BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1377 Jim Beall, Chair HEARING DATE: June 27, 2013 AB 1377 (Asm. PER&SS Comm) as amended 6/20/13 FISCAL: YES MEMORANDUM OF UNDERSTANDING BETWEEN THE STATE AND SERVICE EMPLOYEES INTERNATIONAL UNION HISTORY : Sponsors: California Department of Human Resources (CalHR) Service Employees International Union, Local 1000 (SEIU) ASSEMBLY VOTES : PER & SS 5-2 4/24/13 Appropriations 12-1 5/24/13 Assembly Floor PENDING SUMMARY : AB 1377 approves the recent memoranda of understanding (MOU) agreed to by the state and the state bargaining units (BUs) represented exclusively by the Service Employees International Union (SEIU), Local 1000, including the following state bargaining units: BU 1 (Professional, Administrative, Financial, and Staff Services) BU 3 (Professional Educators and Librarians) BU 4 (Office and Allied) BU 11 (Engineering and Scientific Technicians) BU 14 (Printing and Allied Trades) BU 15 (Allied Services) BU 17 (Registered Nurses) BU 20 (Medical and Social Services) BU 21 (Educational Consultant and Library) This is an URGENCY BILL. BACKGROUND AND ANALYSIS : Pamela Schneider Date: June 26, 2013 Page 1 1)Existing law : a) requires, under the State Employee-Employer Relations Act (the Ralph C. Dills Act), that the state, represented by the Department of Human Resources (CalHR), collectively bargain with exclusive employee representatives over all aspects related to wages and working conditions, and that agreements be formalized in MOUs that are subsequently approved by the Legislature. b) requires the Office of the Legislative Analyst to analyze state MOUs and to report on its findings to the Legislature within 10 days of receiving the MOU from CalHR. 1)This bill approves the agreement between the state and the state bargaining units represented by SEIU, Local 1000. This agreement affects approximately 91,077 full-time equivalents. The duration of this agreement is three years: July 2, 2013, through July 1, 2016. FISCAL : According to CalHR: Fiscal Year 2013-2014 Cost: $1.4 million (General Fund - $0.4 million and Other Funds - $1.0 million) Total Incremental Cost: $303.0 million (General Fund - $127.6 million and Other Funds - $175.4 million) Total Budgetary Cost: $439.0 million (General Fund - $184.7 million and Other Funds - $254.3 million) COMMENTS : 1)Comments of the Committee Beginning in 2008, state employees saw a significant erosion in their earnings. Most employees saw salary Pamela Schneider Date: June 26, 2013 Page 2 reductions of 15% pursuant to Governor Schwarzenegger's furlough program. According to the Office of the Legislative Analyst, the average state worker saw his or her salary reduced by approximately $21,000 over the course of the furlough period. In 2011, with the furlough program ended, most state contracts required a 5% pay reduction in exchange for one personal leave day per month and increases of 3% to 5% in member contributions to CalPERS-an overall reduction of 8% to 10%. With the end of the personal leave program and a salary adjustment on July 1st equivalent to the increase in member contributions, state employees will finally be made whole after approximately 5 years of reduced compensation. Prior to the reductions detailed above, the last general salary increase for state employees (3.4%) occurred in 2007. 2)The following information summarizing the general provisions of the MOUs was provided by CalHR: a) Retirement Benefit Formula Calculation Bargaining Unit 1, 3, 4, 11, 14, 15, 17, 20, and 21 employees who become CalPERS miscellaneous members on or after January 1, 2013, are subject to the Public Employees' Pension Reform Act (PEPRA) Retirement Formula of 2% at age 62. Bargaining Unit 1, 3, 4, 11, 14, 15, 17, 20, and 21 employees who become CalPERS safety members on or after January 1, 2013, are subject to the State Safety PEPRA Retirement Formula of 2% at age 57. Bargaining Unit 1, 3, 4, 11, 14, 15, 17, 20, and 21 employees who become CalPERS miscellaneous members on or after January 1, 2013, and who elect the Second Tier retirement plan are subject to the Second Tier PEPRA retirement formula of 1.25% at age 67. b) Employee Pension Contributions Pamela Schneider Date: June 26, 2013 Page 3 All Bargaining Unit 1, 3, 4, 11, 14, 15, 17, 20, and 21 members in the First Tier miscellaneous retirement classification shall contribute 8% of monthly compensation over $513. Effective July 1, 2013, all BU 1, 3, 4, 11, 14, 15, 17, and 20 members in the First Tier industrial retirement classification shall have their contribution increased from 8% to 9% of monthly compensation over $513. Effective July 1, 2013, all BU 1, 3, 4, 11, 14, 15, 17, and 20 members in the First Tier industrial retirement classification who do not participate in Social Security shall have their contribution increased from 9% to 10% of monthly compensation over $317. Effective July 1, 2013, all members in the Second Tier shall contribute 1.5% of monthly pensionable compensation and the contribution will increase by 1.5% points annually. The final annual increase in the contribution rate shall be adjusted as appropriate to reach fifty percent (50%) of normal cost. Effective July 1, 2013, all BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 members in the state safety retirement classification shall have their contribution increased from 9% to 10% of monthly compensation over $317. Effective July 1, 2014, all BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 