MOU Fiscal Analysis: Bargaining Unit 8 (Firefighters)

The administration submitted to the Legislature a proposed labor agreement between the state and Bargaining Unit 8 (Firefighters) on July 25, 2025. This analysis of the proposed agreement fulfills our statutory requirement under Section 19829.5 of the Government Code. Unit 8’s members are represented by the California Department of Forestry and Fire Protection (CalFire) Firefighters, CalFire Local 2881 (Local 2881). 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.

Background

Unit 8 Workforce and Compensation

About Two-Thirds of Unit 8 Payroll Paid From General Fund. As of March 2025, the rank-and-file, managerial, and supervisorial employees associated with Bargaining Unit 8 include 9,220 full-time equivalent (FTE) employees. Unit 8 rank-and-file, managerial, and supervisorial employees account for less than 4 percent of the total FTE in the state workforce and about 4 percent of the state’s General Fund payroll expenditures. The estimated salary and salary-driven costs for these employees in 2024-25 totaled $1.1 billion with about two-thirds of these costs being paid from the General Fund.

Firefighters Compensated Differently Than Most Employees. Firefighters historically worked, on average, four 72-hour workweeks in a 28-consecutive-day cycle. Under the 72-hour duty week, employees receive overtime pay for any hours worked in excess of 212 hours during the 28-day period. As we discuss in greater detail below and in our August 2024 analysis, the Legislature approved a reduction of the duty week from 72 hours to 66 hours as part of the 2024-25 budget. Implementation of the 66-hour duty week began in 2024-25 and will continue until at least 2028-29.

Overtime Built Into Work Schedule, Constitutes Significant Source of Compensation to Unit 8 Members. Both the 72-hour and 66-hour duty weeks build overtime payments into Unit 8 compensation. In the case of the 72-hour duty week, employees regularly receive 19 hours of planned overtime (also referred to as Extended Duty Week Compensation, or EDWC) per duty week. In the case of the 66-hour duty week, employees regularly receive 13 hours of planned overtime. In addition, Unit 8 members often work unplanned overtime. The result is that overtime—paid at 1.5 times regular pay—constitutes a substantial portion of Unit 8 compensation. In calendar year 2024, data from the State Controller’s Office indicate that rank-and-file Unit 8 salaries totaled $518 million and overtime payments to these employees totaled $294 million—57 percent of their base salary.

Recent Shift From Seasonal to Permanent Workforce. Historically, the state has staffed its firefighters to coincide with the fire season—relying on seasonal firefighters to ramp up staffing during fire season. As we discussed in our March 2024 analysis, the annual wildfire seasons have lengthened and have produced particularly large and destructive wildfires in recent years. This has raised concerns of wildfires becoming a year-round phenomenon. To address this concern, the 2025-26 budget provides some funding to shift a number of seasonal firefighter positions to permanent positions.

Compensation Survey Found State Compensation Lags Compensation Provided by 20 Local Fire Departments… When establishing state firefighter compensation, Section 19827.3 of the Government Code requires CalHR to “take into consideration the salary and benefits of other jurisdictions employing 75 or more full-time firefighters who work in California.” The memorandum of understanding (MOU) establishes additional requirements for CalHR to conduct a compensation survey. The most recent compensation study compares four state firefighter classifications (Firefighter II, Fire Apparatus Engineers, Fire Captain [Range A], and Battalion Chief). The study compares employer costs for salaries, cash benefits, health and retirement benefits, EDWC, and the value of accrued leave. The study compares the state with 20 fire departments across California. The study found that state compensation for firefighters lags compensation provided to local fire department firefighters by between 11 percent to 29 percent, depending on the classification. The survey found that while both state and local firefighters work 24-hour shifts, state firefighters work more days of the year (156 days compared with 121 days for the local fire departments in the survey). The result is that state firefighters work more hours of scheduled overtime than local firefighters.

