MOU Fiscal Analysis: Bargaining Units 10 (Professional Scientists) and 18 (Psychiatric Technician)

The administration submitted to the Legislature proposed labor agreements between the state and Bargaining Units 10 (Professional Engineers) and 18 (Psychiatric Technicians) on August 20, 2025. This analysis of the proposed agreements fulfills our statutory requirements under Section 19829.5 of the Government Code. Unit 10’s members are represented by California Association of Professional Scientists/United Automobile, Aerospace and Agricultural Implement Workers of America (CAPS-UAW Local 1115). Unit 18’s members are represented by the California Association of Psychiatric Technicians (CAPT). The administration has posted on the California Department of Human Resources’ (CalHR’s) website (1) the Unit 10 agreement, a summary of that agreement, and the administration’s estimated fiscal effects of that agreement and (2) the Unit 18 agreement, a summary of that agreement, and the administration’s estimated fiscal effects of that agreement. Our State Workforce webpages include background information on the collective bargaining process, a description of these and other bargaining units, and our analyses of agreements proposed in the past.

Background

Furloughs

Long History of Using Furloughs to Address State Budget Problems. Furloughs, referred to as Personal Leave Program (PLP) when established through the state’s collective bargaining process, are the most common tool adopted by the state to reduce state employee compensation costs in times of budget problems. Furloughs have been used in ten fiscal years since 1992 (1992-93, 1993-94, 2003-04, 2008-09 through 2012-13, 2020-21, and 2025-26). Typically, a furlough for state employees reduces state employee pay by 4.62 percent in exchange for one day (eight hours) off per month without affecting other elements of compensation (for example, pension and health benefits). In the past, the state has (1) imposed furloughs and negotiated PLP at the bargaining table, (2) established furloughs as mandatory days when employees do not work (state offices would be closed one, two, or three “Furlough Fridays” each month), and (3) allowed employees to have “self-directed” furlough days where employees have discretion to use furlough days as they would vacation or other leave benefits. Units 10 and 18 were last subject to furloughs in 2020-21 when the state negotiated agreements with all 21 bargaining units to reduce employee compensation costs through PLP 2020 in anticipation of a budget problem in 2020-21 that did not materialize.

PLP 2025. The Legislature has ratified labor agreements with 18 of the state’s 21 bargaining units to make employees subject to PLP 2025. (An agreement with Bargaining Unit 8 is pending legislative approval to establish PLP 2025 for that unit.) As Figure 1 shows, the exact terms of PLP 2025 varies by bargaining unit. Generally, PLP 2025 offsets employee pay in exchange for hours of leave in each month of PLP 2025. The duration of PLP 2025 generally is 24 months across 2025-26 and 2026-27. Bargaining Unit 2 (Attorneys and Hearing Officers) and Bargaining Unit 16 (Physicians, Dentists, and Podiatrists) are exceptions and would be subject to PLP 2025 for only 16 months; however, employees represented by these two bargaining units would be subject to a larger pay offset than the other bargaining units during months of PLP 2025.

OPEB Prefunding

State Other Post-Employment Benefits (OPEB) Prefunding Strategy. For most of the more than six decades that the state has offered its employees retiree health benefits, the state did not prefund the benefit but instead paid the cost on a pay-as-you-go basis after employees retired. The result is that the state has a large unfunded liability associated with retiree health benefits for state employees—estimated to be $91.5 billion as of June 30, 2024 (the most recent actuarial valuation). In 2015-16, the state adopted a policy to establish through the collective bargaining process a prefunding arrangement whereby the state and current employees each pay one-half of the normal cost of the benefit. These contributions are invested in a trust fund. Under the funding plan, the state may not use the assets of the trust fund to pay benefit costs until 2046 or the benefit is fully funded, whichever comes first. As of the last actuarial valuation, the state was on track to fully fund the benefit in different years, varying by bargaining unit. Specifically, the state was on track to fully fund the benefit in 2042 (in the case of Unit 16), 2046 (in the case of Unit 19), 2047 (in the case of Units 2 and 13), 2048 (in the case of Units 5, 7, and 12), and 2049 (in the case of Units 6, 8, 9, 10, 18, and the nine bargaining units represented by Services Employees International Union, Local 1000).

