Unit 2 (Attorneys) MOU Analysis

On September 5, 2019, the administration submitted to the Legislature a proposed memorandum of understanding (MOU) between the state and Bargaining Unit 2. This bargaining unit represents state-employed attorneys, administrative law judges, and hearing officers and is represented by California Attorneys, Administrative Law Judges, and Hearing Officers in State Employment (CASE). The administration has posted on the California Department of Human Resources (CalHR) website a summary of the provisions of the agreement as well as the administration’s estimates of the annual costs resulting from the proposed MOU. 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. This analysis of the proposed MOU between the state and Unit 2 fulfills our statutory requirement under Section 19829.5 of the Government Code.

Major Provisions

Term. The agreement would have a term of one year and would be in effect from July 2, 2019 through July 1, 2020. This is consistent with our 2007 recommendation that the Legislature only approve MOUs that have durations of two or fewer years.

2.75 Percent General Salary Increase. Effective July 1, 2019, all Unit 2 members would receive a 2.75 percent pay increase.

Increased State Contributions to Health Benefits. The state contributes a flat dollar amount to Unit 2 members’ health benefits. The flat dollar contribution amount was last adjusted in 2019. The proposed agreement adjusts the amount of money the state pays towards these benefits when premiums grow in January 2020. 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.”

Monthly Payment for Employees Enrolled in CalPERS Health Plans. Retroactively to July 1, 2019, each Unit 2 member who is the primary recipient of a CalPERS health plan would receive a monthly payment of $260 for the 12 months of 2019‑20. The payment would be subject to Medicare and Social Security payroll deductions, but would not be subject to CalPERS pension contributions. At the time of this publication, whether or not union dues would be deducted from the payment was not clear. The $260 dollar amount seems to be based roughly on the difference between the state’s contribution to two-party coverage under the 80/80 formula versus the 100/90 formula (where the state pays 100 percent of the average premium for the employee and 90 percent of the average premium cost for additional premiums). Although the stated intent of the payment is to improve access to and affordability of health care, the payment amount (1) is $260 for all eligible employees regardless of actual premium costs (for example, single coverage versus family coverage) and (2) does not increase as premiums increase. (This provision is very similar to a provision in the proposed agreement with the nine bargaining units represented by Service Employees International Union, Local 1000.)

Doubles Amount of Leave Possible for Employees to Cash Out Each Year. The current agreement allows departmental directors to allow Unit 2 members to cash out up to 80 hours of vacation or annual leave each year. The agreement would double this limit so that departmental directors could allow Unit 2 members to cash out up to 160 hours of leave.

Increased Employee Contribution to Safety Pension Plan. The one employee in Unit 2 who is in the Safety retirement tier would—beginning July 1, 2020—contribute an additional 0.5 percent of pay towards his or her pension benefit. This employee would contribute a total of 11.5 percent of pay towards the pension—about one-half of the blended normal cost for this pension benefit. (The other Unit 2 members already pay about one-half of normal cost.)

Administration’s Fiscal Estimates

Increased Annual Costs of $47 million Beginning 2020‑21. As Figure 1 shows, the administration assumes that the proposed agreement would increase annual state costs by $47 million beginning in 2020‑21. The administration estimates that extending the pay increase and monthly $260 payment to managers and supervisors and other employees excluded from the collective bargaining process but who are affiliated with Unit 2 would increase annual state costs by an additional $7 million.

LAO Assessment

Recent Compensation Studies

CalHR Produces Official Compensation Study. Unless an MOU specifies otherwise, statute requires CalHR to compare state employee salaries and benefits with public and private sector employers and to submit to the Legislature its analysis six months before an agreement expires. The proposed Unit 2 MOU specifies that CalHR does not need to conduct a new compensation study before bargaining begins for a successor agreement to the one-year agreement. The most recent CalHR compensation study for Unit 2 was released January 2019 and uses data from 2017. That study found that state-employed attorneys are compensated 10 percent below local government median compensation and 2 percent below that provided by the federal government. (The study also found that Unit 2 attorneys are compensated 38 percent below median compensation in the private sector. Comparing Unit 2 compensation with the private sector, however, likely is not the most helpful metric as the hours and stability of state attorney jobs are very different than that of attorneys in the private sector.) CalHR’s compensation study found variability across regions in how the state’s compensation for attorneys compares with that provided by local governmental employers. For example, although CalHR found a 10 percent lag statewide relative to local governments, it identified that Unit 2 compensation lags local governments by 17 percent in the Bay Area.

Two Alternative Compensation Studies Related to Unit 2. In addition to the official compensation study compiled by CalHR, we also reviewed two other compensation studies that were provided to us by CASE. One compensation study was conducted by the Department of Justice (DOJ) in 2018. The other study was conducted by the University of California at Los Angeles (UCLA) in 2019. We discuss these two studies below.

