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Wednesday, October 14, 2009

Charles M. Arlinghaus: Lynch should meet union heads and craft lasting savings


The fight over the state employee contract may generate a lot of hard feelings in the short term, but the solution that will come out of renewed negotiation should have more lasting benefits.

After the contract's rejection, the union wants to bring a few new ideas to the table that could help reduce layoffs and also provide significant long-term benefits for the taxpayers. The administration should follow suit with similarly creative proposals and craft a compromise agreement with the most promising ideas from each side.

The state government and the State Employees' Association negotiate a new contract every two years. This year's negotiation has been somewhat more contentious than usual. The state's budget difficulties have created significant pressure for reductions. A slow economy and revenues that continue to decline even below budgeted numbers have only made the situation worse.

As part of the state budget process, Gov. John Lynch asked for and received a requirement to cut $25 million over two years from employee salaries and benefits. The directed management cut does not specify what should be cut, but gives the governor discretion to reduce those line items in any way he deems most efficient. In addition, nine other general cuts in budget footnotes gave him similar flexible management authority in finding another $25 million to cut in specific departments plus an across-the-board overtime reduction.

In negotiations, Gov. Lynch has said that the directed management cuts require the union to choose between laying off 750 state employees or accepting 19 furlough days over two years. The rejection of the furlough-based contract means the governor will announce specific layoffs this week.

The SEA has publicly identified two areas it believes can save money without layoffs. Although the governor had talked publicly about curtailing consultants and association memberships as a first step to reducing the budget, the SEA's data found consultant contracts and contracted services had increased by $118 million in the current budget.

Most businesses during an economic downturn significantly curtail their consultants, eliminating them or reducing their contracts. No one would seriously suggest eliminating all consultants. Some no doubt are saving us money on other services. However, it seems likely that a $118 million increase could be slowed somewhat.

Just as important, greater scrutiny of each contract will allow us to better measure what each consultant delivers and at what cost. Is the $118 million increase delivering at least $118 million in benefits or savings?

The union contract covers most classified employees. Outside of the contract, there are a few hundred senior managers who are in unclassified positions at pay rates two to three times higher than the average state employee. In addition, the union has found 1,473 positions in the nebulous and poorly tracked area of "non-classified" state employees, which covers political appointees among others. The union claims they average $74 per hour (an annualized cost of $150,000) which seems a little high for irregular positions. However, clearly this is an area that is not well understood, hard to track and where some money might be saved.

Finally, as I wrote last week, the union correctly has suggested that a tighter hiring freeze and leaving vacant positions open can save money.

None of these ideas is a silver bullet that will solve the state's budget problem. But with growing pressure on this budget and a looming $625 million gap in the next budget, every idea is important.

Some furloughs may be part of the final package, but ultimately furloughs are a bandage. A furlough is a one-time savings that doesn't reduce the underlying cost. Next year's salary doesn't change, and the cost going forward is unaffected. If the state had saved $25 million through furloughs, the same $25 million would reappear next year and have to be dealt with again. A problem wouldn't be fixed, merely delayed for someone else to deal with.

To do something with a lasting impact, both sides should come to the table with open minds and new proposals. Some may be part of a new contract. Others should be looked at for longer term budget savings. Either way, the long-term budget problem will be one step closer to a solution.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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