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HomeMy WebLinkAbout3.e. Job Retention vs. Workforce Realignment 3. ~. City of Shako pee MEMORANDUM TO: Mayor and City Council M~k ~CN eill, C~ty Ad~inistrat~r . . ~ FROM: Kris WIlson, AssIstant CIty AdmmIstratoJtlJ SUBJECT: Job Retention v. Workforce Realignment DATE: May 15, 2009 Introduction The Council is asked to consider and offer direction regarding its philosophy on competing personnel approaches to balancing the budget. Background With employee wages and benefits totaling 60 percent of the City's General Fund budget there is really no way to talk about balancing the 2010 budget without addressing issues of staffing and compensation. This presents some unique challenges in the public sector because we publicly discuss with the Council the pros and cons of continuing specific positions or trimming certain benefits. Those discussions impact real people who are often sitting in the room or watching the meeting on television. With this in mind, there are competing philosophies regarding personnel issues in tough budget times, and staff is seeking input and direction from the Council regarding where on that continuum you want the City of Shakopee to fall. Discussion On one end of the continuum is the idea that we should do everything we possibly can to retain existing employees and avoid lay-offs. We have a lot invested in our employees and they, in turn, have a lot invested in the City of Shakopee. Despite the headlines about rising unemployment, it would be a risk to assume that we can easily replace the knowledge and skills of our current employees when the economy rebounds, especially as the workforce continues to age. The private sector is likely to rebound before the public sector does, which may result in the qualified employees let go by cities now being scoped up by other fields before we are in a position to begin rehiring. Furthermore, our employees are taxpayers and consumers too; meaning that lay-offs will only add to the number of households struggling to pay their taxes, mortgages and other household bills. At last count, of our 126 regular employees, 46 are Shakopee residents, and another 38 live in other Scott County communities. A City that sets the goal of doing everything possible to avoid laying-off existing employees is likely to look at wage freezes, unpaid furloughs and cuts to travel, training and consultants. Seeking individuals to voluntarily reduce their hours, offering early retirement incentives and imposing hiring freezes are also common approaches. Unfortunately, these are fairly blunt tools - for example, the positions that fall open during a hiring freeze are not necessarily the ones that the City can or should do without. This approach also becomes more challenging the longer the budget shortfalls continue. Weare likely to have some retirements in the coming years, and those would provide the opportunity to reduce our workforce without laying-off our least senior employees who are the future of our workforce. On the other hand, the timing of this natural turn-over is beyond the City's control, and our ability to cut training and postpone capital purchases is limited. Followed for too many years, this approach will eventually cause long-term damage to the City. On the other end of the continuum is the idea that we must continuously size the organization for the times - based on demand for services and available resources. Under this approach, when demand for services and/or resources decline, we shrink the organization and when the demand and resources return we staff back up. An organization that takes this approach is likely to continue investing in training and benefits for those employees that remain and to fill vacancies that arise in high priority or high demand areas, while at the same time eliminating jobs in lower priority or lower demand areas. Unfortunately, in the public sector the demand and resources often don't rise and fall together the way they do in many private sector businesses. A factory that is selling fewer "widgets" makes less money and needs to lay-off staff, but that generally works from a business perspective because reducing production is appropriate when demand has fallen. For cities, though, hard economic times and fewer resources can often correspond to greater demand for services - increased use oflibraries and parks, increased calls for police services, demand for inspection and code enforcement on foreclosed properties, etc. (Previously the City Council has requested a report on which City-provided services are experiencing a rise in demand for those services, and which are experiencing decreases in demands. Staff is working on that report; however, some important services are not easily quantifiable.) Timetable It is important to note that due to the structure of unemployment insurance for public sector entities, decisions regarding lay-offs will need to be made fairly early on and cannot wait until final adoption of the budget in December, if we are going to avoid adding costs to the 2010 budget. Cities in Minnesota have what is known as "reimbursable" unemployment insurance accounts. This means that we reimburse the state for the full amount of unemployment insurance paid to eligible former employees, rather than paying a monthly insurance premium. So, if it is decided that certain positions are going to be eliminated for 2010, the City will need to plan for payment of unemployment insurance to those individuals for up to 39 weeks. In order to fund these payments out of the 2009 budget, the lay-offs would need to occur in mid-September. Requested Action Given the magnitude of the budget challenge facing Minnesota cities, it seems unlikely that many organizations will be able to come down 100% on one end of the continuum or the other. There are many shades of grey in between. However, staffwould appreciate hearing Council's discussion of these issues-job retention through benefits reductions and other measures, versus permanent measures such as layoffs - and receiving any direction possible as we begin preparation of the 2010 budget.