…And Excluded Comparison With Federal Wildland Firefighter Classifications. About 3,600 U.S. Forest Service firefighters are employed in California as of July 2025. These federal firefighters defend federal lands from wildfire, a job very similar to CalFire’s responsibility to defend against wildfire. While Unit 8 compensation regularly is found to lag local government firefighter compensation, in the past, Unit 8 compensation has been significantly higher than federal firefighters. We do not know how Unit 8 compensation currently compares with federal firefighters because it was not included in the compensation survey.

Bargaining With Unit 8

Current MOU Scheduled to Expire June 30, 2026. The Legislature ratified the current Unit 8 MOU through Chapter 1001 of 2024 (AB 181, Committee on Budget). The ratified MOU is scheduled to remain in effect through June 30, 2026. Our analysis of the ratified agreement can be found here.

Side Letter Ratified by Legislature to Achieve Budgetary Savings in 2025-26. The Legislature ratified a side letter between the state and Unit 8 through Chapter 25 of 2025 (SB 139, Committee on Budget and Fiscal Review). As indicated in our assessment of the agreements ratified under Chapter 25, the Unit 8 side letter suspended the employer and employee contributions to prefund retiree health benefits (also referred to as Other Post-Employment Benefits, or OPEB).

Types of Agreements

Agreements Submitted to Legislature Through Two Different Processes. There are two processes through which a labor agreement can be submitted to the Legislature. The first applies to successor MOUs. Specifically, Section 19829.5 of the Government Code specifies that CalHR “shall provide a memorandum of understanding pursuant to Section 3517.5 to the Legislative Analyst who shall have 10 calendar days from the date the tentative agreement is received to issue a fiscal analysis to the Legislature. […] The memorandum of understanding shall not be subject to legislative determination until either the Legislative Analyst has presented a fiscal analysis of the memorandum of understanding or until 10 calendar days has elapsed since the memorandum of understanding was received by the Legislative Analyst.” The second process applies to addenda (including side letters) to properly ratified MOUs. Specifically, Item 9800 of the budget act directs the Department of Finance (DOF) to determine if an addendum requires legislative approval—pursuant to criteria laid out under Item 9800. DOF then submits the addendum to the Joint Legislative Budget Committee (JLBC), which has up to 30 days to determine if it disagrees with DOF’s determination that an agreement does or does not requires legislative approval.

Proposed Unit 8 Agreement Cast as a Side Letter. The proposed agreement specifies that it is a side letter to the ratified MOU that currently is in effect. The administration has submitted the agreement to the Legislature for approval because it requires the expenditure of funds.

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 8 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 Legislature has ratified labor agreements with 18 of the state’s 21 bargaining units to make employees subject to PLP 2025. 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) and Bargaining Unit 16 are exceptions and would be subject to PLP 2025 for only 16 months; however, employees represented by these two bargaining units would be subject to a larger pay offset than the other bargaining units during months of PLP 2025. As Figure 1 shows, the ratified side letter with Unit 8 that suspended OPEB prefunding did not include a provision related to PLP 2025.

66-Hour Duty Week

Reduction of Duty Week to 66 Hours Approved in 2024-25 Budget, Full Implementation Not Expected Before 2028-29. As described in our report, The 2024-25 California Spending Plan: Resources and Environmental Protection, the 2024-25 budget included funding to begin implementing a shift to a 66-hour duty week. The 2024-25 budget appropriated $199 million ($197 million General Fund) and 338 positions for this purpose. As we indicated in the report, the costs of the shift are anticipated to increase until the policy is fully implemented. At the time, the administration anticipated that, once fully implemented in 2028-29, reducing the Unit 8 duty week from 72 hours to 66 hours will increase annual state costs by $770 million ($756 million General Fund) and increase the number of permanent positions by 2,457 FTE. As we indicated in our report, subsequent to the enactment of the 2024-25 budget, the Legislature ratified the current MOU, which includes additional provisions to implement the 66-hour duty week. The provisions of the ratified MOU will further increase state costs by an unknown amount above what was envisioned in the 2024-25 budget.

