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Capitol Square in Richmond.

A state legislative panel on employee compensation wants Gov. Terry McAuliffe and the General Assembly to reinstate raises for state employees, college faculty, teachers and state-supported local employees in the next budget year, despite a projected revenue shortfall that will require lawmakers to cut more than $654 million in the fiscal year that begins July 1.

The panel, a working group of a commission led by House Speaker William J. Howell, R-Stafford, also is considering a recommendation to require future governors to include in their proposed biennial budgets performance-based raises for state employees that are at least equal to the cost-of-living in the preceding two years.

“This needs to be how the budget is built,” said state Sen. Frank M. Ruff Jr., R-Mecklenburg, chairman of the compensation work group for the Commission on Retirement Security & Pension Reform.

Ruff made the proposal Friday in response to the cancellation of $346.3 million in employee raises. The budget tied raises to revenues not falling short of projections by more than 1 percent for the year that ended June 30. The pay increases — 3 percent for state employees and college faculty and 2 percent for teachers, sheriff’s deputies and other constitutional officers — were scheduled to take effect Dec. 1.

“We’ve got to do something,” he said in an interview after the meeting. “We need to make this part of the (budget) process. We can’t continue to make state employees the last thing we think about.”

However, the panel’s attempt to force the legislature and governor to restore the raises in the budget’s second year — about $221 million of the two-year compensation package — would require them to make additional cuts in state spending.

“Obviously, it’s going to be a priority, but there’s going to be a lot of priorities in a really tight budget,” said Senate Finance Committee Co-chairman Emmett W. Hanger Jr., R-Augusta, a member of the work group who did not attend the meeting on Friday.

The recommendation and Ruff’s proposal also raise questions about how far the legislature can go in prescribing how the governor puts together a proposed budget for the General Assembly to rewrite according to its own priorities.

“Can we tell the governor what he’s got to do?” Howell said.

McAuliffe spokesman Brian Coy said, “The governor is absolutely supportive of the state employee workforce and has made their compensation a priority throughout his term, and he will continue to do so.”

In McAuliffe’s first year in office, employee raises were a casualty of a projected $2.4 billion shortfall that eased the next year and allowed the state to give employees a 2 percent pay raise, their first since 2007 that resulted in a net increase in salary.

But Coy said the governor and legislature face “very difficult decisions” on the budget for next year.

“We’re going to have to further cut the budget to reach the revenue estimates,” he said.

House Appropriations Committee Chairman S. Chris Jones, R-Suffolk, a member of the work group who did not attend the meeting, was not comfortable with prescribing what the governor must include in his proposed budget.

“While laudable on its face, I’m not sure that’s the best approach to take,” he said.

Jones, who became appropriations chairman almost three years ago, said the General Assembly has worked with McAuliffe to include money in the budget to pay the employee share of rising health care premiums and fully fund the recommended contributions to retirement plans for state employees and teachers.

He tied the prospect for restoring raises in the second year to recovery of lagging collections of income and sales taxes to close a revenue gap that already has eliminated $125.1 million in pay increases that were budgeted in this fiscal year.

“If the revenues recover, it would certainly be my desire that we revisit the pay raises that were suspended for the employees,” Jones said.

Howell, who proposed the commission primarily to move the state away from traditional pensions for its employees, supports a two-pronged approach to employee pay and other compensation, spokesman Matthew Moran said Friday.

“The speaker wants to and recognizes the need to address compensation in a meaningful way in the short term,” Moran said.

“More broadly speaking, the speaker wants to take a more holistic approach to total compensations,” he said. “He hopes to develop a more innovative model that offers more flexibility to state workers.”

Moran confirmed the speaker’s approach includes the creation of an optional 401(k)-style defined contribution plan for employees instead of a defined benefit pension plan. “What could we do if we didn’t have an unfunded liability?” he said, referring to the long-term unfunded obligations of state employee and teacher retirement plans.

The cancellation of the scheduled raises has hurt morale and accelerated turnover, according to representatives of Virginia State Police and local sheriff’s departments, who fault the decision to tie the pay increases to a “trigger” based on collection of income, sales and corporate taxes in the last fiscal year.

“The first thing that goes is money for public employees,” said John W. Jones, executive director of the Virginia Sheriffs’ Association, which also is upset about the loss of money in the budget to help departments promote career development and address salary compression. “It is the lowest priority of the General Assembly.”

Hanger raised the possibility that the legislature would be able find money in its next session “to deal in part with state police and perhaps some of the deputies.”

In addition to pushing for reinstatement of the raises, the work group also voted to recommend that the Joint Legislative Audit and Review Commission conduct a comprehensive study of employee compensation — both salary and other benefits — as it did in 2008 and 2011.

The group also supports appropriating $20,000 for the Department of Human Resource Management to subscribe to a occupational database that, prior to budget cuts in 2009, it used to compare Virginia compensation data with other public and comparable private employers.

It decided to wait on the final language of Ruff’s proposal, which Howell declined to address.

“(Howell) does not want to put his finger on the scale before he sees the actual recommendation,” Moran said.

The group also did not act on nine recommendations made by R. Ronald Jordan, a member of the panel and executive director of the Virginia Governmental Employees Association who shares Ruff’s concern about how compensation is handled in developing a budget.

“There’s a real disconnect between budget development and compensation,” he said.

Jordan’s proposals include requiring the governor to provide a plan to the General Assembly with his budget proposal each December that includes:

  • a base salary increase to ensure that the gap does not increase between Virginia employees and their peers;
  • a long-term program to eliminate the gap;
  • proposals to eliminate salary compression, in which newly hired employees make as much or more than veterans;
  • measures to ensure that base salaries align with local and regional labor markets in the state; and
  • a performance incentive bonus program.

Jordan said his proposal differs from Ruff’s because it would not direct the governor to include pay increases in the proposed budget.

“It says you would have to deliver a report and here’s what it would cost,” he said in an interview.

The full commission will consider the working group’s final recommendations on Dec. 12, four days before McAuliffe proposes budget amendments that address the projected revenue shortfall for the next fiscal year.

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