Gov. Asa Hutchinson on Tuesday authorized state agencies to use up to 3% of total salary expenses for merit pay raises for employees.
About 25,900 regular full-time employees are eligible for the raises and their average salary is $45,851, said officials for the state Department of Transformation and Shared Services. These employees don't include workers at public colleges and universities.
The raises are projected to cost $28 million from all funding sources, including $11.2 million in state general revenue, Hutchinson said.
The merit raise will be reflected in pay received July 16, Transformation and Shared Services Secretary Amy Fecher said in a memo dated Tuesday to Cabinet secretaries. Fiscal 2022 starts July 1.
"This past year, our workforce has shown dedication, resilience and flexibility through this pandemic, " Hutchinson said Tuesday at his weekly news conference in the governor's conference room. "There have been circumstances that no workforce has been through in the last 100 years."
He said the workers range from Department of Health employees, who worked extraordinarily long hours under difficult circumstances, to Department of Workforce Services' employees, who worked to get out pandemic and regular unemployment insurance benefits, to Department of Human Services' caseworkers, who helped take care of children during the pandemic.
The Republican governor said this was the largest merit pay raise that he has authorized. These raises will increase base salaries and aren't a one-time bonus, he said.
The previous largest merit raise that he authorized was in fiscal 2018, when he allowed executive branch agencies to use up to 2.8% of total salary expenses for the raises.
John Bridges, executive director for the 13,000-member Arkansas State Employees Association, said in a May 19 letter to Hutchinson and three other state officials, "For active employees, we ask you to commit to a higher level of funding for performance pay" for fiscal 2022.
Given the near-certainty that state employees will see their health insurance premiums rise, a one-time increase in performance pay will significantly help to offset the higher benefit costs, Bridges said.
Asked if the raises are intended to offset higher premiums, Hutchinson said Tuesday that he is aware that state employees and public school employees will see increases in their insurance premiums next year.
"That is a part of the factor, that's [an] inflationary increase of health care costs," the governor said, "so while we can't always accommodate that, that was an important recognition and part of the reasons that we have a more significant [pay] increase."
The other reason for the raises is employee performance in the last year, Hutchinson said.
"We do have money set aside in a performance fund to take care of this, but we first are expecting them to handle that within their budget," he said.
Bridges said Tuesday in an interview that the merit raises authorized by the governor are "great."
Agencies are allowed to use more money for merit raises and that will lead to higher percentage merit raises, he said.
The state Board of Finance last week voted 6-3 to recommend a 5% increase in 2022 in premiums in the plan that covers more than 58,000 state workers, retirees and dependents. The recommendations go to the Legislative Council.
The Board of Finance also proposed reducing the wellness credit for current employees from $50 to $25 a month and creating a $25-a-month contribution for employees who don't participate in the wellness credit.
The board also proposed to end on-site wellness clinics and have employees visit their primary care doctor for the wellness credit.
The finance board also called for increasing the state's monthly funding per employee by $50, from $450 to $500, and suggested the increase take effect Aug. 1 this year instead of Jan. 1, 2022.
These changes are projected to eliminate a potential deficit of $33.3 million in 2022 for the insurance plan for state employees.
The Milliman firm, which is the actuary for the Employee Benefits Division, projected the plan would have a 2022 reserve of $38.6 million, based on the finance board's recommended changes.
The finance board also recommended setting aside $10 million in the restricted reserve fund for the insurance plan. If the Legislative Council opts not to adopt all of the finance board's recommendations, the board recommended that the council provide one-time state funding to cover the recommendations not adopted for next year.
The Legislative Council's personnel subcommittee and the full council are expected to consider the finance board's recommendations next week.