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2013

Other Budget Issues

Further Detail

Background

Rank-and-File Employee Compensation Established Through Collective Bargaining. The state’s rank-and-file employees are organized into 21 collective bargaining units and represented by unions. Through collective bargaining, the administration and unions negotiate and agree to employees’ terms and conditions of employment. Once the administration and unions reach an agreement, the administration submits the agreement—known as a memorandum of understanding (MOU)—to the Legislature for ratification. All 21 bargaining units have current MOUs.

Item 9800 Provides Augmentation for All Scheduled Benefit Increases. The current MOUs contain provisions that increase the state’s costs in 2013-14. Most of these provisions were administratively extended to employees excluded from collective bargaining—managers and supervisors. In total, the proposed budget contains $502 million ($247 million General Fund) in Item 9800 to pay increased employee compensation costs in 2013-14, including:

• Pay Increases for Employees at Top Step. Most employees who are at the top step of their salary range will receive between a 3 percent and 5 percent pay increase in July 2013.
• Health Premiums Increase in 2014. For many employees, the state pays a defined share of health premiums. As a result, when health premiums increase, the state’s costs associated with these benefits automatically increase. For other employees, the state pays a flat dollar amount towards their health premiums and any increase in this state support must be negotiated. The budget assumes that health premiums will increase by 8.5 percent in 2014. The actual premium increase, however, will be established by the California Public Employees’ Retirement System (CalPERS), typically in June.

LAO Comments

Costs Associated With New MOUs Not Known. All but two of the current MOUs are scheduled to expire in July 2013. The administration has indicated that it will begin negotiating new contracts with these bargaining units in early 2013. To the extent that the MOUs ratified by the Legislature change employee benefits for 2013-14, the state’s employee compensation costs could be different than those presented by the administration in Item 9800. As a result, we recommend that the Legislature hold this item open until after the May Revision when the CalPERS 2014 health premium negotiations and the collective bargaining for the 19 bargaining units described above may be closer to completion.