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HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
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                   A  BILL  FOR  AN  ACT

RELATING TO REINVENTING GOVERNMENT WITH VOLUNTARY SEPARATION
INCENTIVES.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  For the past five years, the State of Hawaii has
 
 2 been faced with severe economic crisis due to sharply decreased
 
 3 tax revenues, and a continued depressed economy linked globally
 
 4 to the downturn in the Asian economic markets.  In the summer of
 
 5 1995, the State of Hawaii faced a major shortfall in projected
 
 6 tax revenues, and hence, the Governor called for immediate
 
 7 additional budget cuts across all departments.  This resulted in
 
 8 some departments issuing 90-day initial Reduction-in-Force (RIF)
 
 9 notices to 396 regular civil service employees, which affected
 
10 the employment of additional 104 regular and non-regular
 
11 employees.  Of the 500 total employees directly affected by the
 
12 RIF, 324 regular employees were placed in vacant or occupied
 
13 positions, 20 regular employees found other State jobs on their
 
14 own, 89 regular and non-regular employees were terminated from
 
15 service, 39 employees resigned and/or retired, and RIF notices
 
16 were rescinded for 28 employees.  At the end, monetary savings
 
17 were nearly non-existent the first fiscal year because of
 
18 unemployment compensation costs and vacation pay outs to 27% of
 
19 the final 472 employees affected by RIF.  In the subsequent
 

 
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 1 years, only an estimated 11.5% savings would have been achieved
 
 2 in salary personnel costs of the initial 396 permanent civil
 
 3 service positions to be abolished as 73% of the final 472
 
 4 employees affected by RIF were placed into vacant or occupied
 
 5 positions at indefinite red-circled pay or found other state
 
 6 employment.  Additional costs were incurred with resulting
 
 7 litigation across most departments who laid off their regular
 
 8 employees.  Non-monetary losses included lower employee morale
 
 9 and productivity, resentment of RIF employee placements and their
 
10 displacements, significant burden placed on those who
 
11 administered the RIF, disruptions of normal operations and
 
12 overall reduced government efficiency, and increased fear of and
 
13 a few incidents of violence in the workplace.  In addition to the
 
14 RIF actions, an additional 298 temporary civil service and exempt
 
15 employees were terminated, and 619 vacant civil service positions
 
16 were identified to be abolished.
 
17      Throughout 1996, 1997 and 1998, the State continued to
 
18 reduce its workforce by utilizing the various traditional
 
19 downsizing methods such as RIF, attrition, restricted hiring,
 
20 abolishment of vacant positions, etc.  The Legislature also
 
21 identified a small number of permanent civil service positions
 
22 for abolishment, which the administration carried out.  From
 
23 January 1996 though early September 1998, smaller RIFs were
 

 
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 1 administered.  Collectively, during these three years, another 80
 
 2 regular civil service employees received initial 90-day RIF
 
 3 notices which affected the employment of an additional 29 regular
 
 4 and non-regular employees.  These small RIFs eventually resulted
 
 5 in 67 employees being placed into vacant or occupied positions, 9
 
 6 found other state employment on their own, 15 regular and non-
 
 7 regular employees were terminated, 1 resigned or retired, and 17
 
 8 RIFs were rescinded.  At the end of these RIFs, 82.6% of the
 
 9 final 92 affected employees continued State employment, 16.4%
 
10 were involuntarily terminated from State service, and 1% resigned
 
11 or retired.  Again, the State expended additional litigation
 
12 costs in defending its decisions and administration of cuts
 
13 mandated by the Legislature.  Additionally, many positions that
 
14 became vacant through normal attrition means were not filled
 
15 because of additional budget restrictions, and eventually
 
16 abolished.
 