Reporting on Effects of Shorter Duty Week Not Expected Until Spring 2026. The 2024-25 budget package included trailer bill legislation that requires CalFire to report on the wildfire resilience-related co-benefits achieved as a result of the change in the duty week. CalFire is not expected to begin reporting to the Legislature on the experience of reducing the duty week from 72 hours to 66 hours until spring 2026.

Proposed Agreement

Maintains Most Provisions of Ratified MOU. The proposed agreement maintains most of the provisions of the ratified MOU. We describe the changes to the ratified MOU below.

Term. The proposed agreement would extend the expiration of the ratified MOU by one year. Specifically, under the proposed agreement, the Unit 8 MOU would be in effect through June 30, 2027.

General Salary Increase (GSI). Effective the first day of the pay period following ratification, all Unit 8 members would receive a GSI of 2.5 percent. As a GSI, this pay increase will increase all steps of all salary ranges of each classification represented by Unit 8.

PLP 2025. The agreement would make Unit 8 members subject to PLP 2025 in 2025-26 and 2026-27. Specifically, effective the first day of the pay period following ratification by both parties through the June 2027 pay period, Unit 8 members would be subject to PLP 2025. During PLP 2025 under the agreement, (1) employees would continue working their assigned work schedules, (2) pay would be reduced by 2.5 percent, (3) overtime would be calculated based on employees’ full salary (not the reduced salary), (4) fire protection employees would receive six hours of PLP 2025 leave credit each month, (5) specialty classes would receive four hours of PLP 2025 leave credit each month, (6) the reduced pay during PLP 2025 would affect neither the final compensation used in calculating the value of leave credit upon separation nor retirement benefits, and (7) state death or disability benefits would not be affected. The agreement specifies that any unused PLP 2025 leave credits would be cashed out upon separation from state service.

56-Hour Duty Week. Under the proposed agreement, the state would agree “that the 2027 successor MOU negotiations will include the 56-hour industry standard work week.”

Deferred Retirement Option Program (DROP). The agreement specifies CalHR and Local 2881 “to meet on or before February 1, 2026 to allow CAL FIRE Local 2881 an opportunity to present a DROP program to the State.” We describe DROP policies in the “LAO Comments” section.

LAO Comments

Type of Agreement

Side Letter or Successor MOU? The administration (and the agreement itself) characterizes the proposed agreement as a side setter to the current MOU. We consider the agreement to be a successor MOU, meaning it is subject to the Legislative Analyst’s Office’s review process established under Section 19829.5 rather than the JLBC review process under Item 9800. While “side letters,” “MOU addenda,” and “MOUs” are all rather amorphous terms, the Public Employment Relations Board (PERB) laid out its definition of a side letter in a 2011 PERB decision. In that decision, PERB defines a side letter to mean “an agreement between an employer and union that typically: (1) modifies, clarifies or interprets an existing provision in an MOU; or (2) addresses issues of interest to the parties that are not otherwise covered by the MOU.” In our opinion, the changes to existing provisions of the current MOU under the proposed agreement would alter fundamental aspects of the current MOU in a manner more significant than mere modifications, clarifications, or interpretations. Specifically, the agreement would (1) extend the term of the current MOU by an additional year, (2) permanently increase salaries established under the MOU, and (3) set an expectation that two major policy changes (further reducing the duty week to 56 hours and establishing a DROP for Unit 8) would be discussed between the parties before the next successor MOU negotiated in 2027. Accordingly, we consider the proposed agreement to be a proposed successor MOU to the current MOU that maintains most of the provisions of the current MOU. Regardless of what name is given to the agreement, it requires legislative approval before it goes into effect.

Administration’s Estimated Fiscal Effect

Reduced State Costs in 2025-26 and 2026-27. On net, the administration estimates that the agreement would reduce state costs in 2025-26 and 2026-27 by less than $1 million (Figure 2).

