MOU Analysis:
Unit 10 (Professional Scientific)

On December 22, 2022, our office received a proposed memorandum of understanding (MOU) between the state and Bargaining Unit 10 (Professional Scientific). This analysis of the proposed agreement fulfills our statutory requirement under Section 19829.5 of the Government Code. State Bargaining Unit 10’s members are represented by the California Association of Professional Scientists (CAPS). The administration has posted on the California Department of Human Resources’ (CalHR’s) website the full agreement, a summary of the agreement, and their estimated fiscal effects of the agreement. (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.)

Major Provisions of Proposed Agreement

Term. If ratified by the Legislature and union members, the agreement would be in effect from November 1, 2022 through January 1, 2025.

Provisions Related to Pay

Current-Year Special Salary Adjustments (SSAs) Effective November 1, 2022. Depending on their job classification, the agreement would provide Unit 10 members a 10 percent, 4 percent, or 2.5 percent pay increase effective November 1, 2022, as described below.

• 10 Percent SSA for Specified Few. Unit 10 members employed in one of about 15 specified veterinarian and plant sciences classifications—representing about 1 percent of Unit 10 members—would receive a 10 percent pay increase.

• 4 Percent SSA for Most of Unit 10. About 87 percent of Unit 10 members would receive a 4 percent pay increase. About 70 specified classifications would be eligible for this pay increase, including different types of environmental scientists, research scientists, chemists, and health scientists.

• 2.5 Percent SSA for Remaining Classifications (12 Percent of Unit 10). The classifications not specified to receive the above SSAs—representing about 12 percent of Unit 10 members—would be eligible to receive a 2.5 percent SSA.

General Salary Increases (GSIs). The agreement would provide all employees represented by Unit 10 a 2 percent GSI on July 1, 2023 and an additional 2 percent GSI on July 1, 2024.

Increased Bilingual Pay Differential. Effective the first day of the pay period following ratification, the agreement would double (from $100 per month to $200 per month) the bilingual pay differential received by eligible Unit 10 members. The administration indicates that about 70 employees receive this pay differential.

Bay Area Geographic Pay Differential. Effective the first day of the pay period following ratification, the agreement would provide a new $250 per month pay differential to each Unit 10 member whose worksite is located in the Counties of Alameda, Contra Costa, San Mateo, or Santa Clara, or the City and County of San Francisco. The agreement specifies that the pay differential would not be considered compensation for the purposes of pension benefits. In the event that a worksite is relocated out of the eligible region, the agreement specifies that the differential would cease at the end of the month in which the relocation occurs. The administration indicates that about 400 employees would be eligible for the pay differential.

Change in Pay Ranges for Specified Unit 10 Classifications at California Department of Corrections and Rehabilitation (CDCR). Two Unit 10 classifications—Senior Hazardous Materials Specialist, Technical (Class Code 3527) and Associate Hazardous Materials Specialist (Class Code 3528)—have two pay ranges, referred to as Range A ($6,069-$7,549 per month) and Range B ($6,649-$8,321 per month). Under the current agreement, employees in these classifications qualify for the higher pay range (Range B) if they have regular, direct responsibility for work supervision, on the job training, and work performance evaluation of at least two inmates, wards, or resident workers who substantially replace civil service employees for a total of at least 173 allocated hours of the inmates’, wards’, or resident workers’ time per pay period. Effective the first day of the pay period following ratification, the proposed agreement would provide the higher pay range for any Unit 10 member in these classifications who works for CDCR. The administration indicates this could increase the pay of about 14 Unit 10 members.

New Pay Differential for Specified Credentials. Effective the first day of the pay period following ratification, the proposed agreement would provide Unit 10 members in three industrial hygienist classifications (junior industrial hygienist [class code 3824], assistant industrial hygienist [class code 3855], and associate industrial hygienist [class code 3856]) a pay differential if they have attained a specified credential. Specifically, employees in an eligible classification who achieve and maintain a (1) certified associate industrial hygienist credential would receive a pay differential of 2 percent of pay and (2) certified industrial hygienist credential would receive a pay differential of 3 percent of base pay. The agreement specifies that an employee may only be eligible for one of the pay differentials and that the pay would not be considered compensation for purposes of pension benefits.

Educational Pay Differential. Effective the first day of the pay period following ratification, Unit 10 members in various specified classifications would receive a 2 percent pay differential if they possess a master’s degree and a 3 percent pay differential if they possess a doctoral degree or Doctor of Medicine. The agreement specifies that these pay differentials would not affect employee pension benefits.