17      Thus, the Legislature finds that the State has made good
 
18 faith efforts to downsize its workforce through various
 
19 traditionally accepted methods such as Reduction-In-Forces or
 
20 layoffs, a one-time early retirement incentive, regular
 
21 retirement, normal attrition, restricted hiring and freezes,
 
22 staff reassignments, and others as a means of reducing personnel
 
23 costs and dealing with the shortfalls in tax revenues.  It has
 

 
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 1 become apparent that RIF is not an effective approach to reducing
 
 2 payroll costs.  Other traditional methods of downsizing (e.g.,
 
 3 attrition, hiring freezes, etc.) are effective in slowing the
 
 4 growth of government employment or even a gradual reduction in
 
 5 the size of the workforce.  However, none of these methods are a
 
 6 cost-effective means of radical downsizing and permanent
 
 7 reduction in payroll cost.  Further, despite its efforts to
 
 8 reduce its workforce, the State has been required by three
 
 9 Federal consent decrees in adult mental health (Hawaii State
 
10 Hospital, Department of Health), corrections (Department of
 
11 Public Safety) and special education for disabled children
 
12 (Departments of Education, Health, and unofficially Human
 
13 Services) to continuously recruit and staff these covered
 
14 programs without consideration of budgetary restraints and lack
 
15 of funding.
 
16      The State of Hawaii's experiences parallel the findings of
 
17 the Federal experiences with RIFs, attrition, hiring freezes and
 
18 other traditionally accepted downsizing methods.  The Federal
 
19 General Accounting Office (GAO) in its May 1996's Federal
 
20 Downsizing:  The Costs and Savings of Buyouts Versus Reduction-
 
21 in-Forces report stated that Voluntary Separation Incentives paid
 
22 to employees who voluntary separate from service can be highly
 
23 effective restructuring tools in accomplishing major workforce
 

 
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 1 reductions.
 
 2      In June 1998, Office of Personnel Management (OPM)'s
 
 3 Workforce Restructuring Office shared the Federal's experience on
 
 4 employee buyouts with attendees at the Hawaii's Conference of
 
 5 Personnel Directors.  OPM reported an overall 16.2% reduction or
 
 6 355,000 employees in a five-year period from January 1993 through
 
 7 June 1998, and this contributed to the first budget surplus in 29
 
 8 years.  Under the Workforce Restructuring Act of 1994 and Omnibus
 
 9 Spending Act of 1996, the Federal Government reduced its
 
10 workforce size through a mixture of 160,000 employee buyouts,
 
11 90,000 early retirements, 180,000 regular retirements, and 11,064
 
12 career transitions and restricted hiring.  Only ten percent of
 
13 the downsizing was attributed to 36,212 RIFs.  Specifically, OPM
 
14 reported that 160,000 employees voluntarily separated through
 
15 buyouts from Federal government service between 1993 and 1998,
 
16 where a employee buyout did not exceed $25,000 and employees
 
17 cannot return to Federal service within the next 5 years without
 
18 full gross repayments.  Further, for each employee buyout, one
 
19 position count was eliminated in downsizing the Federal
 
20 government.
 
21      The Legislature finds that traditional attrition, reduced
 
22 hiring, hiring freezes, abolishment of vacant jobs and
 
23 involuntary separations via RIFs that have been implemented by
 

 
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 1 the state employer over the past four years was a good beginning.
 
 2 Nevertheless, these methods appear to be insufficient in
 
 3 achieving sizable and permanent reductions in its workforce and
 
 4 the effects of involuntary separations clearly do not encourage
 
 5 the remaining staff to reinvent its government services.  The
 
 6 decreased tax revenues have somewhat stabilized, and now Hawaii
 
 7 must begin to plan for the government's future.
 
 8      The Legislature and administration affirm that alternative
 
 9 and more effective tools and methods of workforce reductions are
 
10 needed to make significant and permanent reductions in the
 
11 state's workforce size once departments begin to reinvent their
 
12 programs and public services.  These voluntary separation
 
13 mechanisms must be in place to assist and enable departments to
 
14 accelerate their reinvention and redesign of program services.
 
15      The Legislature and the administration agree that government
 
16 programs must be reinvented to banish bureaucracy, and
 
17 accompanied by workforce reductions where personnel costs are
 
18 permanently reduced in order to control spending within the
 
19 flattened but stabilized economy.  The major purpose of this Act
 
20 is to provide broad enabling legislation to authorize voluntary
 
21 separation incentive payments as a reinventing tool to aid in the
 
22 redesign of government services and anticipated accompanying
 
23 reductions in workforce size.  It is the intent of the
 

 
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 1 Legislature to enable the State employer and other public
 
 2 employer jurisdictions to utilize voluntary separation incentives
 
 3 payments as a tool to voluntarily separate employees from
 
 4 service, in lieu of relying primarily on involuntary Reduction-
 
 5 in-Forces (RIFs) and attrition, and to assist departments in
 
 6 achieving major reinvention of state government programs.
 
