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August 25, 2006 - We provide a fiscal analysis of the proposed MOU with Bargaining Unit 10, which includes state scientific personnel. The administration's estimate of the MOU's costs in 2006 is reasonable, but the estimate for 2007-08 likely overstates costs by around $2 million ($500,000 General Fund) due to a high estimate of inflation. Under the proposed MOU, we estimate that total compensation costs (including benefits) for Unit 10 rank and file would total about $235 million (up 8 percent) in 2006-07 and over $240 million (up 3 percent) in 2007-08. About two-thirds of the increased costs over the term of the agreement result from the proposed MOU. The remainder largely results from additional hiring authorized by the Legislature in the budget.
August 25, 2006 - We provide a fiscal analysis of the proposed MOU with Bargaining Unit 7, which includes certain state public safety personnel. The administration's estimates of costs are reasonable, but we forecast a lower inflation rate than DPA assumes in estimating costs of 2007-08 pay increases. In some agencies, costs to substantially reduce currently high vacancy rates could exceed DPA's estimates. Under the proposed MOU, we estimate that total compensation costs (including benefits) for Unit 7 rank and file would total about $515 million (up 11 percent from the prior fiscal year) in 2006-07 and $540 million (up 5 percent) in 2007-08. About 55 percent of the increased costs over the term of the agreement result from the proposed MOU. The remainder results from additional hiring authorized by the Legislature in the budget or state health contributions required under the current MOU.
August 18, 2006 - We provide a fiscal analysis of the proposed MOU with Bargaining Unit 5, which includes CHP officers. The administration's estimate of additional 2006-07 costs is reasonable. We estimate, however, that the annual fiscal impact after 2006-07 will be substantially more than shown in administration estimates because its projections assume (1) relatively low growth in the statutory pay formula for CHP officers, (2) no increases in state health premium costs after 2007-08, and (3) no change in required employer retirement contribution rates. By 2010-11, annual state costs could be $100 million higher than suggested in the administration estimate. In addition, various factors including pay and benefits for CHP and funding demands in the Department of Motor Vehicles are likely to put stress on the financial condition of the state Motor Vehicle Account, which funds Unit 5 personnel costs.
August 4, 2006 - We provide a fiscal analysis of proposed MOUs with Units 16 (physicians, dentists, and podiatrists) and 19 (health and social service professionals). The administration's estimate of costs resulting from the MOUs in 2006-07 is reasonable, but the estimate for 2007-08 is likely too high by $6 million due to a high estimate of inflation. We estimate that total compensation costs would rise to about $579 million in 2006-07 for a cost increase of over 10 percent. More than 40 percent of this increase results from factors other than the MOUs, such as court-ordered pay increases. In 2007-08, we estimate that costs would increase an additional 6 percent to about $610 million. In addition to these costs, we expect that future court orders related to correctional and mental health programs will increase pay for some members of these units by an unknown amount.
July 28, 2006 - We provide a fiscal analysis of proposed MOUs with Bargaining Units 12 (craft and maintenance workers) and 13 (stationary engineers). We believe that the Department of Personnel Administration's (DPA) estimate of costs resulting from the MOUs in 2006 is reasonable, but that the estimate for 2007-08 is likely too high by around $7 million due primarily to a high estimate of inflation. We estimate that total compensation costs (including benefits) for Unit 12 and 13 rank-and-file employees would rise to about $740 million in 2006-07 under the proposed MOUs for a cost increase of almost 7 percent. In 2007-08, we estimate that costs would increase to over $760 million, or more than 3 percent above 2006-07.
July 6, 2006 - We provide a fiscal analysis of the proposed MOU with the nine bargaining units represented by Service Employees International Union (SEIU) Local 1000. We believe that the Department of Personnel Administration's (DPA) estimate of costs resulting from the MOU in 2006-07 is reasonable, but that the estimate for 2007-08 is likely too high by around $65 million due to a high estimate of inflation and not accounting for health care savings. We estimate that the total compensation costs (including benefits) for rank-and-file employees represented by SEIU would rise to over $5.5 billion in 2006-07 under the proposed MOU for a cost increase of almost 7 percent. In 2007-08, we estimate that costs would increase to $5.7 billion, or more than 3 percent above 2006-07.