Increased Transportation Reimbursement. The state reimburses employees for some costs related to their commute. The proposed agreement increases the amount of reimbursement that employees may receive for their costs related to mass transit and vanpools from 75 percent of the cost (up to $65 per month or $100 per month for a vanpool driver) to 100 percent of the cost. The agreement specifies that the maximum reimbursement possible would be based on the maximum monthly exclusion amount allowed by the U.S. Internal Revenue Services (IRS). In 2023, the IRS monthly exclusion for qualified transportation benefits is $300.

Bicycle Commuter Program. The agreement would allow employees who regularly commute by bicycle during a substantial portion of a calendar month to submit claims in accordance with current state policy established under Section 1425 of the Human Resources Manual, which establishes the state’s bicycle commuter program. Under the program, eligible employees may receive $20 each month.

Other Provisions

Disability Insurance. About half of the state workforce is covered by either Non-Industrial Disability Insurance (NDI) or Enhanced NDI (ENDI), an employer-paid benefit that pays part of an employee’s wages (up to 60 percent of wages in the case of NDI and up to 100 percent of wages in the case of ENDI) in the event of qualified leave, typically due to illness or injury, for up to 26 weeks. Employees who are enrolled in annual leave rather than vacation/sick leave are eligible to be covered by ENDI. An alternative benefit to E/NDI is State Disability Insurance (SDI). SDI is paid for through a 1 percent of pay deduction from employee pay. Eligible participants can receive about 60 percent to 70 percent (depending on income) of their wages replaced for a maximum of 52 weeks. Employees represented by the nine bargaining units represented by Service Employees International Union, Local 1000 (Local 1000) currently are the only state employees who participate in SDI rather than E/NDI. Effective at the earliest possible date within six months from ratification, the proposed agreement would switch Unit 10 members from NDI to SDI with a six-month transition period. The agreement specifies that for a period of three months after the transition of Unit 10 members to SDI is complete, employees may elect to switch between either the vacation/sick leave program or the annual leave program.

Elimination of Furlough Protections. The proposed agreement does not include the provision from the current MOU that prohibits the state from implementing a furlough program during the duration of the MOU.

Contract Appropriation. Although the agreement does not have the furlough protection language, it does specify that the state and CAPS would present to the Legislature a provision to appropriate funds to cover provisions of the agreement through January 1, 2025.

Business and Travel Expenses. During the term of the agreement, the state would apply any future changes to the state’s reimbursement rates for travel and business expenses to Unit 10.

Increased Leave Cap. The proposed agreement would temporarily increase the existing 640 hours of vacation or annual leave cap for Unit 10 members by the equivalent number of Personal Leave Program 2020 (PLP 2020) hours received by Unit 10 members. The higher vacation leave cap would be in place until June 30, 2025.

Creation of Joint Labor Management Committees. The agreement would create two Joint Labor Management Committees to meet and discuss the below issues.

• Total Compensation Report Methodology. A committee would “meet and discuss the components, including the criteria, comparators, and the methodology” used in the compensation analysis CalHR conducts pursuant to Section 19826 of the Government Code. The committee would first meet no later than 18 months prior to the expiration of the proposed MOU. The administration indicates that CalHR is under no obligation to make changes to the compensation report proposed by the union through this process.

• Promotional Structures of Specified Classifications. A committee would “meet to examine” the promotional structure, including the minimum qualifications, for the following classification series: environmental scientist, seismologist, integrated waste management specialist, industrial hygienist, Energy Commission specialist, geologist, and toxicologist. The committee would first meet within two months after ratification of the MOU with the intent of submitting recommendations to CalHR no later than June 30, 2024. If the state and CAPS mutually agree that the committee’s recommendations identify critical issues that warrant immediate action, the agreement specifies that the parties will meet and confer to address the identified issues.

Data Collection of Work Conducted in Small Aircraft. The agreement would require departments that employ Unit 10 members who conduct work in small aircraft to collect data on how many flight hours those employees accumulate on an annual basis. The agreement specifies that these data will be provided to the union.

Accrued PLP 2020 Hours Do Not Expire. The proposed agreement adds a provision specifying that accrued PLP 2020 leave does not expire.

Electronic Monitoring. The agreement includes a new provision related to electronic monitoring. Specifically, the provision specifies that (1) the state would not use the log on/off time to the computer or electronic access card entry/exit times of employees as the sole source of attendance reporting or as the sole reason of discipline and (2) any electronic location tracking primarily will be used for operational efficiency, safety, and security but such data would not be the sole basis for disciplinary action unless driving behavior or vehicle use constitutes cause for disciplinary action as defined in Section 19572 of the Government Code.

Administration’s Fiscal Estimates

Increased Costs Beginning in 2023-24 Assumed in Budget. The administration estimates that the agreement would increase state costs in 2023-24 by $36 million ($9 million General Fund) and by $48 million ($12 million General Fund) annually beginning in 2024-25. These costs are assumed in the budget proposed by the administration.

