MOU Fiscal Analysis: Bargaining Unit 16
(Physicians, Dentists, and Podiatrists)

On July 10, 2025, our office received from the California Department of Human Resources (CalHR) a proposed successor memorandum of understanding (MOU) between the state and Bargaining Unit 16. Unit 16 consists of physicians, psychiatrists, dentists, podiatrists, and other medical professionals who work in institutionalized settings, such as prisons and hospitals. Unit 16’s current members are represented by the Union of American Physicians and Dentists (UAPD). The current MOU between the state and UAPD expired on July 1, 2025. If the proposed successor MOU is not ratified, the provisions of the expired MOU generally would remain in effect as is required by the Ralph C. Dills Act (Dills Act). This analysis of the proposed agreement fulfills our statutory requirement under Section 19829.5 of the Government Code. The administration has posted on CalHR’s website the agreement, a summary of the agreement, and a summary of the administration’s estimate of the proposed agreement’s fiscal effects.

Background

In this section, we provide background on key elements of collective bargaining for Unit 16 that are relevant to the proposed agreement.

Unit 16 in Context of State Workforce

Fifth Smallest Bargaining Unit. Unit 16 is one of the smallest state bargaining units, representing fewer than 1,700 full-time-equivalent employees—accounting for less than 1 percent of the state workforce. About three-fourths of Unit 16 members work at the California Department of Corrections and Rehabilitation, California Correctional Health Care Services (CCHCS), or California Department of State Hospitals (DSH).

Public Employment Relations Board (PERB) Case SA-CE-2168-S. In 2022, UAPD filed a case with PERB against CCHCS. The complaint alleged that CCHCS violated the Dills Act by (1) implementing an integrated Substance Use Disorder Treatment program and a Medication Assisted Treatment program without bargaining in good faith with the union and (2) failing to bargain in good faith before requiring all UAPD-represented primary care providers to obtain “X-Waivers” from the U.S. Drug Enforcement Administration and fully provide services under the two newly implemented programs. The PERB Administrative Law Judge (ALJ) concluded that while CCHCS had no duty to bargain over its decision to offer new programs, the Dills Act required CCHCS to bargain in good faith over the decision’s negotiable effects, and CCHCS failed to comply with this duty. The PERB Board affirmed the ALJ’s overall conclusion that CCHCS violated the Dills Act, but adjusted the ALJ’s factual findings, legal conclusions, and remedial order. The Board held that CCHCS materially changed terms and conditions of employment and determined, among other things, that CCHCS imposed new duties that were not reasonably comprehended within primary care physician’s previous duties.

Furloughs

Long History of Using Furloughs to Address State Budget Problems. Furloughs, referred to as Personal Leave Program (PLP) when established through the state’s collective bargaining process, are the most common tool adopted by the state to reduce state employee compensation costs in times of budget problems. Furloughs have been used in ten fiscal years since 1992 (1992-93, 1993-94, 2003-04, 2008-09 through 2012-13, 2020-21, and 2025-26). Typically, a furlough for state employees reduces state employee pay by 4.62 percent in exchange for one day (eight hours) off per month without affecting other elements of compensation (for example, pension and health benefits). In the past, the state has (1) imposed furloughs and negotiated PLP at the bargaining table, (2) established furloughs as mandatory days when employees do not work (state offices would be closed one, two, or three “Furlough Fridays” each month), and (3) allowed employees to have “self-directed” furlough days where employees have discretion to use furlough days as they would vacation or other leave benefits. Unit 16 was last subject to furloughs in 2020-21 when the state negotiated agreements with all 21 bargaining units to reduce employee compensation costs through PLP 2020 in anticipation of a budget problem in 2020-21 that did not materialize.

PLP 2025. The state has entered into labor agreements with 17 of the state’s 21 bargaining units to make employees subject to PLP 2025. Refer to our July post summarizing these agreements. As Figure 1 shows, the exact terms of PLP 2025 varies by bargaining unit. Generally, PLP 2025 offsets employee pay in exchange for hours of leave in each month of PLP 2025. The duration of PLP 2025 generally is 24 months across 2025-26 and 2026-27. Bargaining Unit 2 (Attorneys and Hearing Officers) is the exception and would be subject to PLP 2025 for only 16 months; however, Unit 2 would be subject to a larger pay offset than the other bargaining units during months of PLP 2025.

Other Post-Employment Benefits (OPEB)

Rising Cost. OPEB in state employee compensation consists of retiree health benefits. The state has provided some form of health benefits to retired state employees since 1961. During most of this time, the state has paid for these benefits on a pay-as-you-go basis from the General Fund after an employee is retired and receiving the benefit. Since the 1990s, the costs for this benefit have been among the fastest growing costs in the state budget. Between 2000-01 and 2024-25, the state’s inflation-adjusted General Fund pay-as-you-go cost towards these benefits increased by more than 250 percent to $2.8 billion. The largest factors driving these cost increases have been (1) the rapid growth in health premiums and (2) the growing number of people receiving the benefit as more employees retire and people live longer in retirement.

