7:frl {4( it:;;jititrl- ~RG~RET WHELAN 'f t:ne~al MANAGER. TO: The Honorable Members of the Personnel Committee. DATE May 11,2011 COUNCIL FILE

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1 REPORT FROM THE PERSONNEL DEPARTMENT TO: The Honorable Members of the Personnel Committee REFERENCE SUBJECT: CONSOLIDATION OF CITY'S HUMAN RESOURCE FUNCTIONS DATE May 11,2011 COUNCIL FILE RECOMMENDATIONS: Adopt the recommendation of the Mayor's report dated April 27, 2011, related to the functional transfer of the City's HR operations to the Personnel Department. (Attached) BACKGROUND: The human resources (HR) operations of almost every City department have been impacted by staff reductions that have arisen as a result of the Early Retirement Incentive Program (ERIP), the hiring freeze, transfers, and other attrition. When the City is able to hire again, the initial focus will likely be on filling positions that provide direct services to the public as opposed to indirect services like HR. As a result, it is important now and into the future that the resources that remain available to perform HR services are used as efficiently as possible. With an eye toward maintaining a strong HR function Citywide and cutting costs where possible, the Mayor and City Council have for the past three years instructed the Personnel Department to study the feasibility and ramifications of consolidating the City's HR functions. In the adopted budget instructions, the Personnel Department was directed to develop a strategy and a plan of action for the consolidation of human resource functions from departments with limited capacity for HR work. The adopted budget instructions required the CAO, Personnel Department and the City Attorney to conduct a study on reorganizing the City's entire HR function in a manner that improves responsiveness and effectiveness, and generates cost savings. Additionally, on February 16, 2011, Councilmember LaBonge introduced a motion (seconded by Councilmember Hahn) for the Personnel Department, CAO and CLA to report on, "... opportunities for consolidating the City's human resource functions of City Departments... " 7:frl {4( it:;;jititrl- ~RG~RET WHELAN 'f t:ne~al MANAGER

2 In response to these instructions and with the assistance of an independent contractor, the Personnel Department completed a study that identified several benefits to an HR shared services system. Currently, in many of the City's smaller departments, only the most basic HR work is being performed. Some departments have no HR staff or have staff that is shared between HR and other administrative functions. Even larger departments that have suffered staff reductions may not have the resources to address important HR functions, which puts the City in a vulnerable position. HR functions like discipline, grievances, reasonable accommodations, and EEO investigations are timeconsuming and require significant expertise. Federal and state discrimination laws, for example, change frequently, and complaints that are not handled properly can expose the City to serious liability. Centralizing HR will provide a pool of staff dedicated to handling these critical functions. Smaller departments will receive services that were previously lacking, while larger departments will gain from a more comprehensive, and in some cases, more expert level of service. The quality of HR services across the City varies widely, not solely due to the staffing levels as previously discussed, but also because some departments have independently developed their own practices and procedures. Centralizing departmental HR operations into one department greatly facilitates the ability to communicate and, as a result, to share best practices and standardize policies and procedures. With best HR practices being actively managed in one central department, the City can expect improved consistency in the handling of employee discipline and discrimination complaints, and as a result, reduce liability associated with employee claims of unequal treatment. Under a centralized model, best practices can expand to all areas of HR, leading to improvements in the timeliness, accuracy, and overall quality of HR services. The consolidation of the HR functions will lead to the reduction of redundant work performed by HR staff employed by multiple departments. A further benefit to a centralized HR operation is that resources may be dedicated to the performance of HR functions that are important but not made a priority, including strategic workforce planning, talent management, career counseling, organizational development, and performance management. With the identification of the benefits associated with HR consolidation, the Personnel Department developed a plan to implement the transition. It was determined that departments' HR functions would be consolidated in a phased-in approach. The first eleven departments in this plan are as follows: Animal Services e Cultural Affairs El Pueblo Emergency Management e Employee Relations Board o General Services e Information Technology Agency Personnel Public Works - Board Recreation and Parks e Transportation 2