Current-Year Costs Would Require Supplemental Appropriation. The administration estimates that the agreement would increase state costs in 2022-23 by $15.6 million ($4 million General Fund). These current-year costs would require a legislative appropriation.

Costs to Extend Provisions to Related Excluded Employees. Financial provisions of MOUs often are extended to excluded employees who are affiliated with the bargaining unit—for example, Unit 10 managers and supervisors. The administration estimates that extending the financial provisions to these employees would increase state costs by $1.8 million ($457,000 General Fund) in 2023-24 and $3 million ($774,000 General Fund) in 2024-25.

LAO Comments

Long-Standing Disagreement Between Union and State Regarding Appropriate Level of Compensation for Unit 10. For many years, there has been significant disagreement between CAPS and the state as to how much state scientists should be paid. The disagreement primarily stems from union-raised pay equity concerns between two sets of employees: (1) between Unit 9 and Unit 10 rank-and-file workers and (2) between unit 10 rank-and-file workers and their supervisors. (For more information about the disagreement, refer to this August 2022 article published by the Sacramento Bee or this February 2020 article published by CalMatters.) The disagreement resulted in CAPS union membership rejecting a 2014 tentative agreement negotiated with the Brown Administration—something that is incredibly rare in the collective bargaining process—after the Legislature had already ratified the agreement as part of the 2014-15 budget. Since the rejected 2014 MOU, the state and Unit 10 have agreed to three MOUs (a one-year MOU that expired July 2015 that was established through mediation, a three-year MOU that expired July 2018, and the two-year MOU that expired July 2020 under which Unit 10 members currently work) and two side letters (a two-year agreement beginning in 2020-21 to reduce employee compensation through PLP 2020; and a one-year agreement beginning in 2021-22 to end PLP 2020 one year earlier than previously agreed).

Long Period of Negotiating Shows That Historical Disagreement Between Union and State Persists. At the bargaining table, each page of a tentative agreement is signed by both parties and dated. From our experience reviewing MOUs, we have learned that an agreement often takes a few months—not years—to be finalized. Typically, the provisions signed by the parties early in the process are simple changes or “roll-over” provisions that leave provisions of the prior agreement unchanged. As time passes, the provisions agreed to at the table become more consequential with the last provisions typically being the most substantial (for example, provisions related to pay increases and the duration of the agreement). The fact that the proposed agreement took more than two years to finalize suggests that it is the product of a very difficult and prolonged negotiation.

The parties signed the first pages of the tentative agreement in 2020, with some relatively minor provisions of the agreement related to pay being signed during the summer of 2022 (including adjusting the pay range for specified classifications at CDCR, the educational pay differentials, and the industrial hygienist certification differentials); the final provisions were not signed until mid-December 2022. The last provisions to be signed included the SSAs and GSIs, the geographic pay differential, the creation of a committee to meet and discuss CalHR’s methodology when conducting its next Unit 10 total compensation study, the creation of a committee to meet and examine the promotional structure of specified classifications, the duration of the agreement expiring January 1, 2025, and a commitment to fund the provisions of the agreement through January 1, 2025. The content and timing of these last provisions strongly suggest that the disagreement over Unit 10 compensation persists.

Notwithstanding Long-Standing Disagreement Over Unit 10 Compensation, 2023 Presents Challenging Bargaining Environment… The state is faced with competing tensions that make reaching bargaining agreements in 2023 difficult. On one hand, we and the Department of Finance project that the state will face a budget problem in 2023-24. Moreover, our office recommends the Legislature plan for a larger budget problem as we estimate revenues likely will be lower than the administration’s estimates. With state employee compensation being among the largest state operating costs, the state often seeks concessions from state employees (most commonly through some form of furlough) to help address projected budget problems. Concessions from state employees in 2023-24 would be difficult to negotiate when (1) employees’ purchasing power has been eroded considerably since 2020 by inflation and (2) state employees voluntarily agreed to receive pay cuts in 2020-21 through PLP 2020 to help address a budget problem that never materialized. (Although there is evidence of inflation slowing [as we discuss here and here], inflation has been high—exceeding 7 percent for much of 2022 and totaling 15 percent overall since 2020.) Consequently, although the state will need to find solutions to the budget problem, the state also will feel pressure to maintain—if not increase—employee compensation.

