Unit 2 (Attorneys) MOU Analysis

On August 22, 2022, our office received a proposed memorandum of understanding (MOU) between the state and Bargaining Unit 2 (Attorneys and Hearing Officers). This analysis of the proposed agreement fulfills our statutory requirement under Section 19829.5 of the Government Code. State Bargaining Unit 2’s members are represented by California Attorneys, Administrative Law Judges, and Hearing Officers in State Employment (referred to as “CASE”). The administration has posted the agreement and a summary of the agreement and the administration’s estimated fiscal effects of the agreement on the California Department of Human Resources’ (CalHR’s) 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 be in effect for three years from July 1, 2022 through June 30, 2025. This is longer than our recommendation, initially put forward in 2007, that the Legislature only approve tentative agreements that have a term of no more than two years.

Salary and Pay

General Salary Increases (GSIs) in 2022-23 and 2023-24. The agreement would provide all Unit 2 members a pay increase of 2.5 percent effective July 1, 2022 and 3 percent effective July 1, 2023.

2023-24 and 2024-25 Top Step Increases for Specified Classifications. In addition to the GSIs, the agreement would provide employees at the top step of specified classification pay ranges pay increases described below.

• 4.5 Percent Top Step Increase for Administrative Law Judges in 2023-24. Effective July 1, 2023, the top step of three administrative law judge classifications would increase by 4.5 percent.

• 4.5 Percent Top Step Increase for Most Unit 2 Classifications in 2024-25. Effective July 1, 2024, the top step of all Unit 2 classifications, except classifications equivalent to the Attorney III classification, would increase 4.5 percent.

• 10 Percent Top Step Increase for Attorney Level III Classifications in 2024-25. Effective July 1, 2024, the top step of 11 classifications equivalent to the Attorney III classifications would increase 10 percent.

Increased Reimbursement for Local and Specialty Bar Dues. The current agreement reimburses or pays directly to the State Bar the cost of bar dues for each employee for whom bar membership is required as a condition of employment. In addition, the current MOU provides employees up to $100 reimbursement for local and specialty bar dues if membership in such associations is job related. The proposed agreement would double the reimbursement for local and specialty bar dues to $200.

“Administrator of the Day” Pay Differential for Attorneys Who Are on Call for Specific Departments Outside Business Hours. Due to the 24-hour nature of some state operations, state attorneys, on occasion, must be available to respond to events that occur outside of normal business hours. When on call, employees are required to be ready, willing, and able to respond to events within one hour of a request. The agreement would provide an existing pay differential (PD 422—Administrator of the Day) equivalent to one day’s salary for every seven consecutive days that an attorney serves as on call outside of business hours at either the (1) California Health and Human Services Agency’s Office of Law Enforcement Support to respond to incidents at the Department of State Hospitals or Department of Developmental Services or (2) Office of the Attorney General, Officer Involved Shooting Enforcement to respond to investigations with officer-involved shootings. The pay differential is limited to 13 days of salary per year, meaning that employees may receive the pay differential for being on call for 13 sets of 7 consecutive days in a year. This pay differential would not be considered as compensation for retirement purposes.

Increase Reimbursement Rates for Mass Transit and Vanpools. The state reimburses employees for some costs related to their commute. The proposed agreement increases the amount of reimbursement that employees may receive for their costs related to mass transit and vanpools from 75 percent to 100 percent—up to the maximum monthly exclusion amount allowed by the U.S. Internal Revenue Services (IRS). In 2022, the IRS monthly exclusion for qualified transportation benefits is $280.

Active and Retiree Health Provisions

Increases State’s Flat Dollar Health Premium Contribution. In the case of 14 bargaining units, the state’s contributions towards employee health benefits are established as a percentage of health premiums so that the state’s contributions automatically change as health premiums change. For the remaining seven bargaining units—including Unit 2—the state contributes a flat dollar amount towards employee health benefits. The state’s flat dollar contribution is specified in labor agreements and does not change after an agreement expires. The state’s contribution for Unit 2 health benefits was last adjusted for 2022 premiums. The proposed agreement would adjust the flat dollar state contribution as premiums change each year for the duration of the agreement so that the state’s contribution would be up to 80 percent of an average California Public Employees’ Retirement System (CalPERS) premium cost and up to 80 percent of average CalPERS premium costs for enrolled family members—referred to as the “80/80 formula.”

