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August 19, 2022

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Public sector imitates private on buyouts

Taking cue from businesses, Henderson and other U.S. cities are turning to the kinder cut to rein in payroll expenses

Earlier this month the Henderson City Council offered buyouts to certain city employees as a way to cut payroll costs in the long run.

The city has few other options, veteran Councilman Andy Hafen says.

Henderson must slash more than $28 million from its budget. City officials already have instituted a hiring freeze at City Hall, and projects have been put off. But the buyout underlines the seriousness of the financial struggle facing Nevada’s second largest city.

Henderson is joining municipalities across the country in paying employees to quit as a way to reduce the cost of government. Other municipalities are considering the strategy, too.

Chicago workers took buyouts earlier this year as the city attempted to offset a $400 million shortfall. Buyout programs are being discussed at the state legislative level in Ohio, Tennessee and New York.

UNLV has offered buyouts to about 300 faculty and staff.

“It’s become more prevalent,” said Robert Stern, president of the Center for Governmental Studies in Los Angeles. “It’s a newer idea for government.”

Buyouts rose to prominence in the automotive industry in the 1980s. See the 1989 film “Roger and Me” for a good peak at the beginning of buyouts, says David Gregory, a labor law professor at St. John’s University in New York.

In tough times buyouts become more prevalent.

“It’s cost savings,” said Steve Miller, chairman of the UNLV College of Business. “You’re either not replacing them or replacing them cheaper.”

That’s what Henderson and other cities are doing as the strategy bridges to the public sector. And it’s doing it more aggressively than others.

Sacramento, for instance, is offering a second round of employee buyouts as it faces a $40 billion budget shortfall. The first round was taken by more than 100 employees, who received one week’s pay for every year of service, up to $50,000.

Those buyouts were criticized as too generous. Henderson’s are even more rewarding.

Henderson’s workers will be offered two weeks’ pay for every year of service, along with three months of health care coverage, with no maximum payout.

The city will offer the buyouts to employees whose age combined with years of service to the city is greater than 65, meaning the city will be losing experienced workers.

City officials believe they can save as much as $3.5 million this year with the buyout program, and a total of more than $16 million over five years. (In addition to the $28 million shortfall this year the city is looking to trim $22 million off the city books over the next five years.)

Buyouts for public employees have become more popular for the same reason they have in the private sector.

It’s kinder than laying off workers. It’s better public relations. But, most importantly, it keeps the moral high for remaining workers.

“The people who are still here may be doing more or different work,” said Fred Horvath, acting director of human resources in Henderson. “It’s important to their psyche how people were treated when they left the organization.”

This is the sixth time Horvath has been involved in a buyout. The first five came when he worked in the utility industry.

Horvath said he expects about 70 city employees to leave, which is about 20 percent of the 353 who are eligible.

“I’ve done this in much more robust economies where people had more options and had been looking to move to another career,” Horvath said.

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