Aug. 21—Decatur would need as much as $5 million, including the cost of benefits, to make the city competitive in employee pay with neighboring north Alabama cities, according to a market study and salary survey by Human Resources Director Richelle Sandlin.

However, Sandlin said feedback from City Council members is they're not likely to go for this option, so she's presented two other options that would cost $2.7 million to $3 million.

Sandlin said Friday that she plans to make a recommendation to the Personnel Board at Thursday's 8:30 a.m. meeting. If accepted by the Personnel Board, the recommendation would then go to the City Council.

"How are we going to emerge as an employer of choice?" Sandlin said. "Is it strictly pay? Is it strictly equipment? What does that even look like? Should the city of Decatur define its pay that's unique to Decatur without regard to the market?"

The city operated on a $72 million budget in fiscal 2022 with roughly 50% of its budget allocated to employee pay, Chief Financial Officer Kyle Demeester said.

Demeester said possible employee pay increases are competing with a large number of other city projects like the Modaus Road Southwest widening, a new downtown parking deck, the Sixth Avenue streetscape project, improvements to Upper River Road intersections, a new or repaired Carrie Matthews Recreation Center, a need for city fleet vehicles and more.

"It's going to come to priorities with council," Demeester said. "Obviously, we'd like to do whatever we can to fix this (pay) problem, but feasibly (the $5 million option) doesn't appear to be in the cards."

Demeester pointed out the economy is "kind of in limbo" at this point. In his discussions with other CFOs across the state, he said, most are projecting minimal revenue increases because of uncertainties in the economy and questions about the impact of the Federal Reserve's recent increases in the interest rate.

He said Economics 101 teaches that, when the Fed increases interest rates, there typically is a decrease in jobs and increase in unemployment, but he believes north Alabama won't be hit as hard.

"I think we will be sheltered against the rate because our unemployment is so low in this region," Demeester said. "Supply and demand shows there's way more jobs than people who want to work. As money gets tight and people don't have as much money to spend, people are going to look for these jobs. We hope this stimulates the economy and keeps us more flat than the recession we saw in 2008."

Mayor Tab Bowling is optimistic about revenue, and said employee pay raises "need to be the No. 1 priority."

He said revenues grew from $56 million in 2016 to $72 million in 2022, but the city's population just started growing in the last year or two.

"We were getting a splash from the other (north Alabama) communities," Bowling said. "While we are seeing growth, other communities are growing and this is where they're going to come and spend their money and make their purchases."

Bowling said the city might actually benefit from higher gas prices in one way.

"People will spend money in Madison and Huntsville, but the cost of fuel will keep local residents here," he said.

Bowling said the city is being conservative in its budgeting.

"Yes, we have expenses, but they're investments and these investments are going to bring new residents to our area to support the workforce needs we have in our region. They're also going to spend money in our tax base."

Falling behind

The city began falling behind market wages when there were no cost-of-living raises from 2007 to 2012, Sandlin said.

Her most recent market study and salary survey is the third since 2016. Sandlin did the first in 2016. A consultant, Condrey & Associates, of Athens, Georgia, did one in 2018. The most recent one is Sandlin's update of the Condrey report to incorporate current market conditions.

Condrey's report found that city pay was below market, and that some positions were more than 25% below market.

The City Council at the time made some changes but didn't follow Condrey's suggestions in subsequent years. Due to the pandemic and changes in the labor market, Sandlin said, Decatur city employees have fallen further behind the market.

"We will need a proactive approach to sustain market relevancy. Otherwise, history is going to just continue to repeat itself," Sandlin said.

Sandlin presented three options to the Personnel Board at its July meeting:

—Option 1: Follow the 2018 Condrey proposal, with additional adjustments to take into account today's market.

"This would get the city aligned," Sandlin said. "And it would be the least complicated process that just fixes the issues."

The cost of this option would be a minimum of $4.5 million per year, she said. Adding benefit increases in employee retirement and health insurance, which has increased an average 5% annually, the annual cost would rise to roughly $5 million.

"The initial feedback (from council) on that strategy has been unfavorable," Sandlin said.

—Option 2: In addition to some market adjustment of pay scales, realign job classifications to reflect the positions' value in the market. The estimated cost would be about $2.7 million to $3 million, depending on benefits increases.

—Option 3: Don't change the pay scale, but move everyone into a pay range that's relevant to how the market values their particular jobs. The estimated cost is also about $2.7 million to $3 million, depending on benefits increases.

Sandlin said she updated the pay study this year because of pay changes in Decatur's competitive market. One thing Sandlin said she found "is everybody, private and public, is having hiring issues and it's not just about pay. I know of employers who are offering $25 an hour for what is a labor job, and they still can't fill them."

Another change is new employees aren't as interested in long-term issues like retirement, Sandlin said.

"Recruits we're seeing now are young adults who are living at home, still on their parents' insurance and have no thoughts toward retirement," Sandlin said. "The pay is the most important to them."

The city is seeing a lot of retention challenges, she said.

"If we don't get an employee engaged in the first three years, we're going to lose them," she said.

Sandlin said there's talk that other north Alabama cities are talking about 3% to 4% cost-of-living adjustments for the fiscal year that begins Oct. 1, while there are national reports of 4.1% pay increases in all industries to help offset what is now an annualized 8.5% inflation rate.

Council President Jacob Ladner said Friday he doesn't have problems with the possible cost of Sandlin's proposals to increase pay.

"The numbers aren't huge as long as they fit into the budget," Ladner said.

However, Ladner said he told Sandlin in an email that the city needs to look at employee head count if it's going to adjust employee pay to meet the market.

"If we do a deep dive in our head count, I bet it's heavy based on the size of our city," Ladner said.

Ladner also told Sandlin in his email that Huntsville should be excluded from the regional pay comparisons. Sandlin said at the Personnel Board meeting that she included Huntsville because it competes with Decatur for employees.

The basic grade-step wage structure was implemented in 1961 and standardized citywide in 1991. Sandlin said the system creates merit pay raise increases.

"Every employee gets a pay increase based on performance until they top out in the merit pay system," Sandlin said. "You will hear people say, 'We didn't get any raise this year.' Most of the time what they're talking about is the COLA."

Ladner said the merit system, which was dropped from 5% to 2.5% between steps in 2016, needs to be treated as it was designed, so an employee only gets the increase based on performance.

— bayne.hughes@decaturdaily.com or 256-340-2432. Twitter @DD_BayneHughes.