MOU Fiscal Analysis: Bargaining Unit 13 (Stationary Engineers)

On August 21, 2019, the administration submitted to the Legislature a proposed memorandum of understanding (MOU) between the state and Bargaining Unit 13 (Stationary Engineers). This analysis of the proposed agreement fulfills our statutory requirement under Section 19829.5 of the Government Code. State Bargaining Unit 13’s current members are represented by the International Union of Operating Engineers, Local 39. The administration has posted the agreement and a summary of the agreement on the California Department of Human Resources’ website. (Our State Workforce webpages include background information on the collective bargaining process, a description of this and other bargaining units, and our analyses of agreements proposed in the past.)

Major Provisions of Proposed Agreement

Term. The agreement would expire June 30, 2022, meaning that it would be in effect for three years. This length is not consistent with our 2007 recommendation that the Legislature only approve tentative agreements that have a term of no more than two years.

Salary and Pay

Increases Salary for Employees at Top Step. The agreement would provide salary increases to all Unit 13 employees at the top step of their salary in three instances: 2.75 percent July 1, 2019, 3 percent on July 1, 2020, and 2.75 percent on July 1, 2021. Most Unit 13 members will receive these pay increases. As of December 2018, about 86 percent of Unit 13 members are at the top step of their salary range.

Provides Pay Differential to Employees Who Work at Plants for More Than Seven years. The agreement would provide plant employees a pay differential based on the number of years of continuous plant experience. Specifically, employees with (1) 7 years of continuous plant experience would receive a 5 percent differential, (2) 10 years of continuous plant experience would receive a 7 percent differential, and (3) 13 years of continuous plant service would receive a 9 percent differential.

Increases and Expands Geographic Pay Differential. The agreement expands the current Department of General Services (DGS) San Francisco Facilities pay differential to include all departments that have employees headquartered in the Counties of Alameda, Contra Costa, Marin, Monterey, Napa, San Francisco, San Joaquin, San Mateo, Santa Clara, Santa Cruz, Solano, or Sonoma. In addition, the agreement changes the pay differential from an annual stipend of $2,400 to 5 percent of pay.

Provides Monthly Pay Differential if Employees Possess Specific Licenses or Certifications. The agreement would provide (1) $100 per month to employees who are required to have an EPA Section 608 Technician Certification and (2) $200 per month to employees in the operator tunnels and tubes classification who are employed by the California Department of Transportation and assigned a position that regularly operates a vehicle that requires employees to maintain a Class A or B driver’s license.

Allows Chief Plant Operators to Receive Pay Differential. The agreement would allow chief plant operators to receive a differential that currently is available to wastewater and/or water treatment plant operators but not chief plant operators.

Increases Evening and Night Shift Differentials. The agreement would increase the hourly pay differential Unit 13 members receive for working the night shift from $1 to $2 and the evening shift from $0.90 to $1.

Increases and Expands Recruitment and Retention Differential for Work at Prisons. The agreement would increase the annual recruitment and retention differential received by employees who work at specified prisons from $2,400 to $2,600. The agreement also adds Pelican Bay, High Desert, and California Conservation Center to the list of prisons that employees must work at to receive the pay differential. (Under the current agreement, the pay differential is available to employees who work at Arvenal, Chuckawalla, Ironwood, Centinela, and Calapatria State Prisons; the R.J. Donovan Correctional Facility; and the Sierra Conservation Center.)

Provides All Unit 13 Members Footwear Reimbursement. The agreement would remove “footwear” from one of the elements included in employees’ uniforms (the current agreement provides Unit 13 members $450 per year as a uniform allowance) and create a new allowance of $82 per year (or $164 every two years) for employees to purchase work footwear consistent with each state department’s policy. Employees would need to submit a receipt to receive reimbursement. The footwear allowance would be in addition to the uniform allowance.

Pension

Increases Employee Contributions to Pension Benefits. The agreement would require employees to contribute an additional 0.5 percent of pay towards their pension benefits beginning in 2022‑23. Unit 13 members are in the State Safety retirement plan. After the increase to their contribution rate, Unit 13 members would contribute 11.5 percent of pay towards their pensions. The most recent actuarial valuation indicates that the total blended normal cost for State Safety plans is 23.2 percent of pay—meaning employees would pay less than one-half of the normal cost under the agreement.

Health Benefits

Increases State Contributions to Health Benefits. The state contributes a flat dollar amount to health benefits for workers in Unit 13. This flat dollar contribution amount was last adjusted in 2019. The proposed agreement adjusts the amount of money the state pays towards these benefits each year for the duration of the agreement. For the term of the agreement, the state’s contribution would be adjusted so that the state pays up to 80 percent of an average of California Public Employees’ Retirement System (CalPERS) premium costs and up to 80 percent of average CalPERS premium costs for enrolled family members—referred to as the “80/80 formula.” The state’s contribution would not be increased after the agreement expires unless provided in a future agreement.

LAO Assessment

Overall Assessment

Long-Standing Recruitment Issues With Unit 13. Through past conversations with departments, we know that the state has had difficulty filling many Unit 13 classifications. In particular, we have heard that the California Department of Corrections and Rehabilitation (CDCR) has difficulty filling Unit 13 positions, which likely has contributed to CDCR’s large deferred maintenance backlog. In addition, DGS has indicated for several years that it has a hard time hiring stationary engineers in the Bay Area. In fact, the department includes its challenges in finding staff to maintain buildings—particularly in high cost of living regions of the state—as one of the reasons it is proposing to divest the state from a number of office buildings—particularly in high cost of living regions of the state. Statewide, nearly 20 percent of Unit 13 classifications were vacant on average in 2018 (the statewide average across bargaining units was about 15 percent vacant authorized positions in 2018).

Agreement Seems Designed to Address Retention More Than Recruitment. Most of the changes proposed in the agreement benefit employees who have worked with the state for extended periods of time—like increasing top step salaries and providing pay differentials based on tenure. These provisions could make it easier for the state to retain stationary engineers. The Bay Area regional pay differential, however, might not be high enough to attract new employees in that area. The most recent compensation study found that Unit 13 members in the Bay Area were compensated between 13 percent and 30 percent below similar workers employed by local governments. Given this pay difference and the state’s recruitment challenges, the Legislature may want to engage in a broader conversation of whether the state should consider relocating more operations out of the Bay Area and into Sacramento or other lower cost of living regions of the state.

Administration’s Fiscal Estimates

Increases State Annual Costs by $17 Million by 2022‑23. The administration estimates that the proposed agreement would increase annual state costs by $17.1 million ($11.3 million General Fund) by 2022‑23. This estimate seems reasonable.

Effect of Extending Provisions to Managers and Supervisors. When rank-and-file pay increases faster than managerial pay, “salary compaction” can result. Salary compaction can be a problem when the differential between management and rank-and-file is too small to create an incentive for employees to accept the additional responsibilities of being a manager. Consequently, the administration often provides compensation increases to managerial employees that are similar to those received by rank-and-file employees. Although the administration has significant authority to establish compensation levels for employees excluded by the collective bargaining process, these compensation levels are subject to legislative appropriation. The estimates above do not include any costs resulting from the state extending provisions of the agreement to excluded employees associated with Unit 13. We estimate that extending a comparable increase to Unit 13 supervisors could increase state annual costs by the low millions of dollars by 2022‑23—about 60 percent of these costs would be paid from the General Fund.