Recent Agreements Suspended Employer and Employee OPEB Prefunding. Under recently ratified agreements with 19 bargaining units (all but Units 8 and 10, which now have agreements pending before the Legislature), the state will not make contributions towards prefunding retiree health benefits in 2025-26 or 2026-27. Suspending the state’s prefunding contributions reduces state department costs by between 1 percent of pay and 4.5 percent of pay in 2025-26 and 2026-27. (The General Fund share of these costs are paid from the state’s required annual debt payments under Proposition 2 [2014].) In addition, all but the agreement with Unit 6 (Corrections) also suspend the employee contribution. Suspending employee contributions increases workers’ take-home pay for the duration of the suspension. Suspending employer and employee contributions creates a short-term benefit to both the employer and employee; however, it will result in less money being invested in the trust fund and higher unfunded liabilities for the state in the long run. In most of the agreements, the state’s contributions towards the benefit would be fully restored in 2027-28. However, the agreements with Units 7 (Protective Services and Public Safety), 12 (Craft and Maintenance), and 13 (Stationary Engineers) would phase in the restoration of the contribution rate so that the state’s contribution would not be fully restored until 2029-30. (As we discuss in this analysis, the proposed Unit 18 agreement would modify the existing suspension of OPEB prefunding to phase in the full contribution levels.)

2025-26 Budget

Item 9800 Funds Augmentations to Employee Compensation. In order for an economic provision of a ratified MOU—meaning a provision related to compensation—to take effect in any particular year, it must be funded in the annual budget act. This allows the Legislature to choose in any year not to fund elements of compensation established in ratified MOUs. Under the Ralph C. Dills Act (Dills Act), two things occur if the Legislature does not fully fund the economic provisions of an MOU: (1) the unfunded provision does not go into effect and (2) either party—the administration or the bargaining unit—may reopen negotiations on all or a part of the MOU. In the budget act, the Legislature approves augmentations to employee compensation—including funding economic terms of ratified MOUs—under Item 9800. This budget item declares that it is legislative intent to “reject any proposed augmentations that are not included in [Item 9800].” If the Legislature does not include funding for an economic provision of a ratified MOU under Item 9800, the Legislature’s action prevents that provision from going into effect.

Types of Agreements

Agreements Submitted to Legislature Through Two Different Processes. There are two processes through which a labor agreement can be submitted to the Legislature. The first applies to successor MOUs. Specifically, Section 19829.5 of the Government Code specifies that CalHR “shall provide a memorandum of understanding pursuant to Section 3517.5 to the Legislative Analyst who shall have 10 calendar days from the date the tentative agreement is received to issue a fiscal analysis to the Legislature. […] The memorandum of understanding shall not be subject to legislative determination until either the Legislative Analyst has presented a fiscal analysis of the memorandum of understanding or until 10 calendar days has elapsed since the memorandum of understanding was received by the Legislative Analyst.” The second process applies to addenda (including side letters) to properly ratified MOUs. Specifically, Item 9800 of the budget act directs the Department of Finance (DOF) to determine if an addendum requires legislative approval—pursuant to criteria laid out under Item 9800. DOF then submits the addendum to the Joint Legislative Budget Committee, which has up to 30 days to determine if it disagrees with DOF’s determination that an agreement does or does not require legislative approval.

Unit 10

Workforce and Compensation

Unit 10 Affiliated Employees Represent 2.5 Percent of State Workforce. Unit 10 represents about 6,500 full-time-equivalent (FTE) rank-and-file state employees. When counted with their affiliated managers and supervisors, Unit 10 accounts for about 2.5 percent of the state workforce and 1.6 percent of the state’s General Fund payroll costs.

Recent Compensation Study Found Two Unit 10 Occupations Compensated Above Market… CalHR releases regular reports comparing state employee compensation with compensation received by similar workers employed by other employers. The most recent compensation study that evaluated Unit 10 compensation looked at three occupations represented by Unit 10—chemists (representing about 3 percent of Unit 10 members), epidemiologists (representing about 5 percent of Unit 10 members), and environmental scientists (representing about 70 percent of Unit 10 members). The study found that the state’s total compensation earned by the two smaller occupations, chemists and epidemiologists, is above market levels by 15 percent and 23 percent, respectively.

…But Largest Occupation Compensated Below Market. The compensation study found that the largest occupation included in the study, environmental scientists, is compensated 8.5 percent below market.

