Executive Summary

Issue Description: Correctional Officers Interest Arbitration Funding Potential Interest Arbitration Award Meeting Date: Attendees: February 1, 2012 Amber DAmato, Dennis Bonneville, Ned Newlin, Bert Furuta, Fernando Conill, Jacquelyn Aufderheide, Deborah Boe

Action Requested At This Meeting: Discussion and planning for funding of potential interest arbitration award.

Background: The collective bargaining agreement between the County and the Kitsap County Correctional Officers Guild expired in 2009. Unable to reach terms on a successor contract, the parties participated in mediation; however, certain economic issues were not resolved and were certified for interest arbitration. The Guild has submitted the following proposals for arbitration: Wage increases for all officers (4% in 2010, and 2.5% in 2011 and 2012); Longevity pay (1% - 4% of annual salary, depending on years of employment); Increasing in County contributions toward medical, dental, vision, and life insurance premiums (100% of premiums to be paid by the County for employees; and 90% of premiums to be paid by the County for dependants); Increasing the cap on compensatory time accruals (from 60 to 80 hours); Adding 3 premium holidays (paid at 2 times regular rate of pay); Increasing the number of annual leave hours earned per year (additional 16 hours per year for 1-9 and 20+ years of employment); and Upon retirement, payment of 50% of all sick leave accrued based on rate of pay at retirement.

The interest arbitration hearing is scheduled to begin on February 6, 2012. It is anticipated that a decision will be issued by the arbitrator in mid-April, resulting in a contract covering years 2010, 2011, and 2012. As the attached Cost of the Guilds Proposal and Impacts of Guild Proposal illustrate, if all of the Guilds proposals are awarded, the impacts on the Countys current general fund expenditure budget is estimated to be over $1,774,709. County staff recommends discussion and contingency planning that such an award would likely have on previously budgeted expenditures. The current economic recession has driven a significant shift in fiscal policy for Kitsap County in recent years. Over the last 3 years, the Board implemented budget cuts which limited expenditures to the confines of revenues within a given year, and which
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were intended to rebuild critical general fund reserves which were reduced to dangerously low levels during the first years of the economic downturn. Low reserve levels have been identified as a credit weakness by the agencies which set the Countys credit rating for the purpose of issuing long term debt. Low reserve levels led to internal borrowing from other County funds in 2008, 2009, and 2010 to provide enough cash to make payroll and payable obligations, and these loans had to be repaid with a total interest cost of just over $56,000. Likewise, the Jail has felt the negative effects of the economy. The Jail offsets some of its costs from contracts with other correctional facilities, cities, and tribes. In 2011, the Jail was able to maintain its most levels of service and staff because of a contract with SCORE. However, these revenue sources have been eliminated or greatly reduced in 2012. This loss of revenue, combined with the Jails share of general fund budget reductions, is likely to have a significant impact on the number of inmates who can be housed in the County jail. The economic recovery is occurring at much slower pace than expected; for example, the Countys projections for general fund revenue in 2012 equal actual revenue receipts in 2003. Thus, as the County prepares for the upcoming interest arbitration, consideration of how to fund an award must be discussed. Recommendation in the Short Term: In the event that some or all of the Guilds proposals are awarded, the County will probably have between 30 - 60 days to pay any retroactive amounts awarded. Given the state of current general fund revenues, in the short-term the recommended option would be to fund an award from reserves. Depending on the size and timing of the award, cash flow may be impacted and internal borrowing would likely be needed in the fall, and possibly in future years until the draw on reserves could be repaid. A downgrade in the Countys credit rating is also possible, unless steps are taken to repay any draw from the reserves right away. Alternatives: Any repayment to reserves would have to come in the form of cuts to the current general fund expenditure budget. Because a potential interest arbitration award involves increasing recurring expenses (salary and benefits), cuts could continue into 2013 and beyond. Outlined below are some options for funding a potential award and cost impacts: Option 1 Funding 100% of award from Jails 2012 budget o 2012 Adopted Budget for the Jail = $11,826,793. o Fully absorbing the impacts of the Guilds proposal ($1.774M) represents about 15% cut over 2012 the adopted budget expenditure budget for the Jail. o This option would reduce the Jails budget to approximately $10,052,084 for 2012 and this level would need, at a minimum, to be maintained into

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2013 with the potential for further reduction likely in order to maintain the increases in compensation associated with the award. Option 2 Funding 100% of the award from Sheriffs Office 2012 budget o 2012 Adopted Budget for the Sheriffs Office in total (including the Jail) = $29,126,362. o Fully absorbing the impacts of the Guilds proposal ($1.783M) represents more than a 6% cut over the 2012 adopted expenditure budget for the Sheriffs Office. o This option would reduce the Sheriffs budget to about $27,351,653 for 2012 and this level would need, at a minimum, to be maintained into 2013 with the potential for further reduction likely in order to maintain the increases in compensation associated with the award. Option 3 Funding 100% of the award with reductions in all departmental 2012 budgets o 2012 Adopted General Fund budget = $78,593,701. o Fully absorbing the cost of the Guilds proposal ($1.783M) represents more than a 2% cut over the adopted expenditure budget for the General Fund. A cut of 2% would be applied to all departments, including the Jail and the Sheriffs Office. o This option would reduce the total General Fund budget to close to $77M which would need to be maintained or even reduced into 2013 to afford the higher levels of compensation for the Corrections Officers Guild membership resulting from an award. Option 4 Funding 100% of the award in 2012 with a combination of options 1, 2, and/or 3 above. Option 5 - Funding _____% of the award in 2012 and _____% of the award in 2013 with a combination of options 1, 2, and/or 3 above.

Attachments: Estimated Cost of the Guilds Proposals, Impacts of the Guilds proposals, Correctional Officers Benefit Plan Pricing Comparison and Projection, and Wage Adjustments - Internal Comparison of wages paid to other County employees for years 2010, 2011, and 2012.

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