Administration Overestimates Savings From PLP 2025… Under the agreement, planned and unplanned overtime during PLP 2025 would be based on employees’ full salary and not based on the reduced pay levels. The administration estimates that PLP 2025 would reduce state costs by $20.2 million ($13.4 million General Fund) in 2025-26 and $26.9 million ($17.9 million General Fund) in 2026-27. The methodology that the administration used to derive this estimate assumes that the costs related to planned overtime also are reduced during PLP 2025. As a result, the above estimates overestimate the savings resulting from PLP 2025.

…And Does Not Reflect Effects on Unplanned Overtime… As is the administration’s typical practice, it does not estimate the fiscal effects of the pay increase on unplanned overtime. Unplanned overtime is difficult to predict because it is dependent on a variety of unknown factors. For example, in the case of Unit 8, the severity of wildfires in any given year has a direct effect on the number of unplanned overtime hours worked. While difficult to predict, the pay increase provided by the agreement would increase state unplanned overtime costs relative to what they otherwise would have been for Unit 8.

…Likely Resulting in Net Costs to State Beginning in 2025-26. If overtime payments in 2025-26 reflected overtime payments in 2024, the 2.5 percent GSI would increase state expenditures for overtime by more than $7 million. Therefore, we estimate that the agreement would increase annual planned and unplanned overtime costs associated with Unit 8 by several millions of dollars beginning in 2025-26—more than fully offsetting the total net savings estimated by the administration. In other words, the agreement would lead to increased state annual costs beginning in 2025-26.

Greater Increased Annual Costs Beginning in 2027-28. After PLP 2025 expires, the state would begin paying the full effect of the agreed upon pay increase. The administration estimates that this will result in annual costs under the agreement being more than $30 million (more than $20 million General Fund) higher than state costs in 2024-25. After accounting for effects on unplanned overtime costs, we estimate that the agreement would result in state payroll costs for Unit 8-affiliated rank-and-file and excluded employees to increase by more than 3 percent relative to 2024-25 levels.

Agreement Opens Door to Policies That, if Adopted in Future Agreements, Would Significantly Increase State Costs. As we discuss in greater detail below, although the agreement would not establish a 56-hour duty week or a DROP, the agreement opens the door to these policies being discussed at the bargaining table and possibly included in a future labor agreement. A 56-hour duty week would significantly increase the state’s annual costs and a DROP would create long-term fiscal risk for the state.

56-Hour Duty Week

Reducing Duty Week to 56 Hours Would Increase Annual State General Fund Costs by Hundreds of Millions of Dollars. Under the proposed agreement, the parties agree that the negotiations around the 2027 successor MOU would include discussion around a 56-hour duty week. We do not interpret this to mean that the 2027 successor MOU necessarily will include provisions to implement a 56-hour duty week. However, the proposed agreement creates a real possibility that the successor MOU in 2027 would include provisions to reduce the duty week from 66 hours to 56 hours. While the Legislature would have initial information about the effects of the 66-hour duty week in 2027, that policy would not yet be fully implemented. As such, the extent to which issues remain justifying a further reduction in the duty week would be unknown. Moreover, we do not know how much reducing the duty week by ten hours would increase state costs. However, based on the cost to reduce it by six hours (from 72 hours to 66 hours), it seems reasonable to assume that such an action would increase annual costs by at least several hundreds of millions of dollars. If and when the administration proposes reducing the duty week to 56 hours, the Legislature will face a key decision as to whether or not implementing the proposal is affordable given the state’s fiscal condition at that time.

