BILL ANALYSIS �
AB 7
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Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 7 (Portantino) - As Introduced: December 6, 2010
Policy Committee: PERS Vote:4-1
Urgency: No State Mandated Local Program:
No Reimbursable:
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)Applies to person employed in the same position or
classification.
2)Applies to persons employed by the executive, legislative or
judicial branches of government, appointees to state boards
and commissions and employees of the California State
University system, but not local trial court employees.
3)Exempts from these provisions state employees whose salaries
are governed by a Memoranda of Understanding, 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 payments
that violate these provisions.
5)Urges the University of California system to adopt this policy
FISCAL EFFECT
1)Approximately 3,300 state employees could be subject to the
provisions of the bill, according to information provided by
the State Controller. The California State University system
has another 350 employees. The majority of state employees
that earn in excess of $150,000 would not be affected because
they are covered under collective bargaining agreements or are
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not scheduled to receive salary increases because of the
budget crisis. If 10 % were prevented from receiving an
increase, the savings from the bill would be approximately $3
million annually. If UC were to adopt this policy, the
potential savings would be substantially greater.
2)Reduced savings and/or offsetting costs would occur if:
a) A significant number of employees are exempted by the
governor (under the public safety exemption).
b) Selected agencies, such as CalPERS, CalSTRs, or HCD
offset the cap on base salary through increased employee
incentive payments.
c) Outside investment managers are retained by either
CalPERS or CalSTRS. The restrictions on base pay hamper
the retirement systems' ability to recruit and retain
qualified investment managers, which may either impact the
funds' overall rate-of-return or require the funds to
increase reliance on higher-cost outside investment
management services. CalPERs estimates that outside
management costs are about $20 million for each $10 billion
in investments. The current market value of the CalPERS
retirement fund is about $225 billion.
d) If UC adopts this policy. This could impact the ability
of the system to attract and retain top professors and
administrators, which could in turn jeopardize receipt of
millions of dollars in federal and private research grants,
and hamper the ability of the system to operate
revenue-producing hospitals and health clinics.
COMMENTS
1)Rationale. According to the author, 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."
2)Background. There are select groups of state employees that
make in excess of $150,000 annually. These include CHP
officers, investment officers, judges, top management at state
agencies and departments and medical professionals, who
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principally are at the prisons, mental hospitals and veteran's
homes.
3)Concerns. CalSTRS and CalPERS have raised a variety of
objections to the bill. CalSTRS is concerned that the agency
could face increased difficulty recruiting and retaining
experienced and highly qualified staff which could result in
higher investment staff vacancy rates and higher recruitment
costs. The specified key executive and investment positions
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. They note that an
alternative could be increased costs resulting from externally
managed investment programs. They also cite the possibility
of potential loss of hundreds of millions in investment
earnings.
UC has expressed concerns that this bill could directly affect
the University's ability to carry out its core educational
mission and that based on salary surveys, UC faculty salaries
and those for top management already lag the market. They
also expressed concern about the five academic medical
centers, noting that the quality of clinical service may be
compromised as well as medical training. UC argues that the
provisions of AB 7 are unworkable as applied to physician
practice plans.
Agencies have also raised the issues that since the bill does
not apply to workers covered by MOUs, it could raise issues
related to wage compaction. This would occur if, in 2010-11
and/or 2011-12, rank and file employees receive increases
that, when combined with overtime pay, significantly reduce
the wage differentials between managers and those who they are
managing.
4)Previous legislation. 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 2009-2010: ABX2 1
(Portantino); ABX3 80 (Portantino); and, ABX8 33 (Portantino).
None of the three special session bills were heard in
committee.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081
AB 7
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