Summary of LAO Findings and Recommendations on the 2010-11 Budget

Create a summary list by choosing a Policy Area OR Department below, and clicking Go.

	Program	Budget Issue	LAO Finding Or Recommendation	Last Updated
Go Back	Reduction for Employee Compensation	Governor's proposed "mandatory personal leave program" for 2010-11.	As we have stated previously, reductions to state personnel costs are necessary due to the magnitude of the budget problem. The total amount of personnel cost savings that the Legislature will need to target will depend on the other choices that it makes in putting together the 2010-11 budget package.	5-14-10

Detailed Narrative
*Proposed Mandatory Personal Leave Program. The Governor’s May Revision proposed a "mandatory personal leave program” (PLP). Notwithstanding the existing statutory collective bargaining process, all civil service and specified exempt state employees in the executive branch would have their take-home pay reduced by the equivalent of eight hours of pay in 2010-11, and would be credited with eight hours of leave each month. Like the existing furlough program, the proposed PLP generally would not affect the employee’s salary rate or range (for benefit calculation or other purposes). Employees would be required to take PLP leave hours before other types of leave and could not cash out any unused leave. In general, departments would apparently remain open on Fridays under this proposal, returning to a regular operating schedule following expiration of the existing furlough program. The Department of Personnel Administration would be authorized to adopt policies and procedures to implement the PLP, not subject to the requirements of the state's collective bargaining law or administrative procedures act. The administration estimates that the PLP proposal would save roughly $795 million ($446 million General Fund) in state expenditures. Under the administration's proposal, state employee labor agreements "reached or amended on or after June 1, 2010...shall be controlling" if in conflict with the proposed state law to implement this PLP program. Proposed Program Would Be in Addition to Governor’s January Proposals. The Governor proposes to implement the PLP program in addition to the proposals he made in January—including a 5 percent salary reduction, increasing employee retirement contributions by 5 percent, and implementing unallocated reductions equal to 5 percent of personnel budgets of departments (“workforce cap”). As we have described in a previous publication, reductions in the state's personnel costs--currently around 10 percent of General Fund costs for non-university state employees--are necessary due to the magnitude of the budget problem. Furthermore, the Governor's proposed employee retirement contribution shift, as well as much of the proposed workforce cap reductions, likely are unachievable. (The administration's plan for the workforce cap reductions, for example, assumes at least $195 million of savings in the state prison system and targets a huge change in work hours for correctional staff that is subject to collective bargaining under current law). In our view, the Legislature has to decide whether employee compensation reductions should be scored and implemented subject to collective bargaining or, alternatively, whether to implement statutory measures to bypass the existing collective bargaining process, as the Governor has proposed. The PLP concept--similar in some respects to "self-directed furloughs" in departments, as well as the collectively-bargained Service Employees International Union Local 1000 agreement that was not approved in 2009--is one more option at the Legislature's disposal. The total amount of personnel cost savings that the Legislature will need to target will depend on the other choices that it makes in putting together the 2010-11 budget package. Personnel Savings Necessary to Achieve Another of the Governor's Budget Solutions.* Between this proposal for a mandatory PLP and the Governor's other employee compensation proposals, the administration assumes $2.1 billion of 2010-11 budget savings. In addition, the Governor's May Revision proposal for the General Fund to borrow up to $250 million from the Motor Vehicle Account (MVA) is, in effect, dependent on successfully achieving most or all of this employee compensation budget savings. Specifically, the MVA loan proposal relies on MVA-funded departments (primarily the California Highway Patrol [CHP] and the Department of Motor Vehicles [DMV]) reducing personnel costs so that the MVA will have enough resources to make the proposed loan in 2010-11. In order to accurately score the savings in its budget package, the Legislature should ensure that it assumes the entire budgetary benefit from the MVA loan only if it takes actions to cause CHP and DMV to reduce personnel costs.

Detailed Narrative

Proposed Mandatory Personal Leave Program. The Governor’s May Revision proposed a "mandatory personal leave program” (PLP). Notwithstanding the existing statutory collective bargaining process, all civil service and specified exempt state employees in the executive branch would have their take-home pay reduced by the equivalent of eight hours of pay in 2010-11, and would be credited with eight hours of leave each month. Like the existing furlough program, the proposed PLP generally would not affect the employee’s salary rate or range (for benefit calculation or other purposes). Employees would be required to take PLP leave hours before other types of leave and could not cash out any unused leave. In general, departments would apparently remain open on Fridays under this proposal, returning to a regular operating schedule following expiration of the existing furlough program. The Department of Personnel Administration would be authorized to adopt policies and procedures to implement the PLP, not subject to the requirements of the state's collective bargaining law or administrative procedures act. The administration estimates that the PLP proposal would save roughly $795 million ($446 million General Fund) in state expenditures. Under the administration's proposal, state employee labor agreements "reached or amended on or after June 1, 2010...shall be controlling" if in conflict with the proposed state law to implement this PLP program.

Proposed Program Would Be in Addition to Governor’s January Proposals. The Governor proposes to implement the PLP program in addition to the proposals he made in January—including a 5 percent salary reduction, increasing employee retirement contributions by 5 percent, and implementing unallocated reductions equal to 5 percent of personnel budgets of departments (“workforce cap”). As we have described in a previous publication, reductions in the state's personnel costs--currently around 10 percent of General Fund costs for non-university state employees--are necessary due to the magnitude of the budget problem. Furthermore, the Governor's proposed employee retirement contribution shift, as well as much of the proposed workforce cap reductions, likely are unachievable. (The administration's plan for the workforce cap reductions, for example, assumes at least $195 million of savings in the state prison system and targets a huge change in work hours for correctional staff that is subject to collective bargaining under current law).

In our view, the Legislature has to decide whether employee compensation reductions should be scored and implemented subject to collective bargaining or, alternatively, whether to implement statutory measures to bypass the existing collective bargaining process, as the Governor has proposed. The PLP concept--similar in some respects to "self-directed furloughs" in departments, as well as the collectively-bargained Service Employees International Union Local 1000 agreement that was not approved in 2009--is one more option at the Legislature's disposal. The total amount of personnel cost savings that the Legislature will need to target will depend on the other choices that it makes in putting together the 2010-11 budget package.

Personnel Savings Necessary to Achieve Another of the Governor's Budget Solutions. Between this proposal for a mandatory PLP and the Governor's other employee compensation proposals, the administration assumes $2.1 billion of 2010-11 budget savings. In addition, the Governor's May Revision proposal for the General Fund to borrow up to $250 million from the Motor Vehicle Account (MVA) is, in effect, dependent on successfully achieving most or all of this employee compensation budget savings. Specifically, the MVA loan proposal relies on MVA-funded departments (primarily the California Highway Patrol [CHP] and the Department of Motor Vehicles [DMV]) reducing personnel costs so that the MVA will have enough resources to make the proposed loan in 2010-11. In order to accurately score the savings in its budget package, the Legislature should ensure that it assumes the entire budgetary benefit from the MVA loan only if it takes actions to cause CHP and DMV to reduce personnel costs.