation staff tracks market, industry and economic trends to determine the amount the salary structure should be adjusted each fiscal year.  This year’s data analysis supports adjusting the salary structure by 2.8%.
  • Benefit costs are expected to rise another 17.9% this year in addition to the 12.9% increase this last year resulting in lower take home pay.  This increase would more than offset the reduction in take-home pay over the past two years.

 

Additionally, SPO proposes the following alternatives for allocating the funding provided in this bill for executive classified employees:

 

  • Provide $18,071.8 (General Fund) to adjust the salary structure by 2.8% in July, 2003, and provide another 2.5% actual salary increase in January, 2004.  (It is imperative that the salary structure be adjusted each year to reflect market movement.) 
    • This would include bringing approximately 150 employees who are below pay band and pay opportunity minimums to the current minimums.
    • Each employee would then have their compa-ratio restored under the new salary structure.   It would cost $12,650.3 (General Fund) to fund a 2.8% structure adjustment in July, 2003, and $325.1 (thousand) (General Fund) would be available to bring the approximately 150 employees to minimum.  The cost of these two components together would be $12,975.4 (General Fund).
    • This would leave $5,096.4 (General Fund) to provide an additional 2.5% actual salary increase in January, 2004.
    • Bill language should be amended to provide salary increases to those employee’s who are performing at a satisfactory level or higher. 

 

  • Provide classified employees a 4% of “actual” salary increase in July, 2003 at a cost of $16,690.4 (General Fund).  Since the average compa-ratio is 91.4% it would cost less to provide a salary increase as a percentage of actual salary than a uniform increase based off of pay band or pay opportunity midpoints.

 

POSSIBLE QUESTIONS

 

Shoud the bill include criteria requiring employees to perform at a satisfactory level or higher to be eligible for the increase ? 

 

JMG/prr/ls