Large Unfunded Liabilities. Because the state had not set aside funds to prefund retiree health benefits for much of the benefit’s existence, a large and growing unfunded liability exists. In the most recent actuarial valuation (as of June 30, 2023) the state’s unfunded liability associated with this benefit for all state employees is estimated to be $85.2 billion.

Progress Towards Prefunding. In 2015-16, the state adopted a policy to establish through the collective bargaining process a prefunding arrangement whereby the state and current employees each pay one-half of the normal cost of the benefit (refer to our 2015 analysis, The 2015-16 Budget: Health Benefits for Retired State Employees for more information). (Under the policy, the state continues to make pay-as-you-go payments from the General Fund for benefits received by retirees.) The money contributed by the state and employees to prefund the benefit is put in a trust fund. Projections at the time indicated that the benefit would be fully funded by 2046. Under the plan, the assets of the trust fund cannot be used to pay for the benefit until 2046 or whenever the benefit is fully funded, whichever comes first. The state and Unit 16 agreed to this prefunding arrangement in 2017, with the fund expected to be fully funded for Unit 16 within 30 years. In 2025-26, the state and employees represented by Unit 16 each contribute 1.4 percent of pay to prefund the benefit for Unit 16 members. As of June 30, 2023, the state and Unit 16 have set aside $78 million to prefund the benefit and the unfunded liability associated with Unit 16 is $365 million. The most recent actuarial valuation of Unit 16 retiree health benefits (as of June 30, 2023) estimates that the Unit 16 funding plan is now on track to fully fund Unit 16 retiree health benefits by 2042.

Suspension of Prefunding Under Recent Agreements. The Legislature has ratified agreements with 19 of the state’s 21 bargaining units to suspend the state’s contribution to prefund retiree health benefits in 2025-26 and 2026-27. In the ratified agreements with 18 of these bargaining units, the state and employees have also agreed to suspend the employee contributions to prefund the benefit. Suspending the state’s prefunding contributions reduces the state’s costs by between 1 percent of pay and 4.5 percent of pay in 2025-26 and 2026-27. (The General Fund share of these costs are paid from the state’s required annual debt payments under Proposition 2 [2014].) The reduced amount of money invested in the trust fund will result in higher unfunded liabilities in the long-run. In most of the agreements, the state’s contributions towards the benefit would be fully restored in 2027-28. However, the agreements with Units 7 (Protective Services and Public Safety), 12 (Craft and Maintenance), and 13 (Stationary Engineers) would phase in the restoration of the contribution rate so that the state’s contribution would not be fully restored until 2029-30. Figure 2 shows the contribution rates that are suspended under the agreements and the year in which the rates will return to levels that otherwise would be in place in 2025-26.

Telework

Stipend. Since January 1, 2022, Unit 16 employees who have an approved telework agreement on file with their department are eligible to receive $50 per month if they are identified as a remote centered employee or $25 per month if they are identified as an office centered employee. The expired Unit 16 MOU specifies that this payment would be in effect through June 30, 2025.

Executive Order N-22-25. Under current state policy, state departments that allow state employees to work a hybrid schedule (meaning a portion of the work week in office and a portion of the work week from a remote location) must have a telework policy with a default minimum of two in-office days per work week. On March 3, 2025, Governor Newsom issued Executive Order N-22-25. The executive order requires all agencies and departments under the Governor’s authority that provide telework as an option for employees to implement a telework policy with a default minimum of four in-office days per work week effective July 1, 2025.

Proposed Agreement

In this section, we summarize the major provisions included in the proposed agreement with Unit 16.

Term. The proposed agreement would be in effect through July 1, 2028. This means that the agreement would be in effect for the duration of three fiscal years: 2025-26, 2026-27, and 2027-28

Pay Increases.

• 2025-26: 3 Percent General Salary Increase (GSI). Effective the first day of the pay period following ratification, the agreement would provide all Unit 16 members a GSI of 3 percent. As a GSI, this pay increase will apply to all steps of all Unit 16 job classifications’ salary ranges.

• 2027-28: 3.5 Percent Top Step Increase. Effective July 1, 2027, the agreement would increase the top step of all Unit 16 job classifications’ pay ranges by 3.5 percent. Employees at the top step of their salary ranges would receive the pay increase. Employee not at the top step would not receive the pay increase.

• Correctional Medicine Differential—Resolution to PERB Case SA-CE-2168-S. Effective the first day of the pay period following ratification, the agreement would provide physicians and surgeons employed by CCHCS a $1,200 monthly pay differential to resolve PERB case SA-CE-2168-S. Pursuant to the agreement, this pay differential would end on June 30, 2028.

