Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Department of Personnel Administration (8380)

The Department of Personnel Administration (DPA) manages the nonmerit aspects of the state's personnel system. (The State Personnel Board manages the merit aspects.) The Ralph C. Dills Act provides for collective bargaining for most state employees and sets the parameters for nonmerit aspects of state employment. Under this act, DPA is responsible for (1) reviewing existing terms and conditions of employment subject to negotiation, (2) developing management's negotiating positions, (3) representing management in collective bargaining negotiations, and (4) administering negotiated memoranda of understanding (MOUs). The DPA also is responsible for the compensation and terms and conditions of employment of managers and other state employees not represented in the collective bargaining process.

In addition to these personnel-related activities, DPA administers (1) the Rural Health Care Equity program, which subsidizes specified health insurance costs for state employees and retirees living in areas without health maintenance organization (HMO) options and (2) the Savings Plus deferred compensation program.

The budget proposes total expenditures of $65 million for support of the department in 2003-04. The principal funding sources are: 

• $38 million from the General Fund.
• $17 million from reimbursements from other state departments.
• $8 million from the Deferred Compensation Plan Fund.

Need for Staff to Process Layoffs Unclear at This Time

We withhold recommendation on the $1.8 million General Fund proposal for 29 one-year limited-term positions to process 10,000 layoffs, pending legislative decisions on programmatic and compensation reductions that will solidify the likely number of layoffs.

The budget proposes $1.8 million General Fund and 29 one-year limited-term positions to support DPA activities driven by an anticipated 10,000 layoffs. (This proposal represents the continuation of a $1.7 million General Fund deficiency request for the current year.) This request includes the following components:

• Classification and Compensation Division. Funding of $291,000 for overtime and other expenses to (1) administer the layoff process, (2) perform the individual seniority calculations that determine who receives layoff notices, and (3) approve demotional patterns that allow noticed employees to bump down to lower classifications (thereby deflecting layoffs to employees in lower ranking classifications).
• Labor Relations Division. Funding of $383,000 and ten positions to (1) conduct layoff impact negotiations with employee unions, as required in MOUs, and (2) conduct grievance hearings filed by employees subject to layoff.
• Legal Division. Funding of $1.1 million and 19 positions to (1) hear layoff appeals and (2) litigate arbitration proceedings of employees who appeal the outcome of DPA grievance hearings.

Number of Likely Layoffs Unclear at This Time. The Governor's budget eliminates approximately 2,000 positions due to proposed program reductions. It is our understanding that an estimated 1,500 of these positions are filled. In addition, the budget proposes an $855 million reduction in employee compensation costs. This reduction could be achieved through a number of measures—salary cuts, reduced benefits, furloughs, and layoffs.

Given these proposals, we think some amount of layoffs is possible. This is because the state's flexibility to absorb position reductions by moving employees to other vacant positions has been significantly reduced through elimination of more than 12,000 vacancies since 2000-01. In addition, the state has cut and eliminated programs, along with their associated positions, to reduce state expenditures.

It is unclear at this time, however, as to the number of layoffs that might occur. For example, the Legislature may wish to accept the proposed programmatic reductions while approving a lower level of employee compensation cuts. Alternatively, the administration's negotiations with employee unions might result in compensation reductions that occur mainly through salary and benefit cuts or furloughs, as opposed to layoffs. Either scenario would result in far fewer than 10,000 layoffs.

As a result, with the number of layoffs uncertain, we withhold recommendation on this proposal pending legislative decisions on programmatic and compensation reductions.