3 A total of 62 HR staff members from six of these departments will be functionally transferred to the Personnel Department. An overview of the staff to be transferred by department is provided: Phase One Functional Transfer: Staffing by Department Professional Clerical Staff Staff Total Animal Services General Services Information Technology Public Works - Board Recreation and Parks Transportation Total The transferred staff would be distributed primarily among four Service Centers that provide HR work for City departments. Personnel Directors will manage the Service Center staff. Individual Shared Services Agreements will be drafted to delineate the specific services that will be provided to each department. The agreements, signed by both the Personnel Department General Manager (GM) and the GM of the operating department, will maintain the authority of the operating department GMs. The remainder of the staff will work in centralized units. These units are designed to take advantage of the synergy of bringing staff together into one unit using best practices. Four centralized units are planned for the initial phase of the consolidation: Form 41 Transactions, Workplace Safety, Employee Development, and Equal Employment Opportunity. To the extent possible, the implementation plan calls for bringing HR staff together in one central location. Given the costs associated with building out space for staffing and personnel files as well as moving costs and other associated expenses, such plans will be delayed until funding is available. As a result, the consolidated HR function will initially operate with a central HR office in the Personnel Building and three satellite offices. 3

4 In FY 2011/2012, the Personnel Department will implement several initiatives to generate some of the efficiencies of a centralized HR function. Newly transferred HR department staff will share their methods for completing various types of HR work. These processes will be analyzed to determine which are best, and the results will be shared and used in serving each department. This effort will require that the HR staff be trained so that each of them understands the newly identified best practices. Workload indicators will be collected and reviewed from each of the Service Centers. The analysis will provide management with the information needed to more optimally allocate resources to each of the Service Centers and to the centralized functions. This analysis should also lead to the identification and elimination of redundancies, where they exist, throughout the HR function. As funding permits, some HR processes will benefit from technological improvements. Upgrades to the City's PaySr system, for example, would lead to the transformation of the widely used Form 41 into a paperless document. Furthermore, document imaging could similarly transform the thousands of employee folders into paperless documents, saving storage space and staff time. Phase Two of the HR centralization effort is slated to begin approximately one year after the initiation of the first phase. The second phase will include the transfer of approximately 80 HR staff members from 17 departments. The Phase Two departments are as follows: Aging Building and Safety COD Convention Center Disability Ethics Finance/Treasurer Housing Library Neighborhood Empowerment Planning PW - Engineering PW- Con Ad PW - Sanitation PW- Street Lighting PW - Street Services o Zoo Note that the following departments are not planned to be included in the HR centralization effort: Mayor's Office City Administrative Officer City Council City Attorney City Controller City Clerk Chief Legislative Analyst Fire Department o Police Department " Airports ill Harbor LAGERS Fire and Police Pensions e Water and Power 4

5 In the short term, HR centralization will bring cost savings and improved HR services. The centralization plan should bring long-term advantages as well. Over time, policies will be put in place to help ensure a more consistent delivery of HR services across City departments. With time, management should be better able to allocate staff to functions where they are most needed and away from less critical areas. Management, too, will be able to examine the HR function as a whole and from an organizational development perspective, make changes to certain divisions or add new divisions to address functions that need more attention. New areas may include performance management, strategic workforce planning, and a risk management section that seeks to reduce HR related legal challenges and workplace violence incidents. The City's budget challenges have led to the call to "do more with less." HR centralization provides a clear response to that call. The centralization strategy has minimal upfront costs and an upside that includes both salary savings and short-and long-term improvements to the delivery of HR services across the City. FISCAL IMPACT: Direct salary savings will be realized with the consolidation of the City's HR transaction (Form 41), or PaySr function. In the initial year of consolidation, it is estimated that eight full time positions will be eliminated resulting in more than $450,000 in savings. The Mayor's Proposed Budget includes $101,500 in savings from eliminating two vacant clerical positions; special fund savings in the amount of $136,240 from eliminating three clerical positions that can be reprogrammed for other purposes; and lastly, the elimination of three general fund positions represent an additional direct salary savings of $209,260. Further, it is anticipated that future cost savings associated with reduced liability will be achieved through HR efficiencies, standardization and implementation of best practices. 5