DROP

DROP Is a Supplemental Retirement Benefit Offered by Some Public Employers. A DROP allows members of a pension system who reach retirement eligibility to elect to continue working while freezing the service credit and other variables that affect members’ pension calculations. When an employee participates in DROP, rather than continuing to accrue increased retirement benefits based on additional years of service and salary adjustments, the employee’s monthly pension allowance is calculated as of the DROP entry date and those payments are deposited into a separate interest-bearing account. When the employee retires from service, the accumulated value of the DROP account is distributed to the retiring employee as a lump sum payment. DROPs are most common in public sector police and firefighter plans. Some local governments in California offer DROP to their employees (for example, the Cities of Los Angeles, San Diego, and Fresno, and the City and County of San Francisco). The specific design of DROPs vary.

No State Bargaining Units Currently Eligible for DROP. The state does not offer a DROP as a component of employee compensation for any state employee group. However, the Unit 5 (Highway Patrol) agreement that the Legislature ratified under Chapter 25 includes a provision similar to the provision in the proposed Unit 8 agreement, opening the door to discussing the benefit at the bargaining table.

California Actuarial Advisory Panel (CAAP) Provided Actuarial Perspective of DROP. CAAP is a panel of appointed actuaries tasked under state law to provide public agencies impartial and independent information on retirement benefits and actuarial best practices. In a March 11, 2024 letter in response to a request from the Legislative Committee of the State Association of County Retirement Systems, the actuarial panel provided insights into the cost considerations for DROPs. We summarize key issues identified by CAAP below.

• Challenges Calculating Value of DROP. CAAP indicated that DROPs present multiple challenges for actuaries to accurately estimate the value of the benefit. CAAP indicated that calculating projections of expected benefit payments is significantly complicated by DROP entry timing, final retirement date, participation rates, overall career length, and employee behaviors (discussed in greater detail below).

• Challenges Achieving Cost Neutrality. Depending on the structure of the current benefit formula and specific features of the DROP (for example, the rate of interest credited to DROP accounts), CAAP indicated that a DROP can significantly increase a pension system’s costs. CAAP offered recommendations to make cost neutrality more likely, including setting the DROP account interest rate below the plan’s actual or expected rate of return, permanently waiving or reducing automatic cost-of-living adjustments on retirement benefits during the period the member is in DROP, and not crediting the full amount of any contributions made by the member during DROP.

• Employee Behavioral Changes Due to DROP. Employee behavior can greatly affect the cost of a DROP. For example, CAAP noted that when the San Francisco City and County Employees Retirement System implemented a DROP, members entered DROP at rates 50 percent to 75 percent higher than the system had assumed would occur. The effect of that behavior was higher costs to the system. CAAP identified some specific behavioral changes that can occur when a DROP is offered that can affect the cost of the benefit including (1) members might postpone retirement longer due to the financial advantages of DROP, (2) the member might make the decision to enter DROP and the decision of their final retirement date to coincide with personal financial goals or market conditions, and (3) individuals with awareness of health conditions might be more likely to opt into a DROP for greater immediate payouts from the system.

• Employer Bears Risk of DROP. CAAP noted that any adverse financial effects of a DROP affect a pension system in the form of an actuarial loss that results in growth in unfunded liabilities. The state is responsible to pay for any unfunded liabilities associated with the pension benefits it provides state employees. As such, if the state were to incorporate a DROP as part of its compensation package to Unit 8 members, the state would bear the risks associated with the program (for example, if actual investment returns fell short of the interest rate applied to funds in a DROP account).

Providing DROP for One Unit Creates Pressure to Provide to Others. Employees in different bargaining units who have similar jobs (for example, public safety classifications like peace officers and firefighters) earn compensation packages with similar components. For example, while the specific structure of the benefit varies, public safety employees generally earn pension benefits that are designed to offer a higher annuity to retirees at an earlier age. Providing a new retirement benefit to one type of state employee raises internal equity considerations regarding the level of compensation provided to other state employees. If the state were to provide a DROP for one bargaining unit, there would be pressure on the state to provide a DROP (perhaps with different specific terms) to other bargaining units in order to maintain internal equity across bargaining units.