Bargaining

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-UAW 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 (Professional Engineers) and Unit 10 rank-and-file workers and (2) between unit 10 rank-and-file workers and their supervisors. This disagreement has led to challenging labor relations between the state and state scientists for more than a decade. We discuss these challenges in our 2024 analysis of the most recently ratified Unit 10 MOU.

Pay Increases Established by 2024 MOU Not Funded in 2025-26 Budget. The Unit 10 MOU that the Legislature ratified in 2024 included pay increases in 2025-26. The 2025-26 budget enacted by the Legislature in July does not appropriate funds to pay for these scheduled pay increases. Pursuant to the Dills Act, the Legislature’s action to not fund these scheduled pay increases in a ratified MOU means that (1) the pay increases did not go into effect and (2) the state and CAP-UAW can reopen the ratified 2024 MOU in whole or in part.

July 2025 Side Letter Related to Return to Office. In July, the Legislature received a side letter between the state and CAPS-UAW related to Executive Order N-22-25 pertaining to the state’s telework policy. This side letter did not include economic provisions and took effect.

Unit 18

Workforce and Compensation

Unit 18 Affiliated Employees Represent 2.5 Percent of State Workforce. Unit 18 represents about 6,000 FTE rank-and-file state employees. When counted with their affiliated managers and supervisors, Unit 18 accounts for about 2.5 percent of the state workforce and 3.8 percent of the state’s General Fund payroll costs.

Recent Compensation Study Found Unit 18 Compensation to Be Above Market. The most recent compensation study produced by CalHR found that state-employed psychiatric technicians are compensated above market. Specifically, CalHR found that Unit 18 salaries are 7 percent above market and their total compensation is 22 percent above market. Despite the above market compensation levels, the study found that the voluntary separation rate among state-employed psychiatric technicians is higher than the statewide voluntary separation rate across all bargaining units. This suggests that the state might have challenges retaining psychiatric technicians despite the above market compensation levels.

Bargaining

Mandatory Overtime a Long-Standing Issue. The facilities where Unit 18 members work provide care to patients 24 hours a day, 7 days a week. When there are not enough psychiatric technicians scheduled to adequately provide care to patients—either due to lack of resources, unexpected absences, scheduling error, emergency, or other causes—the state may require staff to work overtime. Employees may receive very little notice that they will be required to work additional shifts. The state’s reliance on mandatory overtime, as we discussed in our 2020 analysis, is problematic and has been an issue of consideration in the Legislature and at the bargaining table for decades.

Ratified July 2025 Side Letter Suspended OPEB Prefunding. The Legislature ratified an agreement with Unit 18 through Chapter 25 of 2025 (SB 139, Committee on Budget and Fiscal Review) that suspends the state and employee contributions to prefunding retiree health benefits in 2025-26 and 2026-27.

Current Agreement Expired July 1, 2025. Unit 18 members work under the terms and conditions established under an MOU that expired at the start of the 2025-26 fiscal year. Pursuant to the Dills Act, the terms and conditions of an expired MOU generally remain in effect until a successor MOU is ratified.

Proposed Agreements

Unit 10

Agreement Cast as Addendum to 2024 MOU. The Unit 10 agreement itself and the supporting documents posted by the administration characterize the agreement as a side letter to the 2024 MOU. As we discuss in greater detail in the “LAO Comments” section, for purposes of determining whether our office is required to issue an analysis of the Unit 10 agreement, we consider the proposed agreement to be a successor agreement to the 2024 MOU.

Largely Maintains Provisions of 2024 Agreement. The proposed agreement maintains most of the provisions of the 2024 MOU. Like the 2024 MOU, the agreement would last two years and would expire July 1, 2027. We highlight the changes relative to the 2024 MOU below.

Increases 2025-26 Special Salary Adjustments for Employees Below Top Step of Salary Ranges. The 2024 MOU included pay increases in 2025-26 of (1) between 4 percent and 5 percent for employees at the top step of their classification’s salary range and (2) 3 percent for employees not at the top step of their classification’s salary range. These pay increases did not go into effect because funding for the increases was not included in Item 9800 of the 2025-26 budget. The proposed agreement would reestablish the pay increases for employees at the top step of their salary range and increase by 0.5 percentage points, to a total 3.5 percent, the pay increase received by employees not at the top step. (The proposed agreement would maintain the 2026-27 pay increases included in the 2024 MOU.)

