At least 21,770 state government employees will be eligible next month for merit bonuses of up to 3 percent of pay based on their performance evaluations, despite a $70 million cut in the state's general-revenue budget for the fiscal year ending June 30.
These employees, who work for state agencies but not for the colleges and universities, aren't receiving a cost-of-living raise in fiscal 2017.
"I made the decision to provide merit pay this year to state employees because our new pay plan is not yet in effect, and the current budget planned for merit pay is sufficient to cover it," Gov. Asa Hutchinson said in a written statement Friday.
Agency salary savings, along with sufficient funds in the merit adjustment fund, will finance the bonuses, state Department of Finance and Administration Director Larry Walther said Friday in a memo to agency directors, boards and commissions.
[DATABASE: Search salaries of state employees in 2017 fiscal year]
The total cost of the merit bonuses is projected to be $23 million and the average salary of eligible employees is $39,154 a year, said Jake Bleed, a spokesman for the finance department.
He said 21,770 employees are eligible for the merit bonuses in fiscal 2017 because they've undergone performance evaluations, according to Walther's memo. Another 2,367 employees haven't yet had the evaluations, but that number is expected to decline in the next week or so.
All performance evaluations must be completed and entered into the state's computerized accounting system by June 18, and employees will receive these bonus payments in their June 23 paychecks, according to Walther's memo.
Merit bonuses of 3 percent will be awarded to employees whose performance "exceeds standards," while bonuses of 2 percent will be awarded for "above average" performances, and 1 percent bonuses will go to those with "satisfactory" performances, according to Walther's memo.
In response to the governor's decision, the Arkansas State Employees Association Facebook page said: "Woohooo !!!! Yes to Merit! Thank you, Governor Asa Hutchinson!"
Association Executive Director Danny James could not be reached for comment by telephone Friday afternoon about the governor's decision or about two previous posts about merit bonuses on the group's Facebook page.
On May 3, the association's Facebook page stated: "We are extremely disappointed to announce that Merit Pay has been denied this year due to a lack of funding."
On May 5, the Facebook page said, "The governor's office has informed us that they will delay the merit pay decision until the end of this month. This gives us a better chance at getting it funded."
The two social media posts came after Hutchinson announced on April 28 his plan to cut the state's $5.33 billion general-revenue budget in fiscal 2017 by $70 million, citing lagging collections of sales and corporate income taxes and higher-than-expected individual income-tax refunds.
He said that the budget cut wouldn't affect government services or lead to layoffs this fiscal year.
The budget cut also comes as state officials projected a $100 million dip in general revenue as a 2015 income-tax cut takes effect. Arkansans with taxable income between $21,000 and $75,000 benefited from the reduction in individual income-tax rates pushed by the governor and enacted by the Legislature.
Several lawmakers said state employees deserve the merit bonuses and had no quibble with Hutchinson's decision to grant them as the fiscal year draws to a close.
"I have no problem with giving merit bonuses," said Sen. Bryan King, R-Green Forest, who is a critic of the governor. "When it comes to state employees, they are the most vital part of state government."
Sen. Bart Hester, R-Cave Springs, said that "the guys in the trenches deserve a little bump up each year."
He said he wishes the governor had the discretion not to grant merit bonuses to higher-paid employees.
Sen. Larry Teague, D-Nashville, said, "State employees ought to be fairly compensated and they have got used to getting that merit raise, and I think it helps them."
The last time state employees didn't get a merit raise or bonus was in fiscal 2003 when they received a 2.6 percent cost-of-living raise, according to finance department records.
In fiscal 2003, Gov. Mike Huckabee, a Republican, cut the general-revenue budget fives times totaling $373 million, reducing the budget to $3.24 billion during an economic downturn.
During the last round of budget cuts in fiscal 2010, also during an economic downturn, state employees received merit bonuses of up to 2.25 percent, according to finance department records.
Then-Gov. Mike Beebe, a Democrat, cut the fiscal 2010 budget by more than $206 million to $4.3 billion, and the state overhauled its employee pay plan, the records show.
Earlier this month, Hutchinson also cut the $5.49 billion general-revenue budget for fiscal 2018 by $43 million. The fiscal year starts July 1.
Hutchinson has determined that the latest pay plan overhaul, enacted by the 2017 General Assembly, will be implemented in fiscal 2018 and 2019 to make government "a more competitive employer," Walther wrote in his memo to agency directors and boards and commissions.
The overhaul of the state pay plan for about 25,000 employees has been projected to cost $57 million in fiscal 2018 with about $24 million projected to come from general revenue and the rest from other state government sources, with agencies largely using accrued savings from efficiencies and attrition, according to state officials.
The current pay plan was adopted in 2009, and the labor market has changed dramatically since then, according to state personnel director Kay Barnhill.
To get more money under the current system, employees sometimes get promoted to jobs for which they are unsuited, and there is no mechanism to increase pay for someone who performs increased duties, she said.
State employees haven't received cost-of-living raises in four of the past seven fiscal years, according to finance department records. They received a 1 percent cost-of-living raise in fiscal 2016 and 2 percent cost-of-living raises in fiscal 2011 and 2014, the records show.
The pay plan overhaul will be implemented effective July 2, Walther's memo said.
About 54 percent of full-time employees will get pay raises of more than 1 percent each to enable them to reach the new minimum salaries for their positions and the rest will get 1 percent raises, Barnhill has said.
Some of the largest raises will be in entry-level positions. The overhaul will benefit such employees as family-services workers, program-eligibility specialists, registered nurses, residential care assistants, correctional officers and state troopers, according to state records.
For instance, the entry-level wage for a program-eligibility specialist at the Department of Human Services will increase from $27,858 to $36,155, and the entry-level wage of a residential care assistant will increase from $18,855 to $22,000.
With the implementation of the new pay plan in fiscal 2018, merit pay will be awarded as salary increases based on performance and there will be no lump-sum merit bonuses, Walther said in his memo.
The Office of Personnel Management is developing a new performance appraisal system, he said.
A Section on 05/27/2017