Establishing Such a Benefit Through Collective Bargaining Process Diminishes Legislative Role. The proposed agreement does not establish a DROP for Unit 8 or create a promise to establish a DROP in the future. However, it does create a commitment that Local 2881 will be able to present a DROP to CalHR in the future. This presentation could serve as the basis for the parties to meet, confer, and agree (either as an MOU addendum or a new provision in the successor MOU in 2027) to establish a DROP for Unit 8. Establishing a DROP through the collective bargaining process limits the Legislature’s ability to deliberate the specific policy and its merits, as well as its implications on the state’s finances and equity considerations across bargaining units. This is because, when considering a proposed labor agreement, the Legislature’s options are either to ratify or to reject the entire proposed agreement. The Legislature would not be able to amend a DROP benefit included in a proposed future labor agreement without overriding what the parties agreed to at the table. Moreover, when the administration proposes new policy changes through the collective bargaining process, the administration typically provides little justification for why the policy is designed a specific way. In these situations, the typical response from the administration to justify the policy is that it is the product of the bargaining process. The administration typically considers anything discussed at the bargaining table to be confidential. As such, the administration likely would not make available to the Legislature Local 2881’s presentation or any other information discussed at the table related to the policy. The Legislature could find itself in a situation where it is asked to approve a new retirement benefit without sufficient information to understand whether the policy is warranted (for example, due to notable staffing shortages) and/or the risks the benefit could create for the state.

LAO Recommendations

Require Estimation of Fiscal Effect and Time Line to Implement 56-hour Duty Week Prior to 2027 Successor MOU Negotiations. The Legislature did not know the full fiscal effect of a 66-hour duty week in August 2022. However, the Legislature now knows that a six-hour duty week reduction requires a substantial, new, and ongoing General Fund commitment of nearly $1 billion annually (by 2028-29). The Legislature also knows that other relevant changes, such as the transition of seasonal firefighter positions to permanent ones, will increase General Fund costs in future fiscal years with projected multibillion-dollar deficits. However, given the time line to implement a 66-hour duty week, it is unclear whether the Legislature will have sufficient information to evaluate the outcomes of this policy change on state firefighters and the state’s wildfire resilience before yet another significant policy change—a 56-hour duty week—could be discussed. Therefore, we recommend the Legislature require an estimation of the fiscal effect and time line to implement a 56-hour duty week be provided prior to any discussion during the successor MOU negotiations in 2027. With this information, the Legislature would be better able to evaluate the concept of a 56-hour duty week within the context of the state’s budget condition, informed by at least some information from the 66-hour duty week transition.

Establish Guardrails for Possible DROP Benefit. As we noted above, the Unit 5 agreement that was ratified by the Legislature by Chapter 25 includes a similar DROP provision as the proposed Unit 8 agreement. Establishing a DROP for any bargaining unit would be a significant change in retirement benefits offered to state employees and would create new financial risks to the state. These risks would depend heavily on the specific design of the program and employee behavior (which is difficult to predict). If the Legislature ratifies the proposed agreement now before the Legislature, we recommend that the Legislature include language in the ratification legislative vehicle that expresses legislative direction that any proposal to establish a DROP be (1) submitted to the Legislature as a policy bill and that nothing in a future labor agreement be conditioned on the passage of that policy bill and (2) subject to a full actuarial review either by CAAP or the actuaries at the California Public Employees’ Retirement System to assess the range of possible fiscal effects the benefit could have on the state. If these criteria are not met, we would recommend that the Legislature reject any future labor agreement that establishes a DROP.

Amend Section 19827.3 to Require Inclusion of Federal Firefighters in CalHR Compensation Study. As we discussed above, federal firefighters do similar work as Unit 8 firefighters. In order to reflect the labor market for wildfire firefighters in the state, the CalHR compensation study should compare Unit 8 compensation with federal firefighters as well as local government firefighters. We recommend that the Legislature amend Section 19827.3 to require federal firefighters to be included in CalHR’s compensation study.