 7 Further, it is the intent of the Legislature to encourage public
 
 8 employers to implement planned actions of permanent workforce
 
 9 reductions via voluntary employee separations after their plans
 
10 to reinvent government programs and services have been completed.
 
11 The Act recognizes that the monetary and social benefits of
 
12 voluntary separations versus Reduction in Forces are not
 
13 hypothetical projections, but based on actual Federal experiences
 
14 and their studies conducted by the OPM and the Federal GAO in
 
15 1985, 1993, 1994 and 1995.  Specifically, buyouts were found to
 
16 generate over $60,000 more in net savings per employee buyout
 
17 over a five-year period.  These savings can be attributed to the
 
18 buyout population being different from the RIF population in that
 
19 buyout employees are older, have more years of service, higher
 
20 salaried, and closer to retirement tied into Social Security
 
21 benefits.  The Legislature further recognizes that the negative
 
22 effects of RIF, including but not limited to decreased employee
 
23 productivity and disruption of normal operations, lower employee
 

 
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 1 morale and resentment of RIF employee placements, fear and
 
 2 occurrences of workplace violence, significant expenditure of
 
 3 resources in administering a RIF, and loss of workforce diversity
 
 4 profiles in women and minority groups can be avoided through
 
 5 voluntary separation buyouts.
 
 6      In addition, existing layoff procedures in the various
 
 7 collective bargaining agreements and administrative rules are
 
 8 found to be unduly cumbersome, and to significantly impair the
 
 9 employer's ability to expeditiously respond to fiscal emergencies
 
10 while maintaining efficiency in government operations when there
 
11 is a need to reduce the size of government due to lack of work,
 
12 funds, need or other Legislative actions.  This is because the
 
13 layoff procedures were designed nearly 30 years ago to address a
 
14 singular layoff job search rather than multiple layoff searches
 
15 actually being simultaneously conducted, which results in more
 
16 senior employees displacing or bumping the junior employees based
 
17 solely on years of service and retaining their red-circled
 
18 salary.  Thus, the Legislature and employer agree that a more
 
19 streamlined Reduction-in-Force process is also needed when
 
20 programs are to be eliminated or rightsized because of lack of
 
21 need or work as a result of the State employer's reinventing
 
22 efforts.
 
23      SECTION 2. Chapter 76, Hawaii Revised Statutes, is amended
 

 
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 1 by adding a new section to be appropriately designated and to
 
 2 read as follows:
 
 3      "§76- Voluntary Separation Benefits.  (a) In order to
 
 4 accomplish this mandate, each department head is authorized and
 
 5 encouraged to use the voluntary separation incentives provided in
 
 6 this bill, subject to guidelines issued by the departments of
 
 7 human resources development and budget and finance, and to
 
 8 utilize involuntary separation via a streamlined Reduction-in-
 
 9 Force process, limited to within the employing department, as
 
10 established by this Act only when the reinvention processes have
 
11 been completed or there is an unforeseen fiscal emergency that
 
12 can be met in any other way.  Each department shall submit to the
 
13 2000 legislature, through the office of the governor, a report
 
14 showing the reinvention progress made, and data on workforce
 
15 reductions made, if any, including anticipated annual savings,
 
16 costs of termination (vacation payouts, voluntary separation
 
17 incentives or retirements), actual savings for FY 2000 and
 
18 anticipated savings for FY 2001.
 
19      (b) In order to utilize voluntary separation incentive
 
20 payments as a restructuring tool, each department head is
 
21 required to develop a plan to reinvent its programs and their
 
22 services, including a description of how it would achieve sizable
 
23 reductions in general fund requirements and position ceiling
 

 
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 1 counts.  Plans shall be designed to maximize public services, and
 
 2 developed with input from the multiple users or customers of the
 
 3 affected public services.  Departments are expected to maximize
 
 4 its use of the voluntary separation incentives provided in this
 
 5 Act, subject to guidelines issued by the departments of human
 
 6 resources and development, and budget and finance, and plan to
 
 7 use streamlined Reduction-in-Force processes, only when
 
 8 reinvention and reductions cannot be achieved in no other way. As
 
 9 directed above, departments shall begin its efforts to banish or
 
10 reduce bureaucracy and redundancy, reinvent public services for
 
11 their programs, and plan reduced staffing as soon as possible.
 