…At Time When Majority of State Workforce Will Come to Bargaining Table. Unit 10 is one of 15 bargaining units that are expected to come to the bargaining table in 2023. These 15 bargaining units include bargaining units represented by the state’s two largest unions (Local 1000, which represents nine bargaining units, and the California Correctional Peace Officers Association, which represents Unit 6) and account for more than 80 percent of the state workforce and nearly 90 percent of the state’s General Fund payroll costs. The estimated 2023-24 costs to implement the proposed Unit 10 agreement represents about 6.4 percent of the state’s Unit 10 payroll costs. If payroll costs for all 15 bargaining units and their associated excluded employees increased 6.4 percent, state General Fund payroll in 2023-24 would be more than $1 billion higher than 2022-23 levels. When it acts on the 15 agreements, the Legislature will be setting the state’s policies as an employer for most of the workforce and will be approving a spending plan for General Fund state employee compensation for at least the next couple of years.

LAO Recommendations and Considerations

Direct Administration to Get All Labor Agreements Submitted to Legislature by June 1, 2023. The collective bargaining process notoriously proceeds without regard for the legislative calendar. The proposed Unit 10 agreement is highly unusual in that it was submitted to the Legislature at the beginning of the legislative session. More commonly, the administration submits labor agreements to the Legislature within days of the end of the legislative session. While jamming the Legislature in any year is not acceptable, doing so would be even more problematic when the Legislature is faced with solving a budget problem. With most of the state’s General Fund payroll being subject to bargaining this year, reviewing all of the agreements together—in the context of the budget architecture—would ensure the Legislature can address the budget problem according to its priorities. In contrast, were agreements submitted later in the year, the Legislature could be forced to identify new solutions to accommodate those agreements. As such, we highly recommend that the Legislature direct the administration to submit to the Legislature any and all proposed successor MOUs no later than June 1. To enforce this requirement, the Legislature could specify that any successor MOUs submitted after June 1, 2023 will be considered as part of the 2024-25 budget.

Defer Action on Unit 10 Agreement Until Other Agreements Are Before Legislature and 2023-24 Revenue Outlook Is Clearer. There is uncertainty about economic conditions in 2023-24 and the magnitude of the budget problem the state will face. Because of this uncertainty, we recommend that the Legislature not act on any proposed MOU—including the Unit 10 agreement—until the May Revision. Deferring action on the Unit 10 agreement would allow the Legislature to ensure the agreement aligns with other agreements across the other 14 units. Moreover, deferring action would avoid approving a labor agreement that might not align with the Legislature’s ultimate strategy for how to address the budget problem.

Consider Revisiting Approach to Prefunding Retiree Health. The state and its employees each pay about one-half of the normal cost to prefund state employee retiree health benefits. These contributions are determined as a percentage of pay. Employee contributions are deducted from their pay through payroll with the average state employee paying 3.5 percent of their pay to prefund the benefit. We repeatedly have raised concerns with the current prefunding strategy since the time the previous administration first proposed that the state and employees each pay one-half of the normal cost (see our initial response to the strategy; our comments on the labor agreements implementing the strategy for Units 6, 9, and Local 1000; and our 2020 analysis of the labor agreements that established PLP 2020). As we have explained in the past, we think it makes more sense for the state to assume full responsibility to pre-fund retiree health benefits as it is a simpler approach, is cheaper than sharing prefunding costs with employees, is more likely to result in a fully funded benefit within the next few decades, and could give the Legislature greater flexibility in the future to modify the benefit.

The challenging environment at the bargaining table gives the state the opportunity to revisit its current strategy. The state and unions could agree to end the employee contribution to prefund retiree health benefits beginning in 2023-24—increasing the average employee’s take home pay by 3.5 percent—with a commitment from the state to assume the full normal cost. (To avoid accruing additional unfunded liability, we recommend the state develop a funding plan as part of the 2023-24 budget if the Legislature chooses to implement this approach.) This would effectively give employees a pay increase in 2023-24 without increasing state costs in 2023-24 and improve upon the existing strategy to prefund retiree health benefits.

If the state eliminated the employee contribution, 3.5 percent of the average employee’s pay would return to them without any increased cost to the state. When the state begins paying the full normal cost, the state’s costs would increase by roughly the equivalent of about 3.5 percent of current salaries. This approach is less expensive than giving employees a 3.5 percent salary increase because a $1 increase in salary increases state costs by $1 plus the cost of salary-driven benefits (pension, Social Security, Medicare, and retiree health prefunding under the current structure). These salary-driven benefits typically increase employee compensation costs by 50 percent of salary. Accordingly, taking on the employees’ share of prefunding retiree health benefits would increase the state’s costs by roughly $1 for every $1 of pay returned to state employees after ending the prefunding payroll deduction. The actual amount paid by the state going forward to prefund the benefit would be determined by actuaries in the annual valuation of the retiree health benefit. The state’s contributions would be based on the cost of the benefit and no longer artificially tied to salaries (salary levels have no effect on retiree health benefit costs, which are driven by changes in health premiums and enrollment). The savings accrued from decoupling prefunding retiree health care from salaries could be put toward the funding plan for this benefit (as well as address some of the unfunded liability).