PLP 2025. The agreement would make Unit 16 members subject to PLP 2025 in 2025-26 and 2026-27. Specifically, effective the first day following ratification, the agreement would make Unit 16 subject to PLP 2025 for 16 months. During each month of PLP 2025, Unit 16 members’ pay would be reduced by 4.62 percent and employees would receive eight hours of PLP 2025 leave credits. This is similar to the structure of PLP 2025 established for Unit 2 members. The agreement specifies that accrued, unused PLP 2025 hours would not expire and must be used prior to any other type of leave, except sick leave. The agreement specifies that accrued PLP 2025 would need to be exhausted prior to voluntary separation from state service. In the event of an involuntary separation, the agreement specifies that unused PLP 2025 leave would be cashed out.

Suspend Employer and Employee Contributions to Prefund OPEB. The agreement would suspend for two years (2025-26 and 2026-27) both the employer and the employee contributions to prefund retiree health benefits.

Furlough Protection. The agreement would prohibit the state from imposing furloughs for the duration of the agreement.

Telework. The agreement would maintain the telework stipend through June 30, 2028. The agreement would suspend the return-to-office requirements established by Executive Order N-22-25 immediately until July 1, 2026.

Hours of Work. The agreement would provide physicians and surgeons time each work week to review reports, complete documentation, and other duties. Specifically, physicians and surgeons at (1) DSH would receive two hours per week and (2) CCHCS would receive four hours per week. The agreement specifies when the time may be used. In the case of DSH employees, the time must be scheduled in coordination with supervisors. In the case of CCHCS, the time must be scheduled at the end of the workday. The agreement also specifies how much of the time may be worked remotely at a location other than the employee’s worksite. In the case of DSH, the full two hours may be taken remotely if approved by the supervisor. In the case of CCHCS, up to two hours of the time may be worked remotely if approved by the supervisor.

Medical Education Leave. The agreement would increase the number of medical education leave hours that Unit 16 members receive each fiscal year from 56 hours to 60 hours. The agreement also increases the number of continuing medical education leave hours that employees may carry over year over year from 112 hours to 120 hours.

LAO Comments

Administration’s Estimated Fiscal Effect

Reduced State Costs in 2025-26. As Figure 3 shows, PLP 2025 and the suspension of OPEB prefunding would result in the state’s Unit 16 compensation costs being lower than present levels in 2025-26.

Long Term, Agreement Would Increase State Costs. While the agreement would reduce state costs in 2025-26, it would lead to higher annual costs beginning in 2026-27. Moreover, as we discuss in greater detail below, the agreement would lead to growth in unfunded liabilities, potentially contributing to future budget problems.

Compensation and Recruitment

Wages and Total Compensation for Psychiatrists Found Lagging. The most recent compensation study conducted by CalHR evaluated three occupation groups represented by Unit 16—dentists, family medicine physicians, and psychiatrists. The study found that both the wages and total compensation earned by state dentists and family medicine physicians was significantly above market. From a total compensation perspective, the report found that the state’s dentists are compensated 47 percent above market and family medicine physicians are compensated 26 percent above market. While state-employed physicians and dentists were found to be compensated above market, the study found that state psychiatrists are compensated below market (6 percent below market when comparing total compensation and 1 percent below market when comparing wages alone).

Dentist and Physician Recruitment and Retention Appears Stable. CalHR’s compensation study did not include data to suggest that the state has unique challenges keeping physician or dentist positions filled. In the case of dentists, the vacancy rate was 10 percent, which is much lower than the statewide average 21 percent vacancy rate and the 31 percent vacancy rate across Unit 16 positions. While the study indicated that state dentists are retiring at higher rates than statewide or other Unit 16 positions, the elevated retirement rate does not seem to be affecting the state’s ability to fill dentist positions. At 22 percent, the vacancy rate among physicians was more than twice the vacancy rate of dentists; however, this is not necessarily an indication of a unique challenge in filling physician positions as the statewide vacancy rate was 21 percent.

Evidence of Possible Challenges Filling Psychiatrist Positions. CalHR’s compensation study suggests that the state might have challenges filling psychiatrist positions. The vacancy rate among psychiatrists was 46 percent—more than twice the statewide average. The turnover rate among state psychiatrists was in line with the statewide rates: retirement rates and involuntary separation rates were lower than the statewide averages and the rate of voluntary separations—meaning employees voluntarily leave state service to work for a different employer—was slightly higher than the statewide average (3.7 percent compared with 3.6 percent). The number of authorized psychiatrist positions in state government has increased faster over time than other classifications represented by Unit 16. Since 2015, the number of authorized psychiatrist positions increased 70 percent, compared with a 29 percent increase across the bargaining unit. While the growth in psychiatry positions could be a contributing factor to the 46 percent vacancy rate today, the vacancy rate among authorized psychiatrist positions has consistently been above 40 percent since 2015. This suggests that the challenges to fill psychiatry positions likely is not new.

