First Came the Recession, Now It's Retirements

States Shrank Workforces, but Future Employment Issues Loom

Story appears in the 2013 March/April issue of Capitol Ideas

States took a wide variety of actions with their workforces to try to rein in costs after the Great Recession started gripping the country in late 2007.

As Leslie Scott, director of the National Association of State Personnel Executives said, “As we’ve heard often, never waste a crisis.”

States certainly didn’t waste this one.

Where States Stand

According to a study released in January by the Rockefeller Institute of Government, state government employment declined much slower than private sector jobs after the recession began in December 2007. But while private sector jobs have started to rebound, state governments have continued to lose jobs almost continuously since 2008. Twenty-five states reported a decline in employment in November 2012 as compared to one year earlier.

“What we’ve seen, obviously, state governments’ workforces are significantly smaller than they were in 2008,” Scott said. “A lot of states tried to deal with some of the issues with furloughs, … which in some cases worked, in some cases not so much.

“There were two schools of thought on that. One is furloughs aren’t the answer because you have a structural issue. … Some said it gets us through until the economy can recover.”

Restructuring and Centralizing Scott said the recession gave states the incentive to take a hard look at how they were doing business.

“A lot of states have looked at restructuring, more centralization of services. … It’s worked very well in Indiana and Utah. They’re seeing efficiencies and still getting work done.

“I think what we’ve seen is the centralization (of services) has worked better than consolidating agencies at this point, as far as cost savings, but that’s short-term cost savings. … Long-term, it’s probably too soon to tell.”

Jim Honchar, Pennsylvania’s deputy secretary for human resources and management, said his state’s workforce has been dramatically reduced from prerecession levels. He said the state’s 18 cabinet level agencies were given a lot of leeway in deciding how to provide the same services with fewer employees. Consolidating services also has played a big role in doing more with less.

“I will say one of the things that has worked particularly well was the consolidation and creation of the HR service center, which streamlines all transactions,” Honchar said. “We now have a one-stop shop for every personal transaction (like changes to W-2s or benefits questions). … All of that is now handled through one service center; it used to be handled individually by each agency.”

Honchar said the state also rolled out an automated system that lets employees make changes, such as to their benefits or withholdings, online. Another big change was having new employees fill out their paperwork online before the first day of work. He estimates that change alone will save the state $500,000 annually.

Changing the Workweek

While many states debated changing to a four-day workweek in 2008, Utah was the only state to actually do it.

Jeff Herring, executive director of the Utah Department of Human Resource Management, said public reaction in the state was generally positive.

“I think it worked,” he said. “It saved us some money and it provided us some opportunities during some tough times that didn’t exist when we implemented it.”

Before its passage, state government officials estimated the four-day workweek would save about $3 million annually in energy costs due to shutting down state buildings for one additional day each week. An evaluation of the program in 2009 showed that it actually saved $500,000 in reduced energy consumption annually.

But the change didn’t last. The Utah legislature voted to return to the five-day week in 2011.

New Challenges

Scott said the biggest challenges facing states now include health care costs, pension fund shortfalls and low morale. Another top concern, oddly enough, is a future worker shortage.

Many states laid off younger workers, and even middle managers, to deal with budget cuts, Scott said. What’s left, she said, is a lot of older workers who are waiting for the economy to recover so they can retire.

“When these folks retire, what’s state government going to look like?” she said. “There’s not going to be very much institutional knowledge. What’s the first thing to go when budgets get tight? Training. So there will be no people who are developed (to step into management).

That’s a very big concern. It keeps HR directors up at night.” Honchar said Pennsylvania is fairly well prepared for retirements with its statewide program to train potential and emerging leaders. Waves of retirements are fairly common in the state.

“Because 70 percent of our workforce is unionized, we generally see peaks of retirements occurring every three to four years when a collective bargaining agreement comes up,” Honchar said.

Herring said states should keep an eye on the future and pay close attention to training programs.

There won’t always be 150–200 applicants for every job posting, he noted.

“We’re increasing our training capacity,” he said. “One thing we want to focus on is increasing the capacity of our managers to manage. In (economic) downtimes, training and development is one of the first things cut. When we’ve got this impending workforce shortage, this transfer of knowledge, succession planning, making sure you’ve got a deep bench, … it’s important to plan for that now.

“It will be a challenge to see how we can continue to attract and retain the workforce we need, to be the employer of choice in the state, not the employer of last resort.”

View Capitol Ideas Archive