12 To do so, departments are authorized to restructure and
 
13 reorganize their programs and services, reassign and detail
 
14 employees, and offer voluntary separation incentive benefits
 
15 provided by this Act in order to expedite reinvention, eliminate
 
16 bureaucracy and redundancies, streamline operations and maximize
 
17 their program efficiencies.  Each department shall prepare a
 
18 report on their reinvention plan, including proposed changes in
 
19 staffing, progress on actions taken and those still to be taken,
 
20 and shall include a fiscal report to show anticipated, planned
 
21 and actual savings for the program operation costs and staffing
 
22 cost reductions, including any vacation pay outs and voluntary
 
23 separation incentive pay outs.
 

 
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 1      (c) Departments shall not eliminate direct consent decree
 
 2 services."
 
 3      SECTION 3.  Chapter 76, Hawaii Revised Statutes is amended
 
 4 by adding a new section to be appropriately designated and to
 
 5 read as follows:
 
 6      "§76- Voluntary separation incentives.  Regular civil
 
 7 service employees or other employees who are eligible for state
 
 8 retirement and health benefits may apply for voluntary separation
 
 9 incentives when offered by a State department.  (a) Any regular
 
10 civil service employee who voluntarily separates from state
 
11 service shall waive any entitled rights provided under the
 
12 Reduction-In-Force policies, collective bargaining agreements,
 
13 administrative rules and other civil service laws.  Payments of
 
14 voluntary separation incentives shall be equivalent to:
 
15      (1) Four weeks of salary if the employee has two years of
 
16      service or less; and
 
17      (2) Four weeks plus one additional week of salary for every
 
18      incentives payment shall not exceed a maximum of 21 weeks of
 
19      salary or $25,000.
 
20      (b) Any employee who voluntarily separates from service and
 
21 receives a voluntary separation incentive payment shall not
 
22 return to government service in any type or form of public
 
23 employment within five (5) years from the date of separation,
 

 
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 1 without full gross repayment of the voluntary separation
 
 2 incentives amount received.  No exceptions shall be made in order
 
 3 for the state to achieve a true reduction in workforce size.
 
 4      (c) The terminating employee's department shall compute
 
 5 voluntary separation incentive payments.
 
 6      (d) Voluntary separation incentive payments shall be in
 
 7 addition to any payment owing to the employee for accumulated
 
 8 unused vacation allowances under section 79-7, Hawaii Revised
 
 9 Statutes.  The right of any employee, who receives a voluntary
 
10 separation incentive payment, to also receive unemployment
 
11 compensation shall not be denied, abridged, or modified in any
 
12 way due to receipt of the voluntary separation benefits.
 
13 Voluntary separation incentive payments shall be computed as of
 
14 the employee's last day of service and paid upon the employee's
 
15 termination.
 
16      (e) All voluntary separation incentive payments payable
 
17 pursuant to this Act shall be subject to applicable federal laws
 
18 and regulations.
 
19      (f) No voluntary separation incentive payments shall be
 
20 payable to any state employee terminated for disciplinary reasons
 
21 or reasons other than a department's need to reinvent programs
 
22 and services, and to reduce workforce size.
 
23      (g) Voluntary separation incentives provided under this Act
 

 
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 1 shall not be considered as a part of a terminated employee's
 
 2 salary or service credit when calculating retirement benefits,
 
 3 sick or vacation benefits.
 
 4      (h) No employee who has received voluntary separation
 
 5 incentives payment shall be reemployed by the State within five
 
 6 years of receiving the received voluntary separation incentives
 
 7 payment, unless the gross amount of the voluntary separation
 
 8 incentives payment is returned by the employee to the general
 
 9 fund prior to any appointment.  Rare exceptions for the temporary
 
10 hire of a former employee without repayment of the voluntary
 
11 separation incentives payment received may be authorized by the
 
12 governor on a case by case basis.  Such exceptions shall be
 
13 identified in departments' reports to the 2000 Legislature.
 