Establishes PLP 2025 for Unit 10. Effective the first day of the pay period following ratification, the proposed agreement would establish PLP 2025 for Unit 10. Under the proposed agreement, PLP 2025 for Unit 10 members would be in effect through June 2027. Under PLP 2025, Unit 10 members would continue to work the same number of hours, but their pay would be reduced by 3.5 percent. In exchange for the offset in pay, employees would receive six hours of leave each month.

Suspends Employer and Employee Contributions to Prefund OPEB. Effective the first day of the pay period following ratification, the agreement would suspend employer and employee monthly contributions to prefund retiree health benefits.

Ends Telework Stipend. The agreement would end the telework stipend currently available to Unit 10 members. (The stipend provides remote-centered workers $50 per month and office-centered workers $25 per month.)

Unit 18

Term. The proposed agreement would be in effect through July 1, 2028. This means that the agreement would be in effect for three fiscal years: 2025-26, 2026-27, and 2027-28.

Increases Pay in 2025-26 and 2027-28. The agreement would provide all Unit 18 members a 3 percent General Salary Increase (GSI) effective the first day of the pay period following ratification and an additional 3 percent GSI effective July 1, 2027. A GSI applies to all steps in the salary ranges of all classifications represented by the bargaining unit.

Establishes PLP 2025 for Unit 18. The agreement would establish PLP 2025 for Unit 18 members. Specifically, PLP 2025 would be in effect from the first day of the pay period following ratification through the June 2027 pay period. During PLP 2025, employees would continue to work their assigned work schedules but their pay would be reduced by 3 percent. In exchange for the pay offset each month, Unit 18 members would receive five hours of PLP 2025 leave.

Increases Bilingual Pay Differential. Effective the first day of the pay period following ratification, the monthly bilingual pay differential would increase from $100 to $200.

Increases State Contributions to Active Employee Health Premiums. The state contributes a flat dollar amount towards Unit 18 members’ health benefits. The agreement would adjust the state’s contribution to be equivalent to the “80/80” formula where the state contributes 80 percent of the average premium for employees and 80 percent of the average premium for additional family members. Under the agreement, the state’s contribution would be adjusted in January of 2026, 2027, and 2028. Absent a successor MOU, the state’s contributions towards Unit 18 health premiums would not change when new premiums are established in January 2029.

Delays Restoration of Suspended Employer and Employee Contributions to Prefund OPEB. Under the ratified side letter with Unit 18, employer and employee contributions to OPEB will be suspended for two years and will be restored in 2027-28. The proposed agreement would delay by at least two years when the state and employee contributions would be restored fully. Specifically, the agreement would phase in the restoration of contribution by requiring the state and employees to increase their contributions by 1.5 percent of pay in 2027-28 (to a total of 1.5 percent of pay), 2028-29 (to a total of 3 percent of pay), and 2029-30 (to a total of 4.5 percent of pay). Beginning in 2030-31, both the employer and employee contributions under the agreement would fluctuate as a percentage of pay so that the employer and employee each contribute one-half of the normal cost of the benefit. This means that the full normal cost to prefund the benefit for Unit 18 might not be contributed on a regular basis to the trust fund until 2030-31 under the proposed agreement.

Freezes Employee Pension Contributions Through 2026-27. The Public Employees’ Pension Reform Act of 2013 established a standard that state employees contribute one-half of the normal cost to prefund pension benefits. The actual contribution rates paid by employees is established through the bargaining process. Under the proposed agreement, employees’ contributions towards their pensions would not increase or decrease through June 30, 2027. Effective July 1, 2027, employee pension contribution rates under the proposed agreement would float to maintain one-half of the normal cost to prefund the benefit.

Reduces Number of Shifts of Mandatory Overtime. The agreement would reduce the number of allowable mandatory overtime shifts by one shift per month from four shifts per month to three shifts per month. (In the case of the Department of Developmental Services Stabilization Treatment, Integration, and Reintegration homes, the agreement would reduce the number of allowable mandatory overtime shifts from five shift per month to four shifts per month.)

Establishes Expectations of Future Meetings Between Parties. The agreement would establish an expectation that the parties would meet and discuss specific topics, discussed below.

