State employees will likely see bonuses

BOISE – It may not be much, but state revenues are now coming in strongly enough that state employees are likely to get the small, conditional bonus lawmakers promised them next year instead of raises.

State tax revenues through the end of March came in $26.5 million ahead of forecasts – and state workers get the bonuses if the year-end figure is at least $22.3 million over projections.

“I wouldn’t call it an absolute certainty, but I’d say it’s a fairly high probability,” said Mike Ferguson, chief economist for Gov. Dirk Kempthorne.

Idaho’s fiscal year ends June 30. “We’re running well ahead of where we need to be,” Ferguson said.

Rather than grant any raises for state employees in the coming year, the Legislature instead promised just a one-time, merit-based bonus averaging 1 percent of pay, but only if the extra money showed up. Gov. Dirk Kempthorne had recommended a permanent, merit-based 1 percent raise, while the state Division of Human Resources’ annual survey showed that state worker pay is lagging more than 14 percent below market rates.

Bringing employees’ salaries up to market rates – a goal that’s set out in state law – would cost the state $83 million next year. “Of course it will cost more next year,” said Ann Heilman, head of the state Division of Human Resources.

Though the Legislature didn’t fund raises, it did agree to set up an interim legislative committee to study compensation for state employees. Members of that panel will be named on Monday by the Legislative Council.

“They’ve got a law that they’re not in compliance with right now and have not been able to fulfill that, so I think they’ll take it pretty seriously,” Heilman said.

Idaho law says state employees can expect their pay to advance to the market average rate for their position, though actual increases are based on merit. But 76.3 percent of state employees are paid below that market rate.

Several years of tight state budgets haven’t helped. “It’s been quite a drought since we were able to give a raise that helped move people to market,” Heilman said.

In the 2001 legislative session, lawmakers approved merit-based raises averaging 3.5 percent, plus an additional 1 percent to address specific job areas where pay was falling short of market rates. That year, the Legislature also approved an additional 2 percent increase for universities to hand out to keep key faculty.

But then, for the next two years, legislators didn’t budget any money at all for raises for state employees. Last year, the workers got an average 2 percent merit-based raise, plus an additional, merit-based 1 percent bonus.

As of December, the state estimated that its salaries overall are running 14.2 percent below market, and that figure has increased since then, as market wages are growing about 3 percent a year.

This year, state employees complained that their pay is lagging while their bills are rising. “There’s quite a bit of discouragement, especially when you go to the gas station,” Heilman said. “Just like everybody else, we’re trying to make every dollar stretch. … I think there’s a discouragement that … (workers) don’t feel like they’re able to keep up with the cost of living.”

Idaho’s current laws on state employee pay were last amended in 1994, when the state switched over to a pure pay-for-performance system with no increases granted simply for longevity or cost-of-living increases. The intent was to follow a private-business type model that would allow employees to advance within salary ranges if they performed well.

But, Heilman said, “They just haven’t been able to fund it.”

Lawmakers next year are expected to see an even tighter budget than they faced this year.

Ferguson said the good news for state revenues in March came mainly from individual income taxes, which came in $12.5 million higher than expected for the month. Because people are now getting their income tax refunds much earlier than in the past – due to factors including electronic filing, faster processing at the state Tax Commission, new software and the Internet – that increase is a real increase, he said, rather than just a delay of refunds.

During March, paycheck withholding was ahead by $2.2 million, filing payments were up $5.9 million and refunds totaled $4.5 million less than expected.

Ferguson said paycheck withholding is about where it was expected to be for the year, but the real gain has come from payments with tax returns – which indicates that Idahoans are paying taxes on business and investment income, including profits from stocks.

“Given what’s been going on in the markets, I don’t think that’s necessarily a trend,” he said. “We may just be seeing a bounce-back from the pit we fell into in 2001-2002.”

Corporate income tax collections came in $4 million ahead of expectations in March, and sales taxes picked up $4.1 million more than the forecast.

Ferguson noted that things still could change – April is Idaho’s biggest month for tax collections. But, he said, “Nothing that I’ve seen has said that we’re going to be surprised in that way.”

He added, “If the present trend continues, we’ll see somewhat stronger performance … for those remaining three months of the fiscal year.”