News Tax and Budget

Lawmakers Not Yet Ready to Give Bonuses the Boot

Tennessee Republicans in both the House and the Senate have been saying they’re trying to purge this year’s budgetary process of the urge to fork out fresh pork, new fish hatcheries and one-time state-employee bonuses.

They’re now indicating an apparent interest in compromise on the latter.

Senate Majority Leader Mark Norris said Tuesday a “major discussion” in state budget negotiations is underway involving state employees getting a little extra at the GOP bargain-basement bonus bin, beyond a certain amount of job security and a steady paycheck.

Some lawmakers have taken to weighing the investment value of a performance enticement of some sort — such as beefed-up health insurance, according to Norris, instead of an across-the-board gratuity as was originally proposed by Gov. Phil Bredesen in his state-of-the state speech.

“No, we can’t afford to give a raise now, but maybe an incentive-based raise in the future. It’s just an option. It’s not very well vetted,” the Collierville Republican said Tuesday. “We’re also looking at insurance benefits which may be tax free. They can have more significant impact than a $300 or $400 bonus.”

House Democrats released a budget plan Tuesday that includes $500 bonuses to state employees, teachers and university professors — a proposal that would cost the state $72.2 million. Government workers’ would see the bump to their bank accounts in the fall, likely a little before election time.

Opposition to Bredesen’s February proposal to give state workers a 3 percent bonus costing taxpayers $163 million seemed softer in the House than Senate when the governor first floated the idea.

“Is 3 percent too much? Is 2 percent too much? I don’t know. In my opinion there needs to be something, but how much?” Franklin Republican and House GOP caucus chairman Glen Casada said shortly after the governor made his budget pitch.

But a month ago, Lt. Gov. Ron Ramsey said he perceived a solid “consensus on both sides of the isle and both houses that now is not the year to be giving a bonus to state employees at the time you’re laying those state employees off.” Associated Press reports that Ramsey still thinks a bonus is “illogical” right now.

As many as 1,000 employees could be laid off under current budget proposals, but that number could change in the next few days.

“Paying bonuses right now is just a disconnect for most folks in Tennessee,” Norris said last week. His Senate caucus enjoys a 19-14 majority and has publicly hewn to the tough-economic-times-call-for-belt-tightening-not-bonuses viewpoint.

House Finance, Ways and Means Chairman Craig Fitzhugh, a Democrat from Ripley, said members who helped draft their budget first thought of working in some alternatives to a pay bonus, but came to believe it would create a larger-than-acceptable workload to implement it.

Republican leaders, who hope to settle on a budget next week, have yet to decide how they want to handle any employee incentives or bonuses, Norris said.

“The main issue right now is what does the economic trend show? What can we afford and what can we not afford and our first priority right now is looking at the state employees,” he said.

The governor, along with Democrats, also wants to spend money on a number of smaller projects that have elicited unaccommodating reactions from Republican legislators. Topping that list is a $16.1 million expenditure for a fish hatchery in House Speaker Kent Williams’ home district.

Norris said lawmakers are still hashing out other aspects of the budget, such as how deep the state should dip into its rainy day fund, how much extra money to put aside for flood recovery and — in a late Tuesday night Senate Finance committee meeting — how to handle a sales tax exemption for flood victims.

One issue, Norris maintains, is pretty clear in the Senate.

“Fish pale in comparison to state employees, let’s put it that way,” he said.

News Tax and Budget

Despite State Budget Woes, Gov’t. Employee Bonuses Still Likely

Gov. Phil Bredesen’s proposed 3 percent bonus for state employees doesn’t appear to be in Senate Republicans’ crosshairs, even as other spending cuts and tax hikes are contemplated to close a $105 million hole in next year’s state budget.

Lawmakers will spend the next few weeks hammering out the final details of next fiscal year’s state budget. Bredesen proposed a $28.4 billion spending package back in February, but downward revenue forecast adjustments raised the specter of additional tax increases or spending reductions beyond what he originally planned are likely coming up for debate.