14      (i) All positions formerly held by employees who are paid to
 
15 voluntarily separate shall be abolished upon termination of the
 
16 employees, and all funds allocated for the salary of these
 
17 positions shall be returned to the general fund after deductions
 
18 of amounts sufficient to cover the voluntary separation
 
19 incentives payment, any accumulated vacation leave, and 15% of
 
20 the gross salary amount of employees who separate through
 
21 retirement to be paid to the employee retirement system."
 
22      SECTION 4.  Section 76-43, Hawaii Revised Statutes, is
 
23 amended to read as follows:
 

 
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 1      "§76-43 Layoff.  (a) The legislature finds that the existing
 
 2 layoff procedures in collective bargaining agreements and
 
 3 administrative rules are unduly cumbersome and impair
 
 4 management's ability to expeditiously respond to fiscal
 
 5 emergencies and maintain efficiency in government operations
 
 6 where there is a need to downsize the workforce due to lack of
 
 7 work, funds or legislative mandate.  While the legislature
 
 8 subscribes to joint decision-making, it finds that it is in the
 
 9 public interest to establish parameters to ensure that a layoff
 
10 is effectuated in a manner that is not counterproductive to the
 
11 underlying reasons necessitating the layoff.  It is the expressed
 
12 wish of the Legislature that the employer utilize voluntary
 
13 separation incentives as provided for in this Act, and that a
 
14 Reduction-in-Force method of downsizing will be implemented only
 
15 upon a department's completion of its comprehensive plans to
 
16 reinvent program services along with redefined staffing needs in
 
17 joint-consultation with employees and their employee
 
18 organizations.  The legislature strongly affirms that government
 
19 must plan for Hawaii's citizens and their future in the twenty-
 
20 first century and the reinvention of the state programs and
 
21 services can not be accomplished without the full cooperation of
 
22 all parties with vested interests.
 
23      (b) Rules [and regulations] shall be [promulgated] adopted
 

 
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 1 by the director of human resources development to govern the
 
 2 conditions under which an employee is to be released from the
 
 3 employee's position due to lack of work or lack of funds.
 
 4      (c) Notwithstanding any other law to the contrary, any
 
 5 layoff procedures and compensation adjustment provisions
 
 6 developed pursuant to chapter 76, 77, 89 or 89c shall be in
 
 7 compliance with the following parameters:
 
 8      (1)  Employees affected by a layoff shall have placement and
 
 9           bumping rights only within their respective departments
 
10           for positions in their same class or series;
 
11      (2)  Notification of an impending layoff shall be provided
 
12           as early as possible, but any advance notice required
 
13           to employees of their possible termination if they are
 
14           unable to bump or be placed within their respective
 
15           departments need not exceed thirty days;
 
16      (3)  The central personnel agency shall establish
 
17           procedures, which shall take into consideration, among
 
18           other factors deemed appropriate, employee performance
 
19           evaluations when referring employees for placement to
 
20           vacant positions in the same class or series outside of
 
21           their respective departments;
 
22      (4)  A department shall retain the right to interview and to
 
23           accept or reject a placement of an employee referred
 

 
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 1           for placement into any vacant or filled position based
 
 2           on the employee's qualifications for the particular
 
 3           position and sufficiency of funds to pay the employee's
 
 4           salary; and
 
 5      (5)  Employees affected by a layoff shall not be paid more
 
 6           than the maximum rate of the salary range assigned to
 
 7           the class into which the employee bumps or is accepted
 
 8           for placement."
 
 9      SECTION 5. FEDERAL JOB TRAINING ASSISTANCE PROGRAM
 
10 The legislature understands that federal monies are available to
 
11 retrain all citizens who have terminated from employment, in both
 
12 private and public sectors.  Therefore, the legislature requests
 
13 that the state Department of Labor and Industrial Relations
 
14 develop a transitional program for our employees and coordinate
 
15 these services to terminated employees from public sector
 
16 employment.
 
17      SECTION 6. New statutory material is underscored.
 
18      SECTION 7 This Act shall take effect upon its approval;
 
19 provided that this Act shall supercede the reduction-in-force
 
20 provisions of any collective bargaining agreement in existence on
 
21 the effective date of the Act, any new collective bargaining
 
22 agreements executed after the effective date of this Act, and to
 
23 any extensions and renewals of the collective bargaining
 

 
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 1 agreements in existence on the effective date of this Act.
 
 2 
 
 3                           INTRODUCED BY:  _______________________
 

 
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