BILL ANALYSIS
AB 1764
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1764 (Portantino) - As Amended: March 10, 2010
Policy Committee: P.E.R. &
S.S.Vote: 4-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill prohibits certain state employees whose annual base
salary is over $150,000 from receiving a salary increase until
January 1, 2013. Specifically, this bill:
1)Applies to individuals employed by the executive, legislative
or judicial branches of government, appointees to state boards
and commissions, and employees of the California State
University system. The bill urges the University of California
system to adopt this policy.
2)Exempts from these provisions (a) state employees whose
salaries are governed by a memoranda of understanding
pursuant to a collective bargaining agreement, (b) employees
who occupy a classification that is deemed necessary to public
safety and security by the governor through an executive
order, (c) a person whose salary is set by the State
Constitution, and (d) employees of trial courts.
3)Authorizes the controller to reject a request for a
disbursement of funds that violates these provisions.
FISCAL EFFECT
1)Actual savings from the bill would depend on the number of
employees affected and the salary increases that would be
granted under current law. According to the State Controller's
Office (SCO), about 640 state employees meet this bill's
criteria.
a) If half of these employees would, under current law,
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receive raises averaging 1.5% on July 1, 2011, statewide
savings would be about $800,000 for fiscal year 2011-12 and
$400,000 for 2012-13 (half year effect).
b) If UC were to adopt this policy for all of its employees
(faculty and administration) the comparable savings would
be $6 million for 2011-12 and $3 million in 2012-13 (half
year effect).
2)Reduced savings and/or offsetting costs would occur if:
a) CalPERS, CalSTRs, or HCD offset the cap on base salary
through increased employee incentive payments.
b) The restrictions adversely affected the ability of
CALSTRs or CalPERs to recruit and retain qualified
investment managers. For example, CalPERs indicates that
continued wage freezes may force it to rely on outside
managers for a greater share of its investments, at an
annual cost of $20 million for each $10 billion in
investments. The current market value of the CalPERS
retirement fund is about $209 billion.
c) If UC were to adopt this policy, it asserts that: (a)
the freeze could impact its ability to attract and retain
top professors, thereby jeopardizing receipt of federal
and private research grants; and (b) the freeze could
hamper the ability of the system to operate
revenue-producing hospitals and health clinics.
COMMENTS
1)Background . Statewide there are slightly over 3,000
employees, exclusive of UC, that have a base salary of more
than $150,000 per year. Of this total, about 2,400 are covered
by collective bargaining agreements or are in various public
classifications that are likely to be excluded, leaving 641
that would be covered by this bill. U.C. faculty and
administrators account for another 5,000 employees, the great
majority of which are not covered by collective bargaining
agreements.
Current law gives the Department of Personnel administration
special salary setting authority for certain statutorily
exempt employees, primarily department and agency secretaries,
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commissioners, and directors. It makes such 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.
Current law authorizes CalSTRS and CalPERS to set the
compensation for specified key executive and investment
positions, including 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.
The 2009-10 budget includes furloughs and reductions in pay
for state employees through the end of the fiscal year. The
governor's 2010-11 budget proposes that the furloughs be
replaced with 5% pay reductions, 5% increases in employee
contributions to retirement, and a 5% unallocated cut to
departments. Both the University of California and the
California State University systems have established salary
freeze policies affecting high level non-faculty employees.
2)Rationale . The bill is intended to save money to help address
the state's major budget deficit. The author indicates that,
given the dire fiscal condition of the state, it is
appropriate to place a salary freeze on the highest paid state
employees. He further indicates that "freezing the salaries of
the state's highest paid employees is a fiscally responsible
way to preserve money for social programs and education, and
help ease California's budget deficit."
3)Opponents (CalPERS, UC, and CSU) raise a variety of objections
to the bill. CalPERs contends that their personnel are already
subject to job furloughs, and that the additional restrictions
imposed by the bill will negatively affect their ability to
hire and retain high quality investment staff. UC and CSU
indicate that the freeze could affect the system's ability to
attract and retain high quality faculty and administrators,
and could compromise their missions to provide high quality
education and research.
4)Other concerns. Since the bill does not apply to workers
covered by MOUs, it could raise issues related to wage
compaction. This would occur if rank and file employees
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receive increases that, when combined with overtime pay,
reduce or eliminate the wage differentials between managers
and those who they are managing.
5)Previous legislation. This bill is similar to AB 53
(Portantino) of 2009, which was held under submission by this
committee. The author has also introduced several other
similar measures (AB 1 X2, ABB 2 X6, AB 80 X3, and AB 33 X8,
none of which have been heard by committees.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081