Nevertheless, the governor still stands firm behind his pledge to offer state employees — from Capitol Hill janitors, department administrators and educators at all levels — a 3 percent pay bonus, a spokeswoman for the administration said Friday.

It “remains in the governor’s budget proposal,” spokeswoman Lydia Lenker wrote in an email.

Bredesen also this week pitched the idea of raising the sales tax rate on items over $3,200 in order to rake in roughly $85 million more from the private sector. Those funds, he said, would help close a growing gap between available funds and what he wants to spend in the next budget cycle.

Lt. Gov. Ron Ramsey, a GOP candidate in a competitive race for governor, has said “everything’s on the table” in order to balance next year’s budget. He added, however, that he doesn’t see the logic in stripping away the state employee bonuses to put the money elsewhere. The state would just have a new hole to fill next year, he said.

“That bonus won’t help anything much, anyway. That’s one-time money being used for one-time expenses. We’re looking for recurring money,” Ramsey said.

He promised though that the Senate under his guidance will “push back” against Bredesen’s tax increase.

“We will not have that here in the state of Tennessee,” he said.

If the Legislature refuses to adopt the governor’s sales tax increase without offering up any other viable options, Bredesen said he’s got his own cuts in mind, including possibly lopping 5 percent off those same state employees’ salaries, excluding K-12 teachers.

The bonus would cost $164.7 million and is said to come from a fund that won’t necessarily be filled again next year. State employees have been on a pay freeze for the last three years. Their last bonus, $400, was handed out two years ago.


VIDEO GALLERY: Lawmakers Speak Up About Employee Bonuses

Lawmakers will soon tackle the issue of whether to give government-paid employees a round of one-time bonuses, as proposed in Gov. Phil Bredesen’s FY2011 budget unveiled earlier this month.

Bredesen wants to draw $164.7 million from state reserves to fund the bonus, which is slated for state employees, K-12 educators and higher education workers.

If lawmakers adopt the plan, they can shape the size of bonuses however they see fit.

Featured News Tax and Budget

Guv Budgets $164M in Bonuses Amid Cutbacks

Despite plans to slash health care for the poor and issue pink slips to hundreds of state employees, Gov. Phil Bredesen wants to give teachers and the state workers who keep their jobs a bonus check.

The governor’s $28.41 billion proposed FY2011 budget calls for issuing government, higher education and some K-12 workers a one-time gratuity amounting to 3 percent of their yearly salary. It is designed to help offset a three-year pay freeze for state employees, administration officials say.

The average state employee who makes $47,000 a year could collect an additional $1,410.

“I know our state employees are glad to be working, but they have been without raises since 2007 and I would like to recognize their dedication by using some of our reserves to continue the enhanced 401k match at its current level and also pay them a three percent bonus,” Bredesen said in his State of the State speech Feb. 1.

The administration is, however, leaving to lawmakers’ discretion the question of whether all employees should receive a flat 3 percent bonus, or if it ought to be weighted differently for different income levels, said Finance Department spokeswoman Lola Potter.

Members of Tennessee State Employees Association oppose Bredesen’s proposed layoffs. But they’re uninterested in trading away the potential bonuses to help keep co-workers employed, and would “ride us out of town on a rail” were the suggestion put seriously forward by union leadership, said Robert O’Connell, the association’s interim director.

Democrats at the Capitol are generally voicing enthusiasm for the $164.7 million bonus package as well.

House Democratic Caucus Chairman Mike Turner, who applied last year to lead the state employee union, believes the bonus is overdue, and said he doesn’t want to see pay schedules “get any further behind.” Sen. Roy Herron, D-Dresden, described the bonus proposal as essentially a “cost of living adjustment” for state workers who are “struggling to get by, too, like a lot of other Tennesseans.”

But the bonus package will ultimately have to draw support from Republicans, who control both chambers of the General Assembly. And some aren’t so sure it’s a wise fiscal move while dipping into savings to fund government operations.