Agreement Does Not Appear to Address Possible Challenges Filling Psychiatrist Positions. The agreement does not appear to include any provisions aiming to address whatever psychiatrist recruitment or retention challenges might exist today.

Effects of PLP

Furloughs a Common, but Imperfect Tool. Although furloughs and PLP are established through different means (imposed versus bargained), the two policies functionally are the same: reduced pay in exchange for time off. As such, we generally refer to the two policies interchangeably as furloughs. As we indicated above, the state has used furloughs extensively in the past three decades in response to budget problems. Furloughs have some clear advantages, including that they are administratively easy to implement; they offer immediate and predictable levels of savings; and they do not require a reduction in workforce, allowing the state to immediately “staff up” after the budget problem passes. However, there are some notable trade-offs to relying on furloughs to achieve budgetary savings. These trade-offs include effects on recruitment and growth in long-term liabilities:

• Recruitment: Furloughs can make the state a less attractive employer to possible new hires by making the state’s compensation package less competitive compared with compensation offered by other employers and by demonstrating a lack of predictability in the state’s terms of employment.

• Long-Term Liabilities: Furloughs result in higher leave balances and retirement unfunded liabilities. Unless employees are able to take more time off, furloughs result in larger unused leave balances. These higher leave balances, in turn, lead to higher costs to the state when employees separate from state service and the state must pay the employee for any unused leave at their final salary level. Retirement liabilities funded as a percentage of pay also grow as a result of furloughs. For example, the state pays a percentage of employees’ pay to fund pension benefits. During a furlough, the state’s contributions towards pension benefits is made as a percentage of the reduced salary. However, the benefit earned by the employee is based on their full (not reduced) salary. Accordingly, during furloughs, the state systematically underfunds its pensions—contributing to larger unfunded liabilities.

Suspension of Employer and Employee OPEB Contributions

Missed Opportunity to Improve OPEB Prefunding Arrangement. We long have been critical of the state’s retiree health prefunding strategy. We have found that establishing a benefit that fundamentally has no bearing on an employee’s salary to be funded as a percentage of pay is overly complicated and creates risk that the benefit will not be fully funded by the target date. In addition, sharing the funding cost with state employees likely strengthens any argument that the benefit is protected under the State Constitution, potentially preventing the Legislature from reducing or modifying the benefit in the future. Instead, we have argued that the state should assume the full responsibility of prefunding the benefit. While we are not at the bargaining table and do not know what issues were discussed, we feel it was a missed opportunity for the parties to not find a solution that simplified the prefunding arrangement while also helping address the current budget problem.

Proposed Agreement Will Push Back Date When Benefit Is Fully Funded for Unit 16. The Unit 16 retiree health benefit is on track to being fully funded by 2042. This is six years earlier than other bargaining units and four years earlier than the 2046 date when the Legislature will be able to use the assets in the trust to pay for benefits. Under the proposed agreement, no contributions would be made to prefund the benefit for two years. Systematically underfunding the benefit for two years would make reaching full funding by 2042 unlikely.

Lower Costs Today in Exchange for Higher Costs Later. Suspending both the employer and employees’ contributions to prefund OPEB for two years reduces costs today but contributes to a significant and growing unfunded liability. If this agreement is ratified, the Legislature will have authorized the suspension of the OPEB funding plan for 20 of the state’s 21 bargaining units. This creates a precedent for future Governors to see this action as an acceptable trade-off to address future budget problems. To the extent that this action is repeated in future years, the goal to fully fund the benefit will become increasingly elusive.

Budget

2025-26 Budget Assumes Savings From State Employee Compensation. Control Section 3.90 of the 2025-26 budget (as added by Chapter 5 of 2025 [AB 102, Gabriel]) established an expectation of the Legislature that all 21 of the state’s bargaining units would meet and confer in good faith with the administration before July 1, 2025 to achieve savings assumed in the budget. As mentioned above, the Legislature has ratified agreements to achieve budgetary savings in 2025-26 with 19 of the bargaining units—agreements with 18 of these units were ratified through Chapter 25 of 2025 (SB 139, Committee on Budget and Fiscal Review) and the agreement with Unit 6 (Corrections) was ratified through Chapter 26 of 2025 (SB 140, Committee on Budget and Fiscal Review). This agreement would achieve savings in 2025-26.

Three-Year Term Could Reduce Future Legislative Flexibility. We long have recommended that the Legislature only ratify agreements that would be in effect for one or, at most, two fiscal years. The basis of this recommendation is to preserve legislative flexibility to respond to changing economic conditions. If the state’s budget condition were to improve or degrade over the next three fiscal years, it would be difficult for the Legislature to deviate from the agreement.