Employer and Employee Contributions to Prefund Retiree Health Benefits Would Fluctuate With Changes in Normal Cost. The state and Unit 2 members currently each contribute a percentage of pay, specified in the MOU, to prefund Unit 2 retiree health benefits. Similar to provisions that have been included in MOUs for other bargaining units, the proposed agreement would allow the state and employees’ contributions to fluctuate as normal cost (as calculated as percentage of pay by the administration) fluctuates over time. The intent of the provision is that the state and employee would each contribute one-half of the actuarially determined normal cost.

Other Major Provisions

Changes to Nonindustrial Disability Insurance (NDI). Effective no earlier than July 1, 2023, the proposed agreement would make employees who are enrolled in the Annual Leave Program (as opposed to receiving vacation and sick leave) eligible to receive NDI Family Care Leave (NDI-FCL). There are roughly 2,500 Unit 2 members enrolled in the Annual Leave Program. NDI-FCL provides eligible employees up to six weeks of paid leave within a 12-month period for the care of a seriously ill family member or to bond with a new child. From the benefit, employees would receive 50 percent of their gross monthly salary but have the option to supplement the paid leave with leave credits to replace 75 percent or 100 percent of their salary. The parties agree to support legislation to amend applicable sections of the Government Code to provide NDI-FCL to Unit 2 members.

Annual Leave Cap Returns to 640 Hours Sooner. The Unit 2 MOU caps the number of unused annual leave an employee may have to 640 hours. The current MOU increased this cap by 192 hours through June 30, 2024. The 192 hours is equivalent to the number of Personal Leave Program 2020 (PLP 2020) hours Unit 2 members received. The proposed agreement would revert to the 640-hour leave cap effective January 1, 2024—six months earlier than required by the current MOU.

Increased Reimbursement to Departments From CASE for Union Leave. The current MOU specifies that CASE can request unpaid or paid leave of absence for union officers or representatives. Paid union leave may be granted at the discretion of a department director or their designee. Under the current MOU, CASE agrees to reimburse affected departments for the full amount of the salary plus an additional 35 percent of salary for an employee on paid union leave—a total of 135 percent of the employee’s salary. The proposed agreement would increase how much CASE reimburses affected departments to 137 percent of salary effective the month following ratification, to 139 percent effective July 1, 2023, and to 141 percent effective July 1, 2024.

Salary Survey. The agreement specifies that “no fewer than 12 months prior to the expiration of this agreement, the parties will meet to explore the components and methodology for conducting a salary survey. Nothing in this section shall require the State to modify their existing total compensation methodology.”

State Payroll System Project Reopener. The parties agree to reopen provisions of the agreement that require changes per the California State Payroll System Project.

Administration’s Fiscal Estimates

Increases Annual State Costs by More Than $100 Million. As Figure 1 shows, the administration estimates that the proposed agreement with Unit 2 would increase annual state costs associated with rank-and-file state attorneys and hearing officers by $100.2 million by 2025-26.

LAO Comments

Fiscal Effects

Extending Provisions to Excluded Employees Would Increase Costs Further. The costs discussed above are only those associated with rank-and-file employees. Many of the compensation increases likely would be extended to managers and supervisors to avoid “salary compaction” (when rank-and-file pay increases faster than managerial pay). If the provisions of the agreement that affect rank-and-file pay were to be extended to the employees affiliated with Unit 2 who are excluded from collective bargaining, we estimate that the state’s annual costs would increase by roughly $15 million (less than $5 million from the General Fund).

Administration Does Not Attribute Fiscal Effects to Some Provisions. The administration’s goal when developing its estimate of a labor agreement’s fiscal effects is to determine how much money it needs to request that the Legislature appropriate in order to fully fund the agreement. Our goal when evaluating a labor agreement is to identify any new cost or savings that likely would result from a labor agreement, even if those new costs or savings would not require the Legislature to increase or decrease a department’s budget. We identify these fiscal effects because the Legislature appropriated the current level of funding to a department with the expectation that the funding would be used to accomplish some level of workload. A new appropriation of funds from the Legislature is not necessary when a department is asked to use existing departmental resources to pay for a new cost; however, the department will need to shift funds from some other part of its budget, potentially reducing its ability to do the workload for which the funds originally were appropriated. By using these two different lenses, we occasionally identify fiscal effects not captured by the administration in its estimates. We identified two minor fiscal effects that were not reflected in the administration’s fiscal estimates. First, the administration attributes no savings resulting from the increased reimbursements from CASE for employees on union leave. This provision could reduce affected departments’ spending by thousands of dollars. While di minimis in the broader context of the state budget, this could be a meaningful amount for a particularly small department with an employee on union leave. Second, the administration’s fiscal estimates do not reflect that the agreement would reduce the leave cap by 192 hours 6 months earlier than the current MOU. This action would, in theory, reduce the state’s leave balance liabilities earlier than currently scheduled. If the roughly 700 Unit 2 members whose leave balances exceed the cap all reduced their leave balances by 192 hours as a result of this provision, the state’s leave balance liability would decrease by several million dollars six months earlier as a result of this provision. For context, the state’s total leave balance liability across state government is billions of dollars.