• Recruitment and Retention. Twice each year through June 30, 2028, the parties would discuss methods and opportunities to improve the state’s ability to recruit and retain Unit 18 members.

• Contracting Out. Twice a year, the parties would meet to examine existing personal services contracts that call for services found in Unit 18 class specifications. The agreement specifies that the purpose of these meetings would be for CAPT to present alternatives to using personal services contracts.

LAO Comments

Administration’s Estimated Fiscal Effect

In this section, we discuss the administration’s estimates of the agreements’ fiscal effects on the state.

Unit 10

Net Reduced Costs in 2025-26 and 2026-27. The administration estimates that the proposed agreement with Unit 10 would reduce state department costs by $10.1 million ($2.8 million General Fund) in 2025-26 and $13.5 million ($3.8 million General Fund in 2026-27), as shown in Figure 2.

Net Increased Ongoing Costs Beginning in 2027-28. The agreement would result in annual net costs for the state beginning in 2027-28 after PLP 2025 ends and the state’s contributions to prefund retiree health benefits are reinstituted.

Unit 18

Net Increased Ongoing Costs Beginning in 2025-26. As Figure 3 shows, relative to current law, the administration estimates that the proposed Unit 18 agreement would increase the state’s annual costs beginning in 2025-26. Because the state’s OPEB prefunding contributions are suspended under current law in 2025-26 and 2026-27, the administration does not attribute any savings with that policy in those years. However, the agreement would phase in the restoration of the state’s contributions over time. This results in new savings to departments’ budgets in 2027-28 and 2028-29. On net, however, the pay increases and increased state contributions to employee health premiums under the agreement would offset the savings from PLP 2025 and suspending the state’s OPEB contributions, resulting in net costs beginning in 2025-26 and growing in the out years.

Unit 10

Side Letter or Successor MOU? The administration (and the agreement itself) characterizes the proposed Unit 10 agreement as a side letter to the current MOU. When the Legislature did not include funds in Item 9800 for the economic provisions of the 2024 MOU, the parties reopened the MOU and began negotiations as is envisioned by the Dills Act. The product of these negotiations is a proposed agreement that (1) increases permanent pay increases provided in the 2024 MOU; (2) temporarily suspends employer and employee contributions to prefund retiree health benefits, adding to an existing and growing state unfunded liability; (3) establishes a two-year PLP to offset scheduled pay increases; and (4) permanently ends an existing pay differential for telework. While “side letters,” “MOU addenda,” and “MOUs” are all rather amorphous terms, the Public Employment Relations Board (PERB) laid out its definition of a side letter in a 2011 PERB decision. In that decision, PERB defines a side letter to mean “an agreement between an employer and union that typically: (1) modifies, clarifies or interprets an existing provision in an MOU; or (2) addresses issues of interest to the parties that are not otherwise covered by the MOU.” In our opinion, the changes in the proposed agreement are more significant and broader in scope than mere modifications, clarifications, or interpretations of the 2024 MOU. Accordingly, we consider the proposed agreement to be a proposed successor MOU that maintains most of the provisions of the 2024 MOU. Regardless of what name is given to the agreement, it requires legislative approval before it goes into effect.

Unit 18

Term of Agreement Longer Than Recommended. The proposed agreement with Unit 18 would be in effect for three fiscal years. We long have recommended that the Legislature not ratify agreements with terms of more than two years. The basis of this recommendation is to preserve legislative flexibility to respond to changing economic conditions

Freezing Employee Pension Contributions Could Lead to Higher State Costs. The California Public Employees Retirement System (CalPERS) determines how much money must be contributed to fund employee pensions. If normal cost increases during the time that the proposed agreement would freeze employee contributions, the state would be required to pay the increased normal cost.

LAO Recommendations

Restore OPEB Prefunding as Soon as Possible. The state’s unfunded liabilities associated with state employee retiree health benefits grew in the most recent actuarial valuation despite the state and employees making prefunding contributions at the time. When the prefunding plan was first adopted, the benefit was expected to be fully funded by 2046. For most of the state workforce, this full funding date has now slipped to 2049. Suspending contributions to prefund retiree health benefits by two years will result in unfunded liabilities growing more and the full funding date slipping further. As soon as is possible, we recommend that the Legislature make the prefunding trust fund whole by (1) resuming full prefunding contributions and (2) making additional contributions to the trust to catch up for any forgone contributions.