Jan. 14 (Bloomberg) -- Arizona Governor Jan Brewer, seeking a freer hand over hiring and firing, proposed 5 percent raises to reward public employees willing to give up job protections afforded by the state’s personnel rules.

The $108 million plan, unveiled yesterday in Brewer’s $8.5 billion budget recommendation, would be a step toward a mostly at-will workforce. Overhauling the state’s personnel system is one of her “most important” initiatives, Brewer has said.

“It is an incentive, if they choose to do that,” Brewer told reporters in a briefing yesterday. She said it will show “that if they choose to move from underneath a covered position, that we are at liberty to do a lot of good things for them.”

Arizona finished its 2011 budget year in June with a balance of $3.2 million, compared with a $332 million deficit that had been forecast, according to a report by the Joint Legislative Budget Committee. To get there, state officials froze Medicaid enrollment and slashed social-services spending.

The governor wants “personnel reform that improves the management of the workforce, restructures the grievance and appeal systems and modifies human resources practices,” Brewer said in her state-of-the-state address Jan. 9.

While Arizona doesn’t bargain collectively with state employees, many non-management workers have certain job protections under personnel rules, including an appeals process that can overturn disciplinary actions. At-will employees can be dismissed at any time, with or without a reason being given.

System Too Difficult

The current system makes it too difficult to hire and fire employees or to reward top-performers, Brewer said in November in a speech to the American Legislative Exchange Council.

The governor’s plan would make all new hires at-will employees and allow supervisors to base future raises on performance, Brewer spokesman Matthew Benson said. Details of the personnel system overhaul haven’t been made public.

Under the budget proposal, raises would go to non- university employees who voluntarily give up personnel protections under the so-called “merit system” as well as those who are already not covered. Law enforcement officers, who will remain covered by personnel rules, will also get the raise. The state has about 38,000 employees outside the university system.

If approved by lawmakers, the pay increases would be the first for workers since fiscal year 2008, according to a budget summary from the govenor’s office. Since then, salaries have been cut by 2.75 percent and employees have given up another 1.8 percent of their pay for retirement contributions.

$28.2 Million Raises

The raises would cost $28.2 million from the state’s general fund, with the rest coming from other accounts, according to the budget summary.

“We will fight any so-called ‘reforms’ that simply allow for favoritism or give unfair advantages to some employees at the expense of others,” Don Carr, Arizona director for the Service Employees International Union, said in a statement on the union’s website.

Brewer’s budget plan calls for the addition of 2,500 prison beds over the next three years. About 500 would be maximum- security cells in a state-run prison. The governor plans to seek proposals from private prison operators for a facility that would house 2,000 medium-security inmates.

--Editors: Pete Young, Paul Tighe

To contact the reporter on this story: Amanda J. Crawford in Phoenix at [email protected]

To contact the editor responsible for this story: Mark Tannenbaum at [email protected]