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Lawmakers ask about savings from governor's reorganization effort

Data sought on agency changes by Michael R. Wickline | November 9, 2020 at 7:14 a.m.
FILE - Gov. Asa Hutchinson (left) and Amy Fecher (right), chief transformation officer, listen to a question during a press conference on Wednesday, Aug. 7, 2019, at the state Capitol in Little Rock. (Arkansas Democrat-Gazette/Thomas Metthe)

Some state lawmakers are pressing Gov. Asa Hutchinson's administration to provide information about state government's savings and the reduction in employee ranks under the governor's reorganization of executive branch agencies.

The 2019 Legislature enacted the Republican governor's plan to reduce the number of executive-branch agencies reporting to him from 42 to 15, effective July 1, 2019.

In March, state Department of Transformation and Shared Services Secretary Amy Fecher reported to lawmakers that the administration had saved $26.7 million from the overhaul.

During a recent hearing on the department's proposed budget for fiscal 2022, a Legislative Council co-chairman, Rep. Jeff Wardlaw, R-Hermitage, pressed Fecher to estimate the savings from the first full year of the reorganization. Fiscal 2022 starts July 1, 2021.

"When you all passed Act 910 of 2019, it focused on more than just dollars and cents," Fecher told lawmakers.

"There were three pillars that the governor laid out for transformation: efficiencies in funding but also in processes and in time, improved managerial services and then improved delivery of services to the citizens, so it is hard to quantify each one of those," she said.

Wardlaw said, "So it is kind of like the retired health plans.

"We really don't know what we have saved, but we keep talking about all these savings," he said.

Fecher said the governor and the Legislature agreed that state employees shouldn't lose their jobs as a result of the reorganization, so "we are going through attrition," and the change is slower than it would have been otherwise.

But Rep. Jim Wooten, R-Beebe, said, "To me, I don't care what the three pillars are, but transformation and reorganization means to me you are going to cut people.

"You are either going to cut people or you are going to get dollars somewhere," said Wooten, who is a co-chairman of the Legislative Council's personnel subcommittee.

In fiscal 2020, which ended June 30, the number of full-time executive branch employees declined by 858, from 24,932 at the end of fiscal 2019 to 24,074, according to transformation department records requested by the Arkansas Democrat-Gazette.

The reduction came after Hutchinson implemented a hiring freeze on April 10 for all departments. The hiring freeze was lifted July 7 with a few remaining restrictions in place, transformation department spokeswoman Alex Johnston said.

The hiring freeze came after Hutchinson's administration on March 23 cut the state general revenue budget for fiscal 2020 by $353.1 million, to $5.38 billion. On the last day of the fiscal year, the administration boosted the fiscal 2020 budget by $240 million, to $5.62 billion, because of better-than-expected tax revenue.

Salaries for executive branch employees increased from $1.17 billion in fiscal 2019 to $1.84 billion in fiscal 2020, the department's records show. Payroll increased because executive-branch agencies were authorized to use up to 2.4% of payroll costs for merit raises at the start of fiscal 2020, Johnston said.

The 858 full-time employee drop in fiscal 2020 is the largest decrease in executive-branch agencies in a fiscal year since Hutchinson became governor in January 2015, according to transformation department records. The number of full-time employees in executive-branch agencies totaled 26,108 on June 20, 2015, and has dropped each fiscal year since then.

Johnston said the ranks of full-time workers in the executive branch have declined because of "the governor implementing a hiring freeze at times during his administration, government transformation and secretaries' commitment to departments analyzing positions prior to filling."

"We're no longer automatically replacing employees as they leave," she said. "We're also implementing digital solutions that simplify and modernize antiquated processes and require fewer people."

Across all of state government -- executive-branch agencies and higher education -- the number of full-time employees dropped by 652, from 59,304 at the end of fiscal 2019 to 58,652 at the end of fiscal 2020, based on figures computed by the Bureau of Legislative Research.

The ranks of full-time employees at state agencies, including executive-branch employees, dipped by 478, from 30,832 at the end of fiscal 2019 to 30,354 at the end of fiscal 2020. The ranks of full-time employees at the state's colleges and universities slipped by 174 from 28,472 at the end of fiscal 2019 to 28,298 at the end of fiscal 2020, the bureau's figures show. The figures are based on the average of the last quarter in each fiscal year.

In fiscal 2020, the state's payroll and benefit costs increased to $4.21 billion from $4.15 billion in fiscal 2019, said Scott Hardin, a spokesman for the state Department of Finance and Administration.