State Attorney Compensation

State Attorney Compensation Continues to Lag Local Government and Private Sector Counterparts. In our 2019 analysis of a past Unit 2 agreement, we discussed that CalHR and other compensation studies had identified a lag between Unit 2 classifications and similar employees who work for local governments or the private sector. As we discuss in that analysis, the severity of the identified lag varied significantly depending on the methodology used in the study. Since 2019, CalHR released a new Unit 2 compensation study in 2022 that relies on data from 2020. In that study, CalHR found that the state’s compensation package for attorneys continues to lag local governments by 9 percent and the private sector by 25 percent. The study found that state attorneys are compensated 6 percent more than attorneys employed by the federal government.

Despite Lagging Compensation, Statewide Recruitment and Retention Challenge Not Clear From CalHR Compensation Report... With state attorney compensation consistently lagging local government and private sector compensation, we would expect there to be evidence of statewide challenges in recruiting and retaining state attorneys. However, CalHR’s compensation study suggests that, compared with other state classifications, attorneys might not be more difficult to recruit or retain than other state jobs.

• Vacancy Rate Below State Average. While CalHR reports that 15.6 percent of authorized state positions are vacant across all state classifications, it reports that 14.4 percent of state attorney classifications are vacant. This suggests that, across state government, the share of attorney positions that are vacant is similar to, or slightly lower than, that of all state positions.

• Turnover Rate Below State Average. CalHR’s compensation study indicates that 4.6 percent of state attorney positions turned over, which is 2.6 percentage points lower than the statewide turnover rate of 7.2 percent. Unlike statewide turnover that was driven by retirements more than mid-career voluntary separations, the turnover that did occur among state attorney positions was equally likely to be due to voluntary separation as it was retirement.

…But Regional or Job-Specific Recruitment and Retention Challenges Possible. Although the above data do not suggest there is a statewide recruitment or retention problem, challenges to recruit or retain attorneys to work in specific regions or to perform specific jobs within departments (for example, to hire an attorney with experience in a specific area of law) may exist. With regard to possible regional differences, in most cases, the state does not provide state employees pay differentials for working in higher cost of living parts of the state. (In contrast, the federal civil service differentiates its pay ranges by region.) As a result, the extent to which the state’s compensation leads or lags local government or private sector employers can vary significantly across the state. CalHR estimates that state attorneys’ compensation lags comparable local government employees by 19 percent in the Bay Area, 17 percent in the Los Angeles region, and 14 percent in the Sacramento region; however, CalHR estimates that state attorneys are paid more than their local government counterparts in the San Diego region and the rest of the state. Notably, nearly 90 percent of Unit 2 work in one of the regions where CalHR identified the state’s compensation lags local governments.

Top Step Pay Increases Likely Will Not Address Possible Recruitment Issues. The proposed agreement would benefit employees who have worked for the state for several years more than other employees with less tenure. For example, while an attorney at the top step of their classification’s salary range could receive a 16 percent pay increase over the course of the agreement, the salary for an entry-level attorney would only increase 5.6 percent over the course of the agreement. In a period of high inflation, lower-level positions may not be as attractive to new hires in a competitive labor market. This could be exacerbated to the extent that local governments approve GSIs for their legal professionals that are higher than what is provided by the proposed agreement.

State Administrative Law Judges Compensation

Administrative Law Judges Compensated Above Market. In its most recent compensation study, CalHR found that across the state, state administrative law judges are compensated significantly above local and federal government counterparts. Across the state, the study found that state administrative law judges’ compensation is 49 percent higher than local government counterparts and 24 percent above federal government counterparts.

Vacancy Rate Consistent With State Average. Similar to attorneys, CalHR’s compensation study suggests that the state’s administrative law judge positions are not vacant at a notably higher rate than other state positions. Specifically, compared with the statewide average of 15.6 percent of positions being vacant, CalHR reports that 15.5 percent of state administrative law judge positions are vacant.

Administrative Law Judges More Likely to Be Eligible to Retire. CalHR indicates that the average administrative law judge is 12 years older (at 57 years old) and has three more years of service than the average state employee. This likely means that a substantial share of these employees is eligible or soon will be eligible to retire. The vast majority—about 90 percent—of turnover among administrative law judge positions is due to retirement. The two top step increases applied to administrative law judges under the proposed agreement could create an incentive for employees to delay their retirement by a few years. However, similar to attorneys, the top step increases for administrative law judges likely would not affect the state’s attractiveness to new hires.

