BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 1625 (J. Perez) Hearing Date: 10/07/2010 Amended: As Proposed Consultant: Maureen Ortiz Policy Vote: PE&R _________________________________________________________________ ____ BILL SUMMARY: AB 1625, an urgency measure, ratifies the Memoranda of Understanding between the State and Bargaining Unit 1 (Administrative, Financial and Staff Services), Unit 3 (Professional Educators and Librarians), Unit 4 (Office and Allied), Unit 11 (Engineering and Scientific Technicians), Unit 14 (Printing Trades), Unit 15 (Allied Services Workers), Unit 17 (Registered Nurses), Unit 20 (Medical and Social Services), and Unit 21 (Educational Consultants and Librarians). All of these bargaining units are represented by SEIU Local 1000. AB 1625 provides corresponding increases in employee contributions to retirement benefits for exempt and excluded non-represented employees. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Personal leave program ($73,993) ($36,997) $0 General ($102,495) ($51,248) $0 Specials Employee pension contrib. ($32,021) ($49,583) ($50,359) General ($43,161) ($66,834) ($67,879) Specials Holiday premium $2,408 $3,611 $3,611 General $682 $1,022 $1,022 Special Health benefits $871 $1,921 $2,831 General $123 $272 $401 Special Employee pension contrib. for excluded employees: --------unknown, multi million in savings------ Various Estimate net costs/savings ($247,586) ($197,836)($110,373) _________________________________________________________________ ____ STAFF COMMENTS: According to the Department of Personnel Administration, ratification of this contract will result in first year savings of $382.6 million ($164 million General Fund). Those savings include approximately $154 million ($61 million General Fund) which are a result of the existing 3 day per month furlough program for the months of August through October 2010. There will be future annual costs of approximately $172 million ($72 million General Fund) beginning July 1, 2013 associated with 3% increase in the maximum pay rate for those employees who are at the top step of their pay scales. Page 2 AB 1625 (J. Perez) AB 1625 also provides for an increase in the employee contribution for retirement benefits for exempt and excluded employees, including employees of the executive branch who are not members of the civil service system. The corresponding savings to the state as a result of the increase in the employees' contribution has not been identified as of the writing of this analysis, but will likely exceed several hundred million dollars per year. In addition, there will be potentially millions of dollars in savings in future years as new state employees are hired after the implementation date of this legislation and will be subject to a significantly lesser retirement benefit formula. Those savings, however, have not been actuarially identified at this time, and will not be realized to the state until those affected new employees retire. The contracts being ratified for Units 1, 3, 4, 11, 14, 15, 17, 20 and 21 will increase the employee's retirement contribution by 3% which will ultimately result in a corresponding reduction in the state rate. According to CalPERS, if all state employees were required to contribute an additional 5% toward the pension fund, the potential savings to the General Fund in FY 2010-11 would be approximately $500 million. The actual savings will be lower than that estimate since the nine bargaining units ratified by this legislation require an additional 3% employee contribution rather than an increase of 5%. There are approximately 87,783 full time equivalents in the nine bargaining units represented by SEIU. The terms of this contract are effective July 1, 2010 through July 1, 2013. Provisions in this agreement include the following: RETIREMENT Benefit Formula Calculation Effective the pay period following ratification, all Miscellaneous and Industrial First Tier members first employed by the state will be subject to a retirement formula of 2% at age 60 (from current 2% at 55). All State Safety members first employed by the state will be subject to a formula of 2% at age 55 (from the current 2.5% at 55). Employee Pension Contribution Effective the pay period following ratification, all Miscellaneous and Industrial First Tier members will have their pension contribution increased from 5% to 8% of monthly compensation over $513. State Safety members will have their contribution increased from 6% to 9% of monthly compensation over $317. Page 3 AB 1625 (J. Perez) COMPENSATION Adjusted Pay Ranges Effective July 1, 2013 all represented classifications (excluding Seasonal Clerks and BU 3 classifications in CDCR who work an academic calendar) will be adjusted by increasing the maximum step of the pay range by 3%. This increase will only apply to employees who reach the top step of the pay range. Effective July 1, 2013, BU 3 members at CDCR who are at the top step of the salary range will receive a 3% salary differential. Seasonal Clerk classifications will have 50 cents added to each salary rate. Personal Leave Program Effective the pay period following ratification all members of Units 1, 3, 4, 11, 14, 15, 17, 20 and 21 will receive one personal leave day per month for twelve months and will realize a corresponding reduction in salary equivalent to 4.6% of pay. HEALTH BENEFITS Employer Contribution The state's contribution for health insurance for Units 1, 4, 11, 14, 15, 17, 20 and 21 shall be equal to eighty percent of the weighted average of the premiums for the four basic health benefit plans with the largest enrollment (known as the 80/80 formula). The state's contribution for health insurance for members of Unit 3 will be set a dollar amount that equals the 80/80 formula. MISCELLANEOUS - The State agrees not to implement a new furlough program for Units 1, 3, 4, 11, 14, 15, 17, 20 and 21 employees during the twelve months following ratification of this agreement. - The State and SEIU Local 1000 agree to delete Lincoln's Birthday and Columbus Day as recognized holidays. - Employees that work on New Year's Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day or Christmas will receive one and one-half times the employee's regular rate of pay and up to eight hours of holiday credit. - The state agrees to the continuous appropriation of funds to cover the compensation and employee benefits in the event that the FY 2011-12 state budget is not enacted by July 1, 2011. Additionally, the state agrees to the continuous appropriation of funds to Page 4 AB 1625 (J. Perez) cover the economic terms of this agreement in the event that the state budget is not enacted by July 1 of each year during the contract period. The Ralph C. Dills Act requires that the economic provisions of collective bargaining agreements that are negotiated between the state and bargaining units must be ratified by the Legislature. Staff notes that the nine agreements ratified by AB 1625 were reached on October 7, 2010 and were presented to the Legislature at that time. Pursuant to Chapter 499, Statutes of 2005 (SB 621, Speier), the Legislative Analyst's Office is required to prepare and distribute an analysis of this MOU within 10 days after it is presented to the Legislature. Additionally, Senate Rule 29.4 requires the final version of an MOU to be available to the Legislature for 7 legislative days before the Senate may act on the MOU.