June 2, 2006 - We provide a fiscal analysis of the proposed MOU with Bargaining Unit 8, Firefighters. We believe that the Department of Personnel Administratrtion's (DPA) estimates of additional costs resulting from the MOU are too low. We estimate that net costs for the state will likely increase by at least $13 million in 2006-07 and $12 million in 2007-08 ($6 million more than indicated by DPA in each year).
February 23, 2006 - The retirement contribution rates set by CalPERS for the state and many local governments were volatile in the late 1990s and the early part of this decade. Governments had difficulty predicting annual contributions during their budgeting process. In 2005, CalPERS adopted a comprehensive rate stabilization policy. We believe the new policy promises more stability in contribution rates for the state and other public entities.
February 23, 2006 - The budget includes $382million ($203 million General Fund) for compensation increases for: (1) memoranda of understanding with five of the 21 employee bargaining units, (2) supervisors and managers of employees in those five units, (3) judges, (4) prison medical personnel required to receive them by a court order in the Plata v. Schwarzenegger case, and (5) medical personnel in other departments.
February 17, 2006 - The costs of providing health care to retired state employees and their dependents—now approaching $1 billion per year—are increasing significantly. Many other public employers (including the University of California, school districts, cities, and counties) face similar pressures. This report discusses health benefits provided to retired public employees, focusing on state retirees. We find that the current method of funding these benefits defers payment of these costs to future generations. Retiree health liabilities soon will be quantified under new accounting standards, but state government liabilities are likely in the range of $40 billion to $70 billion-and perhaps more. This report describes actions that the Legislature could take to address these costs.
January 23, 2006 - We revise our December 14, 2005 summary of the fiscal effect of the MOU with Bargaining Unit 2, Attorneys and Hearing Officers, based on a side letter which changes the retirement provisions of the previous MOU. We estimate that current annual costs for salaries, salary-related costs, and health benefits for Unit 2 members total $396 million ($144 million General Fund). The proposed MOU would require 2005-06 expenditures of about $409 million (an increase of $13 million, or 3.3 percent). The MOU would require 2006-07 expenditures of about $436 million (an additional increase of $27 million, or 6.7 percent). The side letter reduces the amount of savings the MOU otherwise would have produced for the state. The magnitude of the foregone savings is unknown since it would have depended on future decisions of Unit 2 employees.
February 24, 2005 - The Governor proposes shifting $469 million in General Fund teacher retirement costs to school districts and/or schools. Due to current law requirements, it is likely that the proposal would require a $469 million upward “rebenching” of Proposition 98’s minimum guarantee—nullifying the proposed General Fund savings. In addition, from a long-term perspective, the proposal on its own would not address the retirement system’s shortcomings—the lack of local control and responsibility.
February 22, 2005 - California “defined benefit” pensions in the public sector raise certain benefits and cost issues. The Governor proposes shifting all new public sector employees to “defined contribution” plans to address the high cost of the current system. Defined contribution plans address concerns with defined benefit pensions, but also introduce issues of their own. The Legislature could also address the benefits and cost concerns of current retirement plans within the existing defined benefit structure or with other pension plan alternatives.
February 18, 2004 - To reduce budget costs, the administration proposes to issue bonds to finance almost $1 billion in scheduled retirement contributions. A Superior Court has thus far prevented the state from issuing such bonds. Regardless of its legality, incurring decades worth of debt to avoid an annual operating expense is poor fiscal policy. We recommend the Legislature reject the administration’s proposal. The administration also proposes having current employees contribute more of their salaries to retirement. The idea is worth pursuing in collective bargaining, but the Legislature should be aware of what this provision might cost the state in return. For new employees, the administration proposes rolling back retirement benefits to those in place in 1999. We recommend that the Legislature also consider alternatives such as Tier 2 and defined contribution plans for all new employees. These alternatives would result in more state savings and benefits compared to the administration’s proposal.
February 19, 2003 - To reduce budget costs, the administration proposes to finance up to $2.5 billion in scheduled retirement contributions to the Public Employees' Retirement System (PERS) and the State Teachers' Retirement System (STRS). We recommend rejecting this proposal because incurring decades worth of debt to avoid an annual operating expense is poor fiscal policy.