BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 7
                                                                  Page  1

          Date of Hearing:   March 30, 2011

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL 
                                      SECURITY
                              Warren T. Furutani, Chair
                 AB 7 (Portantino) - As Introduced:  December 6, 2010
           
          SUBJECT  :   State employment: salary freeze.

           SUMMARY  :   Prohibits certain state employees whose annual base 
          salary is over $150,000 from receiving a salary increase or a 
          bonus until January 1, 2014.  Specifically,  this bill  :  

          1)Prohibits state employees whose base salary is greater than 
            $150,000 per year from receiving a salary increase or a bonus, 
            until January 1, 2014, while employed in the same position or 
            classification.

          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.  
            Specifies that local trial court employees are excluded from 
            this definition.

          3)Exempts from these provisions state employees whose salaries 
            are governed by a Memoranda of Understanding, pursuant to a 
            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, 2014.

           EXISTING LAW  :

          1)Requires the Department of Personnel Administration (DPA) to 
            set and adjust salaries for each classification in state 








                                                                  AB 7
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            service.  DPA also has 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.

          2)Authorizes the California State Teachers' Retirement System 
            (CalSTRS) and the California Public Employees' Retirement 
            System (CalPERS) to set the compensation for specified key 
            executive and investment positions, including the chief 
            executive officer, system actuary, chief investment officers, 
            and other investment officers and portfolio managers whose 
            positions are designated as managerial.



           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   According to the author, "California is currently 
          grappling with a fiscal crisis.  As a result of the recession 
          and a $25 billion plus California budget shortfall, important 
          state services and programs have already been cut or eliminated, 
          with more likely to come next year.  California is continuing to 
          face an economic crisis that could soon leave the state without 
          cash to pay its expenses.  Given the state fiscal crisis and 
          with unemployment rates in California hovering around 12%, it is 
          not unreasonable to place a salary freeze upon the highest paid 
          state employees."

          Opponents state, "The California State University 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 these difficult fiscal times."

          The University of California is all opposed to the bill stating, 
          "This prohibition would directly affect the University's ability 
          to carry out its core educational mission of teaching, research, 
          and public service with the highest quality.  It could 
          compromise UC's academic reputation nationally and 
          internationally with the loss of renowned faculty drawn to other 
          institutions that are able to offer more competitive salaries, 








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          including the potential for merit increases on a regular basis."

          CalSTRS is concerned that imposing a salary freeze and 
          eliminating incentive compensation could make it very difficult 
          for them to recruit and retain experienced and talented staff.  
          Currently there are 31 CalSTRS employees whose compensation 
          would be limited by the bill.  CalSTRS states that if they were 
          to lose 20% of its senior investment staff, "the board would be 
          required by its fiduciary responsibility to outsource more of 
          the portfolio management, which would cost ten times more than 
          current internal asset management staff, as found by a joint 
          CalSTRS and CalPERS study by McKinsey, which was completed in 
          2003." 

          This bill is similar to AB 53 (Portantino) from 2009 which was 
          held on suspense in the Assembly Appropriations Committee.  It 
          is also similar to the following special session bills from last 
          session: ABX2 1 (Portantino); ABX3 80 (Portantino); and, ABX8 33 
          (Portantino).  None of the three special session bills were 
          heard in committee.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           None on file

           Opposition 
           California State Teachers' Retirement System (unless amended)
          California State University
          University of California
           
          Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916) 
          319-3957