Major Provisions of Proposed Agreement

Term. The agreement would be in effect for one year—from July 3, 2018 to July 2, 2019. This is an unusually short term for a Unit 6 agreement. However, it is consistent with our 2007 recommendation to the Legislature not to approve any proposed labor ...

LAO Assessment

Administration’s Fiscal Estimate

2018-19 Costs Mostly Attributable to Leave Cash Outs. As shown in Figure 2, the administration estimates that the proposed agreement will increase state costs for rank-and-file employees represented by CCPOA by $116 million in 2018-19. (The administration assumes that CDCR will pay for about $1.5 million of these costs using existing resources.) About 84 percent of the identified costs in 2018-19 are attributed to employees cashing out 80 hours of leave in September.Omits Some Costs Resulting From GSI in 2019-20. The administration’s estimated cost resulting from the 5 percent GSI in 2019-20 does not take into consideration the full effect of increasing salaries. After taking into account the issues described below, we estimate that the state’s costs beginning in 2019-20 could be tens of millions of dollars above what the administration estimates—virtually all from the General Fund.No Cost Attributed to Parole Agent Caseloads. The administration attributes no cost to the changes in parole agent sex offender caseloads. To the extent that there are costs, the administration indicates that CDCR currently has sufficient resources to accommodate the change. We think the provision could increase state overtime or personnel costs. Any effect likely would be in the low millions.

Interactions With Pending Budget Proposals

As discussed below, the proposed agreement interacts with a number of budget proposals currently being considered by the Legislature.Item 9800. The Governor’s May Revision—submitted to the Legislature before the proposed agreement was finalized—increases It...

Leave Cash Outs

Leave Cash Outs Reduce Long-Term Liability. The average state employee earns a significant number of days off each year. In recent years, the state has made efforts to encourage employees to use more leave. Most Unit 6 members work in 24-hour facilities where it can be difficult for employees to take time off. During the five years of furloughs from 2008-09 to 2012-13, it was virtually impossible for Unit 6 members to use the 94 furlough days they received plus the vacation or annual leave they earned throughout the year. As Figure 3 shows, the result of these furloughs was that the average Unit 6 member’s vacation/annual leave balance more than doubled between 2008 and 2013. In recent years, these balances have started to decrease—likely due to senior employees with large leave balances retiring.As we explain in our March 14, 2013 report After Furloughs: State Workers’ Leave Balances, unused leave balances create a liability for the state because the state must compensate employees for any unused leave—at their final pay rate—when the employee separates from state service. Employees typically earn their highest salary during their last year of service with the state. We estimate that the total value of Unit 6 members’ unused vacation and annual leave currently is more than $440 million and will grow to more than $460 million after the proposed GSI. Offering cash out programs in which employees can cash out unused leave at their current pay level will reduce the state’s long-term costs associated with these liabilities.

Pay Increase

5 Percent Is a Large Pay Increase. The proposed 5 percent GSI would be the largest given to Unit 6 members since 2006-07. (The MOU that was in place from 2001 to 2006 provided very large pay increases to Unit 6 members, compounding to a 34 percent pay...

Rising Pension Costs

Contribution Rates Expected to Grow. In recent years, CalPERS has changed a number of actuarial assumption it uses to determine employer contributions to the pension system. These assumption changes combined with investment losses have resulted in the state’s contribution rate for employee pension benefits to increase significantly over the past decade. For example, to fund pension benefits for Unit 6 members, the state contributed 25.6 percent of pay in 2007-08 but contributes 44.3 percent of pay in 2017-18. The state’s contribution rate is projected to continue growing as CalPERS phases in the effect of its decision to lower its discount rate assumption. The state is expected to contribute more than 50 percent of pay for Unit 6 pensions by 2021-22. The actual rates the state pays will be different than what is projected. For example, they will be higher than projected if CalPERS experiences investment losses or lower than projected if CalPERS experiences higher-than-assumed investment gains.

OPEB Prefunding

Contribution Rate Likely Will Need to Be Adjusted. The state’s policy to prefund retiree health benefits—first proposed by the Governor in 2015-16—is that the state and state employees agree at the bargaining table to each pay one-half of normal cost. In ...