Unit 6 (Corrections) Agreement Possibly Interacting With Other Bargaining Units

Unit 6 Agreement Includes Reopener if Other Bargaining Units Get Higher Pay Increase. Bargaining Unit 6 is represented by the California Correctional Peace Officers Association (CCPOA) and includes state correctional peace officers and parole agents. As we indicated in our June 25, 2021 analysis of the 2021 Unit 6 agreement with the state, the Unit 6 agreement provided Unit 6 a 2.5 percent GSI in 2022-23 and specified that CCPOA could choose to reopen that agreement should another bargaining unit receive a GSI in 2022 that is greater than 2.5 percent. The Legislature ratified the agreement that included this clause.

Unit 6 Agreement May Be Influencing Administration’s Position at Bargaining Table. The reopener clause in the Unit 6 MOU creates an incentive for the administration to provide GSIs of 2.5 percent (or lower) across bargaining units in 2022. Unit 6 is the largest General Fund supported bargaining unit, representing about one-third of the state’s General Fund payroll costs. Any Unit 6 pay increase above what is currently scheduled could significantly increase state General Fund costs. (Also, as we have indicated in numerous past Unit 6 analyses [see our analyses from 2018, 2019, and 2021], the administration has not released a compensation study for Unit 6 in years, making it virtually impossible to determine if any salary increase for Unit 6 is justified.) Since it ratified the Unit 6 agreement, the Legislature has been asked to consider MOUs for Bargaining Units 2 (pending ratification), 9 (pending ratification), 13 (ratified), and 18 (pending ratification). None of these agreements have provided GSIs in excess of 2.5 percent in 2022-23 despite the fact that (1) the compensation studies for some of these bargaining units have identified lags in state compensation and (2) while the consensus among economists is that inflation will moderate over the next year, prices have increased close to 9 percent relative to last year.

Issues for Legislative Consideration

Existing Unit 2 Recruitment and Retention Issues: What Are They and How Does This Agreement Address Them? The CalHR compensation study as well as the compensation studies that we discussed in our 2019 Unit 2 MOU analysis clearly demonstrate that Unit 2 compensation lags behind local government and private sector compensation. A key question for the Legislature to consider is what effect, if any, does this lag have on the state’s ability to recruit and retain qualified attorneys and hearing officers? Would the provisions of this agreement improve the state’s recruitment and retention of state legal professionals?

One Bargaining Unit Impacting the Terms of Another. The state’s rank-and-file workforce is organized into 21 bargaining units. Each bargaining unit represents the interests of a group of employees with similar jobs. As the employer, the state meets separately with each bargaining unit to discuss terms and conditions of employment for that particular bargaining unit. The collective bargaining process is structured this way as a recognition that the needs and issues faced by one group of employees might be different than those of another group. Including provisions in collective bargaining agreements that directly impact the employment conditions for an unrelated bargaining unit can limit the state’s ability to address needs specific to individual bargaining units. The Legislature ultimately holds the authority to establish salary levels for state employees. As such, the Legislature would not need to approve any future agreements with Unit 6 that provided pay increases above what is currently scheduled for that unit even if other bargaining units were to receive GSIs above 2.5 percent in 2022.

Administration and Unions Disregard Legislature’s Role in Collective Bargaining Process. In our June 2021 analysis of the labor agreements that ended PLP 2020, we indicated that the administration unnecessarily thrust a sense of urgency upon the Legislature to review 20 labor agreements at that time. The administration and unions have, again, jammed the Legislature by submitting labor agreements to it for consideration shortly before a major legislative deadline. The Legislature’s calendar is highly predictable with legislative deadlines publicly known many months in advance. And, yet, the administration and unions consistently submit labor agreements to the Legislature with just days before a major legislative deadline. In the case of this agreement, days before the end of the legislative session. Jamming the Legislature and minimizing public scrutiny of labor agreements before legislative consideration prevents the Legislature and public from fully understanding the implications of the agreements before they become law. As we have recommended many times in the past, we encourage the administration and unions to be mindful of the legislative calendar. Ideally, the Legislature would receive all labor agreements at least 30 days before June 15 so that it could fully consider the implications of the agreements in the context of the state’s budget. With the exception of labor agreements that address an emergency issue, we recommend the Legislature adopt a policy to not consider any labor agreement submitted to it after May 15 of each year.