members in the state safety retirement classification shall have their contribution increased from 10% to 11% of monthly compensation over $317. c) Compensation - Cost of Living Increase Effective July 1, 2014, contingent on the projected state revenues of the 2014-15 budget, all BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 represented classifications (excluding seasonal clerks) will receive a 2% General Salary Increase (GSI). Effective July 1, 2015, all BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 represented classifications (excluding Pamela Schneider Date: June 26, 2013 Page 4 seasonal clerks) will receive a 2.5% GSI. If the projected state revenues are not achieved, all BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 represented classifications (excluding seasonal clerks) will receive a 4.5% GSI effective July 1, 2015. Effective July 1, 2014, contingent on the projected state revenues of the 2014-15 budget, the seasonal clerk classification shall receive a 50 cents per hour GSI. If the projected state revenues are not achieved, effective July 1, 2015, the seasonal clerk classification shall have a 50 cents per hour GSI effective July 1, 2015. d) Health Benefits - Employer Contribution The state employer's monthly contribution to the health insurance portion of the BU 1, 4, 11, 14, 15, 17, 20, and 21 employee's allowance shall be an amount equal to 80% of the weighted average of the premiums for the four basic health benefit plans with the largest enrollment (the 80/80 formula). The state employer's monthly contribution to the health insurance portion of BU 3 employee allowance will be set at a dollar amount that equals the 80/80 formula. The amounts shall be increased on January 1, 2014, January 1, 2015, and January 1, 2016. e) Health Benefits - Dependent Coverage Thirty (30) days after ratification, employees will become eligible for the full employer contribution for dependent health coverage after one year of state employment. The state will contribute 75% of the normal amount for dependents during the vesting period. f) Business and Travel The state increased the meal reimbursement rates by $2.00. The state increased lodging rates as follows: Pamela Schneider Date: June 26, 2013 Page 5 ---------------------------------------------------------- |County |Lodging Rate | |-------------------------------+--------------------------| |All counties except those |$90 | |listed below | | |-------------------------------+--------------------------| |Los Angeles, Orange, Ventura, |$120 | |Edwards AFB, less the City of | | |Santa Monica | | |-------------------------------+--------------------------| |Sacramento, Napa, Riverside |$95 | |-------------------------------+--------------------------| |San Diego, Monterey, Alameda, |$125 | |San Mateo, Santa Clara | | |-------------------------------+--------------------------| |San Francisco, City of Santa |$150 | |Monica | | ---------------------------------------------------------- g) Miscellaneous The state will not mandate a reduction in work hours (furlough/Personal Leave Program) for BU 1, 3, 4, 11, 14, 15, 17, 20, and 21 employees during the term of this agreement. The state and SEIU, Local 1000 agree to present to the Legislature, as part of the legislation implementing this MOU, a provision to appropriate funds to cover the economic terms of this agreement through July 1, 2016. State Owned Housing: Rental rates will be frozen until July 1, 2015, for those employees required to live in state housing. Organ Donation was incorporated into the MOU agreements consistent with AB 1825 (Nakano), Chapter 869, Statutes of 2002. The state continues its commitment to work with SEIU within the already established Contracting Out Committees in an effort to reduce unnecessary costs in Pamela Schneider Date: June 26, 2013 Page 6 contracting out. The state agrees to ensure that retired annuitants work in accordance with PEPRA requirements and will be utilized for mission critical work. The state agrees to continue to provide student assistants the opportunity to gain work experience consistent with their field of study. 1)The report of the Office of the Legislative Analyst is available on its website: http://www.lao.ca.gov/laoapp/main.aspx 2)The full test of the MOUs and accompanying summaries may be found on the website of CalHR: http://www.calhr.ca.gov/state-hr-professionals/Pages/bargain ing-contracts.aspx 3)ARGUMENTS IN SUPPORT: According to CalHR: These contracts represent savings in pension changes for employees as enacted last year by the legislature in the Public Employee Pension Reform Act (PEPRA). This bill also allocates prudent cost of living increases in 2014, and 2015, contingent upon projected state revenues, as determined by the Department of Finance. There are no mandatory furloughs or Personal Leave Program (PLP) days in this contract. These are modest agreements that recognize the role state workers have played over the past few years in stabilizing California's finances. SEIU states that "AB 1377 approves the most recent MOU so that California's workers can feel more employment security in the future." 4)SUPPORT : California Department of Human Resources (CalHR), Pamela Schneider Date: June 26, 2013 Page 7 Co-Sponsor Service Employees International Union, Local 1000 (SEIU), Co-Sponsor American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO 5)OPPOSITION : None to date ##### Pamela Schneider Date: June 26, 2013 Page 8