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Budget Situation Update and Proposed Executive Salary Reduction

July 24, 2009

Members of the UH ‘Ohana:

Since my communication on July 1, the start of our fiscal year, some of the budget contingencies identified therein have been resolved, while others continue, and there have been some new developments.

The state legislature did come back into special session on July 15, and overrode 34 of the governor’s additional 53 vetoes. This brings the total number of overrides of vetoes to 38 out of 57 vetoes in 2009. The governor responded to the legislature’s action by promising to withhold funding for certain programs funded by acts that she had vetoed.

The legislature did not extend this special session to consider additional revenue-raising actions, such as increasing the excise tax or the income tax.

Estimates of the state’s budget situation, as estimated by the governor and the Department of Budget and Finance, have worsened slightly, as tax revenues for the fiscal year ending June 30 declined by 9.4 percent, up slightly from the prior 9.0 percent estimated decline. As a result of this and the legislature’s actions, the governor now estimates the state shortfall over the next two fiscal years at $744 million, up from her original estimate of $730 million. Disagreements between the legislature’s estimates of the budget shortfall and the governor’s estimates have been resolved.

As you will have no doubt seen in the electronic and print media, the governor is pursuing a three-pronged approach to addressing the revenue gap. First, as ordered by Circuit Court on July 2, she is now discussing furloughs as part of the collective bargaining process with HGEA and UPW. Second, she has announced her intention to appeal the Circuit Court’s decision. Third, she is planning for layoffs of state workers under her direction.

I met with the governor on July 8 as part of a group including all the non-state employers—the four county mayors, the DOE superintendent and a member of the BOE and representatives of the judiciary and the Hawai‘i Health Systems Corporation, in addition to UH. Our purpose was to report on informal discussions we had with the leadership of all the public sector unions on July 6 and to generate additional momentum for the collective bargaining process. On July 13, collective bargaining resumed as the unions submitted a formal proposal as requested by the governor as a condition of restarting discussions, and stated informally their willingness to accept a 5 percent reduction in compensation for fiscal years 2010 and 2011.

On July 21 these negotiations continued, as the governor and other employers submitted a formal counteroffer for bargaining units 01, 02, 03, 04, 09, 10 and 13. Further talks are expected to take place as soon as next week.

On the preceding day, July 20, the arbitrator rendered a decision concerning UHPA’s class grievance asserting that the 2003–2009 contract contains an “evergreen” clause in Article XXX, and thus remained in force on July 1 and thereafter. The arbitrator ruled in favor of UHPA, advancing a line of reasoning that since negotiations on a new contract began before June 30, 2009, the current contract is still in force.

UH expects to resume formal bilateral negotiations with bargaining units 07 (faculty–UHPA) and 08 (APT–HGEA) sometime in the next week or two. These bilateral negotiations complement the broader collective bargaining negotiations described above, which as noted are focused more on the other bargaining units that serve other employees at UH.

Let me say a word about the governor’s layoff plans and their implications for UH.

While the governor cannot layoff UH employees, she can layoff state civil service employees. Some of these employees, depending on their seniority, have bumping rights, and as they exercise those rights this could affect the employment status of UH employees. Such bumping is limited to within each bargaining unit, so that employees in UH-only units (bargaining units 07 and 08) are unaffected. Employees in units 01, 02, 03, 04, 09 and 10 may be affected by bumping if the governor proceeds with her layoff plans.

We continue to pursue a variety of solutions to our budget challenges, using the principles and approaches I outlined in my July 1 message.

Chancellors have been given the budget reduction targets identified in that message. On a campus-by-campus basis, and allowing for the expected injection of $22 million per year in federal stimulus funds, the University Budget Office estimates that the annual general funds restrictions break down as follows for FY10:

The detail behind these calculations is in my July 1 message.

Chancellors are now managing their fiscal 2010 budgets to these targets, mindful of the fact that ongoing collective bargaining negotiations may produce compensation savings that contribute between one-third and one-half the needed budget reductions.

On July 23, I discussed with the Board of Regents the status of our collective bargaining efforts, and a plan for executive compensation adjustments. President-designate Greenwood was present for those discussions.

Based on those discussions with the board, I am recommending that the regents approve at its Aug. 27 meeting the following plan:

Effective September 1, 2009, UH executives will take salary reductions ranging from 6 to 10 percent, depending on their rank and their performance evaluation during the past year.

I am recommending to the board that these reductions continue for this fiscal year and, again based on performance evaluations for the fiscal year 2010, into fiscal 2011 as well, and that the plan be re-evaluated as fiscal circumstances evolve.

This plan would result in some $2 million per year in salary savings.

Under the plan,

I had hoped that our collective bargaining negotiations would be concluded by what we thought was the contract conclusion date of June 30, and certainly by July 31, when I will conclude my five years of service as your president. However, it now looks like these negotiations will continue for several more weeks. President-designate Greenwood will formally take office Aug. 1, and Vice President Johnsrud will serve as acting president from then through Aug. 19.

Vice-President Johnsrud has been actively involved in the recent negotiations. I have been briefing President-designate Greenwood frequently on collective bargaining matters, and she and I will be in constant communication until the official transition. The negotiations will continue with them. If there are significant developments before Aug. 1, I will certainly communicate them to you. I continue to appreciate your patience in this difficult time and your commitment to our students and our community.

An old French proverb says “gratitude is the heart’s memory.” Wendie and I are most grateful for your support and for the opportunity to lead and serve the University of Hawai‘i ‘ohana. We have done our best to follow Queen Kapi‘olani’s counsel, “Kulia I ka nu‘u” (strive for the highest). I know that you will continue to do the same with courage and dedication.

With best wishes and aloha,
David McClain