Senate passes early-retirement incentive

DES MOINES – The Iowa Senate voted Thursday to offer senior state employees an early-retirement incentive designed to reduce the state's workforce and save up to $60 million next fiscal year.

Under provisions of Senate File 2062, which passed by a 41-7 vote, eligible state workers with at least 10 years of employment could receive up to $25,000 -- $1,000 for each year of service – and a health insurance benefit for five years. The incentive would be paid in five equal installments each year in September beginning in 2010.

According to the nonpartisan Legislative Services Agency, about 1,000 of the 6,600 state employees aged 55 years or older were expected to participate in the proposed incentive program – resulting in a first-year savings of $57.4 million, including a $26.4 million savings to the state's general fund. The projected savings over five fiscal years would total $86.4 million to the general fund and $189.4 million for all state funding sources by fiscal 2015.

 “This is a cost-saving measure,” said Sen. Staci Appel, D-Ackworth, the bill's floor manager. “This retirement incentive piece is estimated to save our state taxpayers $60 million. The outcome of having this incentive is a win for our state and for our long-serving employees.”

Gov. Chet Culver proposed the early-retirement concept after state revenues plunged last year, forcing him to order a 10 percent across-the-board cut as part of an effort to reduce state spending by $600 million during the current fiscal year. A consulting firm hired by the governor to identify efficiencies and savings projected a $59.8 million benefit via an early-retirement incentive.

Not everyone was buying into the idea, however.

Senate GOP Leader Paul McKinley of Chariton, one of the seven Republicans to oppose the measure, said he did not believe the hoped-for savings would materialize given the way the package was crafted.

“It's filling a hole with smoke and trying to walk across it,” McKinley said. “I don't think it'll save anything. It may wind up costing money, actually.”

The GOP leader noted that Culver imposed a hiring freeze when state revenues started to erode as the national recession deepened but nearly 800 workers were added in the aftermath of that announcement.

Backers of the measure now headed to the House for further legislation action said there are tight controls that prohibit employees to take the benefit from being rehired as consultants or contractors.

To receive the incentive benefit, an eligible employee must apply for participation by April 15 and leave state employment by May 28. The financial assumptions estimated that about 450 of the positions that become vacant via early retirement will be filled with a lower-paid worker over a three-year period.

“We think it will save significant resources and at the same time it reduces the state's workforce and better aligns state government's budget with the resources available,” said Senate Majority Leader Mike Gronstal, D-Council Bluffs.

Highlights of three recent early-retirement programs offered to state employees

2001 – 4,289 eligible workers, 594 actual participants (13.8 percent)

2002 – 4,564 eligible workers, 148 actual participants (3.2 percent)

2004 – 5,367 eligible workers, 273 actual participants (5.1 percent)

Source: Legislative Services Agency

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