After all, the governor is also proposing to increase a number of taxes and fees to boost state revenues in addition to lopping off $200.7 million from TennCare, laying off 767 government employees, and pulling about $202 million from the state’s rainy-day reserves to stave off further budgetary belt-tightening.

“I agree that we have some employees that are hard workers and probably are not being paid what they should be for the job they are doing. But it seems kind of hard to justify giving somebody a bonus when you’re laying other employees off,” said Sen. Jim Tracy, R-Shelbyville, an owner of an insurance company who said he’s resorted to cutting employee hours to avoid reducing staff during tough economic times.

Lt. Gov. Ron Ramsey, R-Blountville, said it’s too early to tell how the issue will shake out. Ramsey, a candidate for governor, said he can see “the contradiction, so to speak” in handing out bonuses while simultaneously shedding jobs. He echoed the governor’s sentiment that most people who continue to work in this economic climate are probably just thankful for a steady paycheck.

“The average person working a job right now is just happy to have a job and no one is getting raises at this time,” he said.

In fact, large and mid-sized companies across the country are expecting to offer modest pay increases this year to valued employees, according to a recent study by Mercer, Inc., a global consulting, outsourcing and investment services company.

Of the companies surveyed for the study, salaries are projected to grow by about a 2.3 percent average in 2010, according to Mercer’s “2009/2010 U.S. Compensation Planning Survey Update,” which also reported that salaries grew 2.1 percent last year.

Thirty percent of firms had pay freezes in place during 2009, but that number is expected to drop to 14 percent this year, according to the November analysis involving more than 350 U.S. employers.

The federal government would need to OK the TennCare cuts. If it doesn’t, lawmakers will have to find somewhere else to slice out $200 million. House Republican Caucus Chairman Glen Casada said the state may have to consider using the bonus money if those cuts aren’t approved.

To offset the TennCare cuts, the Tennessee Hospital Association is proposing a tax on hospitals’ revenues. But, Casada said, that plan could also fall through.

“We don’t have too many other options to look for, for that size and that amount of money. So, yes, the teacher, employee bonus could be in trouble under those two scenarios. By fact, there’s no other alternative,” he said.

One option floating around the capitol is cutting down the size of the bonus, said Casada, a member of the House Finance, Ways & Means Committee.

“Is 3 percent too much? Is 2 percent too much? I don’t know. In my opinion there needs to be something, but how much?” he said. “That’s where everyone is right now.”

Workers in about 44,800 state government jobs — from driving TDOT trucks to working as a head administrator — would get a $45.6 million chunk of the total, according to Bredesen administration. Professors, staff and other workers filling 21,400 jobs in Tennessee colleges and universities will split $51.3 million in bonuses.

State employees and workers in higher education last saw a raise in 2007.

Legislators last offered a $400 bonus two years ago to state employees with at least three years on the state payrolls, said the Finance Department’s Potter. During the 2006-07 budget year, employees who were scheduled at least 1,600 hours, or 30 hours a week, received a $350 bonus. Both bonuses omitted employees on mandated pay schedules.

The K-12 public schools system employees, who would also receive bonuses under the governor’s plan, are not included in the ongoing state employees pay freeze. Some 64,750 teachers, 4,300 administrators and other licensed education personnel like guidance counselors and school psychologists would split $67.8 million.

The thing that ought to make the bonuses most palatable to lawmakers concerned about spending is that it is one-time money only, said Sen. Jim Kyle, D-Memphis, whereas pay raises cost the state year after year.

“It’s a lot easier to find $170 million in non-recurring money than it is to find $50 million in recurring money. If we’ve got the money, I’d rather give our employees a bonus than I would let that money sit in a savings account. They need that money,” said Kyle.

Kyle, the Senate Democratic leader and a 2010 candidate for governor, has said he’s generally pleased with the proposed budget, but that the cuts to TennCare and state staffing levels could change as lawmakers tinker with the budget over the next few months.

Andrea Zelinski can be reached at 615-489-7131 or