Top Otter aide imports business practices

BOISE – The man behind Idaho Gov. Butch Otter’s plan to raise state employee pay but cut health benefits is a retired corporate executive who’s working for the state for free.

Mike Gwartney, former chairman and CEO of Farmers and Merchants State Bank, still serves on the board of the holding company for Regence BlueShield, and he built a long career in the private sector that included serving as vice president for human resources for Boise Cascade Corp. and chairman of the board of Regence BlueShield.

“In the private sector, we want to be the preferred employer – the governor and I want to bring that to the public sector, too,” Gwartney said.

A longtime friend and business partner of Otter’s, Gwartney headed Otter’s transition when he was elected governor. He now serves as Otter’s chief of administration. “Butch just asked me to come down and do some of the things that he viewed as needed to be done, and with our relationship, I said, ‘Sure,’ ” Gwartney said.

“I don’t take any pay,” he said. “I didn’t want it to feel or look like Butch was hiring his friends and giving ‘em a big job.”

Gwartney’s on the hot seat in this year’s legislative session after proposing cuts to state employee benefits and state retirees’ health coverage. He said Otter asked him to examine the state’s compensation package to ensure that Idaho can attract the work force it’ll need in the future, as large numbers of current employees near retirement.

“We don’t have a balanced compensation package,” Gwartney said. “We have a great pension plan and a great health care plan and a poor salary plan. … We were not an attractive place for younger talent.”

Over the next decade, Gwartney said, a third of Idaho’s state work force could retire. “We want to be able to replace those people. We need talent.”

That means pay must rise, he said, and the governor is calling for raises averaging 5 percent a year for the next five years.

But Gwartney also saw a liability for the state in its health coverage plan for retirees, now a target for major cuts. Retirees 65 or older qualify for Medicare, Gwartney said, and don’t need to be on the state plan. He and Otter also have called for ending retiree health coverage for state employees hired after next July 1, and tightening eligibility rules and cost shares for the remaining retirees who still qualify for the plan.

“If it sounds like we’re picking on retirees, we’re not,” Gwartney said. “We’re not taking coverage away from anybody. We’re just putting them more in line with what’s normal with big companies in Idaho.”

That same benchmark was used in developing proposals to trim state employee health coverage by eliminating it for part-timers who work less than half-time, and increasing employees’ share of the costs, especially for those who work between half- and three-quarters-time.

Gwartney said Idaho still would have a health plan for state employees that’s more generous than what’s offered in the private sector, but the state’s liability would drop and the savings could go to salaries.

Lawmakers have reacted strongly to the proposals so far.

When Gwartney presented them to the Joint Finance-Appropriations Committee last week, which sets the state’s budget, state Rep. Margaret Henbest, D-Boise, a nurse practitioner and expert in the Legislature on health care policy, told him: “What I see being done here is state government now being part of the problem, instead of part of the solution. We’re targeting part-time and low-income employees to shoulder more of the burden. We’ll push them to be uninsured.”

Henbest warned that if the state were looking at “imploding” its system, “This is the way to do it.”

On the other hand, state Rep. Fred Wood, R-Burley, a doctor, told Gwartney he strongly agreed with parts of the plan. “I think that you’re pretty much spot-on, particularly with respect to retiree benefits,” Wood told Gwartney.

Lawmakers note that when Idahoans are uninsured, it’s the state that ends up picking up the costs – so if state workers joined the ranks of the uninsured, the state would still pay.

“I’m not concerned that we’re going to have state employees going out on the street and coming back as a Medicaid recipient,” Gwartney said, though he said if there’s any chance of that, it would happen with part-time employees.

Gwartney has chart after chart of figures supporting his proposal. The average full-time state employee would keep 82 percent of his 5 percent pay raise next year, after the increases for health insurance were deducted, he said.

However, Idaho doesn’t give its state employees pay raises across the board. Instead, raises are given on a merit system, so some employees might get much less than 5 percent, and some might get much more.

“If all those five years, you get zero raises, it doesn’t feel too good,” Gwartney acknowledged. But he said the state’s merit-pay system makes sense, because across-the-board raises “wouldn’t be fair to the high-performing people.”

As the head of Otter’s Department of Administration, Gwartney’s duties go far beyond the employee compensation plan. He’s overseeing renovation of the state Capitol, helping the governor reform how agencies are structured, and trying to consolidate an array of fragmented information technology systems that he estimates have the state spending $20 million a year too much.

Gwartney noted that the health benefit changes would be phased in over five years, to moderate their effect on state employees.

He’s also proposed no changes in the state’s retirement system, despite noting that it’s “richer” than those typically available in the private sector.

“I’ve learned a couple things,” Gwartney said. “You can’t run state government like you run a business. There’s more transparency, deservedly so. There are more people looking over your shoulder – the Legislature, the governor’s staff. But on the other hand, you can bring business practices to government.”

He said, “In the final analysis, it’s the private sector that we compete with for state employees.”