Senate President Pro Tempore Jim Hendren, R-Sulphur Springs, told his colleagues during a recent budget hearing, "I know you hear a lot of pushback on [executive branch] transformation, and to be honest with you, I am not surprised.

"No entity protects itself from change more than a governmental entity when people are trying to change it," he said.

"That's a lot of what we see happening here, and I told the governor early on when this happened ... we would see this and it was going to be important for there to be real feedback and real dollars about what the overall effect of transformation was," said Hendren, whose uncle is Hutchinson.

"I think it would really help the General Assembly to understand the net impact of transformation is to give us the 30,000-foot view on the net changes in personnel and dollars as you have seen over the last 12 months and what you predict once it is fully implemented," he said.

"I think that would really make it easier for us to get the big picture," he said.

Fecher said she and state Budget Director Jake Bleed "have already been talking about how we can put together a dashboard that would show you some of those metrics."

"Part of it is measured in time and processes and not just in dollars," she said. "But we are definitely trying to track that as well."

Hendren said it's so important to get that message to the public and state employees as well as to lawmakers that "if there needs to be some contracted help or somebody to come and do that, it needs to be done."

But he clarified that he meant if a consultant were needed in the long run, adding that he wasn't proposing it now.

Hutchinson said Friday, "when we transformed state government from 42 state agencies that report to me down to 15 departments, I said it would result in savings of $15 million the first year.

"Secretary Fecher has reported to the legislature that our savings has significantly exceeded the $15 million estimate for the first year," he said in a written statement. "I can attest that without the reorganization of state government it would have been much more difficult to manage state government during the ongoing pandemic. The transformation has also improved in many areas the delivery of services to the taxpayers."

Hutchinson said the number of state employees is down by more than 2,000 since he became governor.

"It has become more difficult to measure the impact of transformation on budget and personnel because the pandemic hit us last March, and since then we have had to add personnel in the Department of Health and Division of Workforce Services and increase spending substantially in terms of our computer and software systems and contracts for pandemic expenses," he said.

CUTTING TAXES

Rep. Lane Jean, R-Magnolia, said, "What these legislators are hearing is the governor wants to continue tax cuts, try to get down to 5%" with the state's top individual income tax rate.

The state's top individual income tax rate was cut from 6.9% to 6.6% on Jan. 1, and the rate will be cut to 5.9% on Jan. 1, 2022, under Act 182 of 2019. State officials project Act 182 will eventually reduce state general revenue by about $97 million a year.

Further trimming the top rate to 5% is projected by state officials to reduce general revenue by $246 million a year, Hardin said. They project a $27.4 million reduction in revenue for every 0.1% cut off the top individual income tax rate, he said.

Revenue Division officials have drafted a proposal that would reduce the top rate to 5.5% over two years. The proposal would eventually reduce state general revenue by $115.1 million a year.

Jean said there also is talk about potential legislation to create a state earned income tax credit for low- and moderate-income people that would be "a hit" to state general revenue.

Jean, who is a co-chairman of the Joint Budget Committee, said lawmakers will want to know if the state can afford more tax cuts and that "quite frankly, transformation is going to be the key, [have] we have gotten lean enough?"

"There is going to be some demand for some type of position cuts," he said. "That's why people voted for transformation."

Asked whether the savings from transformation are substantial enough to pay for more tax cuts, Hutchinson said Friday, "No decision on future tax cuts will be made until after the forecast is concluded."

On Thursday, state Sen. Linda Chesterfield, D-Little Rock, made lawmakers' latest request for information about savings resulting from the reorganization.

Fecher said, "That is something that we are working to get you all as was requested during our budget hearing for a presentation on Nov. 19."

On Tuesday, Hutchinson is to propose his general revenue budget for fiscal 2022.

In the fiscal session in April, the Arkansas Legislature enacted a $5.89 billion general revenue budget for fiscal 2021. The general revenue budget helps pay for state-supported programs such as public schools, the Medicaid program, colleges and universities, and prisons.

On April 2, the finance department trimmed its original general revenue forecast for fiscal 2021 by $205.9 million, to $5.68 billion, citing a projected recession triggered by the covid-19 pandemic.

That forecast will provide $5.68 billion in general revenue for the fiscal 2021 budget, leaving $212.2 million of the $5.89 billion budget unfunded.

During the first four months of fiscal 2021, net general revenue available to state agencies increased by $242.6 million, or 12.2%, over the same four-month period in fiscal 2020, to $2.22 billion, and exceeded the state's April 2 forecast by $231.8 million, or 11.6%, to create a surplus so far, according to the finance department.

Some lawmakers are worried about the possibility of another economic downturn reducing state tax revenue amid the coronavirus pandemic.

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