Branstad aide calls adversarial start for new administration 'unfortunate'

Governor-elect Terry Branstad's choice to be his key state budget architect said Wednesday it is “unfortunate” that an adversarial relationship is forming with unionized state workers over a new collective bargaining agreement six weeks before the new administration takes power.

David Roederer, Branstad's choice to direct the state Department of Management once the new governor is sworn-in on Jan. 14, said he remains hopeful officials with the new administration will be able to “mutually work out something” with leaders of the state employee unions to ensure that necessary government services are providing within the current budget constraints.

“It shouldn't boil down to whether somebody deserves a pay raise or not. That's not the issue,” Roederer told reporters. “It's simply a matter of not having the resources in order to do that. We all need to work together as we go through this process and we plan on approaching it from that aspect and, unfortunately, this was a little bit of a bump before we've had that opportunity to do that.”

The bump he was referring to was a new two-year contract agreement beginning next July 1 tentatively worked out between Gov. Chet Culver's administration and two state employee unions that call for across-the-board wage increases for both years that carry a projected cost of $200 million over the life of the contract.

The proposed agreements with members of the American Federation of State, County and Municipal Employees (AFSCME) Council 61 and the State Police Officers Council (SPOC) call for covered employees to receive a 2 percent increase in base wages on July 1, 2011, and a 1 percent increase on Jan. 1, 2012, in the first year of the agreement, and a 2 percent increase on July 1, 2012, and a 1 percent on Jan. 1, 2013, in the contract's second year. The proposal would not change the current 4.5 percent “step” increases in wages for state workers who are not at the top of their pay scales.

Branstad, who won election to a fifth term by defeating Culver in the Nov. 2 general election, said this week that the quick settlement broke with tradition and produced a new two-year deal that is not sustainable given the state's current economic condition. He called instead for a two-year pay freeze like President Obama has proposed for federal workers as part of a new effort by Branstad to reform state spending.

Roederer said Wednesday that the Branstad transition team is “exploring various options and various ideas” depending on whether efforts to rework the proposed labor agreements are successful, but the process has been slowed by an inability to get detailed personnel information – particularly as it relates to the filling of positions that were vacated by employees who took the state's early-retirement incentives earlier this year.

Roederer said the issue comes “at a time when most Iowans would be very satisfied with no salary increase versus a pay decrease or layoffs” – something he said governmental entities will have to look at when trying to formulate spending levels that are in line with state revenue projections.

Roederer's comments came on a day when the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) released a survey indicating that the 29 new governors-elect who will take office in January will still face significant budget gaps despite projections of slight growth in revenues.

NGA Executive Director Raymond Scheppach said states will continue to face difficulties as they begin climbing toward pre-recession spending levels. Slow revenue growth, increased spending demands, as well as the end of federal stimulus funds will “create a cliff” in fiscal 2012 and contribute to state fiscal strains.

“Even with a slight improvement over fiscal 2010, fiscal 2011 is expected to be another very difficult fiscal year for states,” Scheppach said. “Spending and revenue is unlikely to return to pre-recession until 2013 or 2014. Since the recession began, states have had significant revenue declines and in order to balance their budgets, have made significant cuts and in some cases enacted tax and fee increases.

The end of Recovery Act funding in 2012, along with the growing pension liability and the rise of Medicaid enrollment could further exacerbate the already tight fiscal conditions. Finally, the potential impact of health care reform in 2014 is a real unknown at this time,” he added.

According to Scott Pattison, NASBO executive director, strained state budgets “will be the norm for the next several years as mandated expenditures such as Medicaid continue to grow. While states will continue to fund ‘core functions' from their general fund, they may fund other services such as parks or arts programs from different sources, including user fees.”

By the end of fiscal 2011, states estimate that they will have spent nearly $240 billion in federal Recovery Act funds, Pattison said. Within that temporary aid to states, $151 billion was “flexible” funds for Medicaid and “fiscal stabilization” that has helped states avoid draconian cuts. However, he said, the wind down of those flexible funds in fiscal 2012 will result in a cliff of more than $65 billion.