Cut expenses by cutting payroll positions!! It sounds easy, and it would be nice if it were easy or simple. Unfortunately it is neither. The Board of Legislators has been working to reduce positions, and ultimately reduce expenses and taxes. However, we must balance numerous factors if payroll cuts are going to actually save any money. In this article I will describe some of the challenges facing the County related to payroll cuts. Consider the following:
MANDATED POSITIONS: I won’t spend much time on this since it is pretty self-explanatory. If a particular program is mandated the County can’t eliminate the positions required by the mandate. This takes over half of all positions off the table before we even begin discussing cuts.
GRANT FUNDED POSITIONS: Many non-mandated programs involve various levels of State and/or federal grant funding. The grant levels vary by program, but in some cases run as high as 50%, 70% or even 100%. If we eliminate or reduce those programs we lose some or all of that funding. The Board must balance the loss of programs, services, and loss of grant funding, against the projected savings. If the losses exceed the savings then the cut makes no economic sense.
UNEMPLOYMENT EXPENSES: When the County “lays off” an employee it becomes liable for unemployment benefit payments for that employee. Unemployment benefits are typically equal to two-thirds of the original salary and currently extend for almost two years (99 weeks). In theory the County could still save the remaining one-third of the salary for any position eliminated. However, that must be analyzed in terms of lost revenue. Does the eliminated position generate revenue through various fees, charges, or grant funding? If it does, we must calculate how much revenue was lost by eliminating that position. If we lose grant-funding greater than 50% of the position, but must pay unemployment benefits equal to 66% of that salary, then we may actually lose money by cutting that position. Consider the following example: Assume an employee receives a salary of $35,000 with benefits costing an additional $17,000, for a total cost of $52,000. Assume that position received 50% grant funding equal to $26,000. If the position is eliminated we must pay unemployment benefits equal to 66% of salary, or $23,100. Our net savings would be $2,900, not $26,000. This example also shows that anytime grant funding exceeds 50% we would actually lose money by eliminating positions.
EARLY RETIREMENT OPTIONS: Simply eliminating positions doesn’t usually work well, for the reasons explained above. However, another option may be more financially viable. That option involves offering long time employees an incentive to take early retirement. If done properly, this could allow senior employees (at the highest pay grades) to retire and be replaced by younger employees (at lower pay grades). However, senior employees have been hesitant to take early retirement unless their health insurance is covered until they reach full retirement age. We can offer a retirement incentive that gives them health insurance until then, but the cost of insurance eats up the potential savings.
We have found that the only way to achieve savings is by actually eliminating positions. In most cases senior supervisory positions must be filled. They cannot be left vacant. However, lower positions can be left vacant or eliminated. We are exploring the possibility of filling senior supervisory positions by promoting existing qualified subordinates. We may then be able to eliminate subordinate positions without actually laying anyone off. This could actually generate some significant savings.
We have only looked at the “tip of the iceberg” in terms of the complexity involved in these decisions. We have not considered other issues dealing with fringe benefits, mission critical duties, impact upon Collective Bargaining Agreements, etc. Your Board of Legislators has already spent numerous hours wrestling with these important and complex issues. The bottom line is that we must find ways to cut costs.