DOJ Study. DOJ compared compensation levels for the state’s Deputy Attorney General series to compensation for other public sector attorneys in California. For context, about one-fourth of Unit 2 members are employed in the Deputy Attorney General series. The department gathered salary and benefit data from city and county governments in locations where there are DOJ legal offices. With a few exceptions in certain localities, the DOJ study found that benefits do not vary greatly across the comparison groups. Consequently, the report compares state salaries to city and county attorneys’ salaries in the specified locations. The study concluded that salaries for the Deputy Attorney Generals series are on average 21 percent lower than their comparable local government classifications at the minimum salary of the range and 23 percent lower at the maximum salary level. Like CalHR’s study, DOJ found regional differences. For example, in Sacramento—where about 44 percent of Unit 2 members work—DOJ found that the minimum and maximum steps of the Deputy Attorney General series were, respectively, 31 percent and 23 percent below local government counterparts.

UCLA Study. CASE contracted with UCLA to compare salaries of Unit 2 attorneys and administrative law judges to salaries for comparable municipal, county, and federal positions. The study draws from State Controller payroll data for city, county, and superior courts. The study limited comparisons to jurisdictions where the majority of Unit 2 members work. Accordingly, the study included comparisons for attorneys in the Counties of Alameda, Los Angeles, Orange, Sacramento, San Diego, and San Francisco, as well as the Cities of Anaheim, Oakland, Sacramento, San Diego, and Santa Ana. Unlike the CalHR and DOJ studies, the UCLA study appears to only compare wages. While the CalHR and DOJ studies each compare median wages, UCLA used average wages to compare groups. The study concluded that cities and counties have a minimum and maximum salary for attorneys that is, respectively, 28 percent and 30 percent higher than the salary ranges for Unit 2 attorneys.

Lag in Unit 2 Compensation

Regardless of Which Compensation Study Used, Unit 2 Compensation Lags Local Government Counterparts. While all three studies discussed above found a lag in Unit 2 compensation, there is significant variation across the studies. These differences seem to be due to methodological differences and the level of specificity of each study. For example, while the CalHR study focused broadly across attorney classifications, the DOJ study focused specifically on one classification series. Based on our quick review of these studies, we think the three studies in aggregate clearly demonstrate that Unit 2 attorneys are compensated at levels lower than their local government counterparts. Moreover, there may be specific classifications within the bargaining unit that have a larger lag than others.

Since 2014, Unit 2 MOU Has Included Commitment From State to Work to Reduce Lag. A provision (Provision 15.9) has been in the Unit 2 MOU since 2014 (including the proposed agreement) that suggests that the state and union agree that the lag in compensation exists and that it should be addressed. Specifically, this provision (titled “Salary Gap and Statewide Legal Professional Classification Issue”) requires CASE and the state to begin negotiating a successor agreement no later than six months prior to the expiration of the MOU and specifies that the parties will begin negotiations “with the intent of developing a joint economic proposal for the successor MOU, designed to significantly reduce the pay disparity, if economically feasible as determined by the State, for CASE members in comparison to other public sector legal professionals.” As indicated in our 2014 analysis, “while the agreement does not require the state to agree to pay increases for Unit 2 employees in a future MOU, the MOU acknowledges that a pay disparity exists.” Despite the strong fiscal position of the state in recent years, the pay disparity between Unit 2 members and their local government counterparts persists.

Lag a Major Issue at Bargaining Table. Based on information posted on the union’s website (see public letters from the CASE president from August 14, 22, 23, and 25), it seems that the parties intended to agree to a multiyear agreement but could not come to agreement on Unit 2 compensation (in particular, salaries). Consequently, the parties agreed to a one-year agreement.

Effects of Lag on Recruitment and Retention. There is evidence that recruitment and retention may be an issue among attorney classifications—especially among more entry-level classifications. Specifically, across the levels I through V of the Attorney and Deputy Attorney General series, 15 percent of the 3,700 positions were vacant as of August 30, 2019. Among these classifications, the entry-level Attorney classification had the highest vacancy rate—19 percent—while the most senior classifications (Attorney V and Deputy Attorney General V) had the lowest vacancy rates (less than 9 percent). Vacancy rates cannot be used in isolation to identify if a recruitment or retention issue exists—for example, departments may have received large numbers of new positions in the 2019‑20 budget that they actively are filling. However, the vacancy rates combined with the lag identified by the compensation studies suggest that special salary adjustments may be warranted for specific attorney classifications, especially to recruit new attorneys. The Legislature may want to ask the administration and union the extent to which the lag affects the state’s ability to compete with the federal and local governments in the labor market for the highest quality attorneys who are interested in working in the public sector.

DOJ Billing Rates

Once Unit 2 Compensation Lag Addressed, Rates May Need to Increase. State law authorizes DOJ to charge departments for the costs of providing them with legal services. DOJ recently increased its legal billing rates to $220 per hour for attorney services—an increase of $50 (or 29 percent). (Rates for paralegal services and analyst services were similarly increased.) This rate was last increased in 2009 and was no longer sufficient to ensure DOJ fully recovered its legal services costs. Specifically, DOJ indicated that the rates had not been adjusted to recover various annual cost increases—such as a total of $38 million in general salary and budget adjustments accumulated between 2009‑10 and 2018‑19. Depending on the specific terms of future labor agreements aimed at addressing the Unit 2 compensation lag (such as the rate of annual salary increases), DOJ might need to further increase its legal billing rates to ensure that its costs are covered. This could then require other departments to seek either additional General Fund resources or increased fees—such as those charged to individuals seeking to be licensed to practice certain professions—to reimburse DOJ for its legal services.