BILL ANALYSIS AB 53 Page 1 Date of Hearing: April 1, 2009 ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL SECURITY Ed Hernandez, Chair AB 53 (Portantino) - As Amended: March 25, 2009 SUBJECT : State employment: salary freeze. SUMMARY : Prohibits specified state employees whose annual base salary is over $150,000 from receiving a salary increase or overtime pay until January 1, 2012. Specifically, this bill : 1)Prohibits an employer from providing a pay raise or overtime pay to a person employed by the state whose annual base salary is over $150,000. 2)Defines "person employed by the state" as any person employed by the executive, legislative or judicial branches of government, appointees to state boards and commissions, and employees of the California State University system. 3)Exempts from these provisions a state employee whose salary is governed by Memoranda of Understanding, as set forth in the Ralph C. Dills Act, the Meyers-Milias-Brown Act, or pursuant to another collective bargaining agreement, a person who occupies a classification that is deemed necessary to public safety and security by the Governor through an executive order, or a person whose salary is set by the State Constitution. 4)Authorizes the Controller to reject a request for a disbursement of funds that violates these provisions. 5)Urges the University of California system to adopt this policy. 6)Specifies that this section will remain in effect until January 1, 2012. EXISTING LAW requires the Department of Personnel Administration (DPA) to set and adjust salaries for each classification in state service. AB 2936 (Ridley-Thomas), Chapter 240, Statutes of 2006, among AB 53 Page 2 other things, gives DPA special salary setting authority for certain statutorily exempt employees, primarily department and agency secretaries, commissioners, and directors allowing DPA to make salary determinations on a case-by-case basis after considering a number of factors, including growth in the position's stature and responsibilities, compensation paid in similar positions in other jurisdictions, the need to avoid salary compaction, and special recruitment needs. AB 257 (Chesbro), Chapter 748, Statutes of 2006, among other things, allows the Board of the California Housing Financing Agency to set the compensation of key exempt management positions, including the executive director, chief deputy director, the general counsel, director of financing, director of homeownership programs, director of multifamily programs, director of insurance, and financial risk management director. SB 269 (Soto), Chapter 856, Statutes of 2003, allows the boards of administration of the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS) to set the compensation for specified key executive and investment positions. These include the chief executive officer, system actuary, chief investment officer, and other investment officers and portfolio managers whose positions are classified managerial by state civil service standards. In setting these salaries, the Boards must be guided by the principles contained in existing civil service laws, to compensate employees at levels competitive with the compensation paid to employees in other retirement and financial service entities. AB 1317 (Mullin). Chapter 333, Statutes of 2007, expands the list of key positions to include the general counsel. AB 743 (Keeley), Chapter 792, Statutes of 1999, requires that supervisors of state employees represented by Bargaining Units (BU) 5 (California Highway Patrol Officers), 6 (correctional peace officers), and 8 (state firefighters) receive salary and benefits that are at least generally the economic equivalent to the salary and benefits granted to the employees they supervise. AB 2801 (W. Brown), Chapter 762, Statutes of 1994, establishes the policy of the state to compensate sworn members of the California Highway Patrol at the average compensation, including specified benefits, paid to the equivalent officers in five specified agencies. Any increase in compensation is determined AB 53 Page 3 through collective bargaining. FISCAL EFFECT : Unknown. COMMENTS : According to the author, "Over the past few years, various state agencies have given inappropriate and excessive compensation increases while California is grappling with a budget crisis. Particularly at the University of California and the California State University, the governing bodies of those systems have approved numerous compensation increases and personnel moves for executives and staff who already make six figure salaries. In order to solve this budget crisis, everyone will need to help shoulder the burden, including the state's highest paid employees. In a March 25, 2009, San Francisco Chronicle article, reporter Jim Doyle wrote, "The University of California's worst financial crisis in years has not prevented the hiring of high-salaried administrative talent or the awarding of pay raises, promotions and perks to a dozen executive, university records show. The new appointments reflect the university's commitment to providing 'management effectiveness and accountability,' said UC spokesman Paul Schwartz, adding that the system also needs to provide competitive salaries and benefits to attract and retain those qualified to run a major academic institution. Last week, for example, the governing Board of Regents appointed two executives at salaries of more than $350,000 a year and authorized paid administrative leaves to two former campus chancellors - one receiving $402,200 a year and the other $315,000. Over the last two months, the board also granted pay increases of as much as 22.3% to a half dozen senior managers and approved higher salary ranges for several additional department manager positions at UCSF and at the university's headquarters in Oakland." The Boards of Administration of both CalPERS and CalSTRS took "oppose unless amended" positions on the introduced version of the bill citing concerns that they would be unable to hire, motivate and retain high quality investment staff which ultimately could result in higher investment staff vacancy rates, higher recruitment costs and the need for a more costly externally managed investment program. Opponents state, "While the University acknowledges its responsibility to assist the State in addressing the growing AB 53 Page 4 fiscal crisis in California, we believe that AB 53 would have a tremendous and long-lasting negative impact on the University of California, the ability of UC to carry out its educational mission, and its ability to help the State during this critical time." Opponents go on to state, "The CSU has serious concerns with this proposal and its effects on the ability of the system to govern itself and attract and retain the best available faculty, staff, and executives to lead this complex institution through tough time such as today. The CSU has taken action to reduce costs during this fiscal crisis to protect our students, faculty and staff and to preserve the quality of our universities. The Chancellor's Office and all of its 23 campuses have taken the following mandatory measures: travel restrictions for employees; cancellation of all non-critical equipment and supply purchases; and a hiring freeze on all positions except those essential to the operation of the university. In addition to this, the CSU has implemented a salary freeze for all vice president level positions and above including presidents' and vice chancellors' salaries, and the Chancellor effective immediately through the 2009-10 budget year." According to the State Controller's Office, this bill will impact 94 state agencies, including state hospitals, correctional facilities, and the California State University. Approximately 785 state employees meet this bill's criteria. The Committee is recommending a technical amendment be made to clarify that the bill's provisions apply to anyone moving into a position making $150,000 after the effective date of the bill or anyone whose salary increases after the effective date of the bill to be more than $150,000. REGISTERED SUPPORT / OPPOSITION : Support None on file Opposition California State University University of California AB 53 Page 5 Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916) 319-3957