BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 270 (Hernandez)
Hearing Date: 04/11/2011 Amended: As Introduced
Consultant: Maureen Ortiz Policy Vote: P.E.&R. 3-2
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BILL SUMMARY: SB 270, an urgency measure, continuously
appropriates sufficient amounts from the General Fund and
various other funds to the Controller for the payment of
compensation and employee benefits to state employees during a
fiscal year where the state budget is not enacted by July 1.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Foregone interest
-------------unknown------------ General
Admin savings (SCO) ----potentially tens of thousands
in savings--- General
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
There could be a loss of interest on funds that would otherwise
be generated on payroll money that would be temporarily saved if
an order for minimum wage payments were instituted. This would
only occur if the state were in a positive cash flow position.
However, it is expected that any loss would be offset by the
state not having to issue payroll warrants and pay interest on
those warrants to state employees. When the 2009/10 Budget Act
was not enacted by July 1, many vendors were issued warrants in
lieu of state payments and were paid interest at 3.7% for 90
days - even if the warrant was redeemed early. It should be
noted that delayed wage payments could reduce the state's need
to borrow in order to meet its cash needs.
The total state monthly payroll is approximately $1.2 billion
consisting of civil service employees, CSU, Legislative, and
Judicial employees. However, the exact number of employees who
would be affected by the provisions of this bill is not known
since many are employed by special fund agencies that already
are continuously appropriated, and most members of the Judiciary
are paid through a constitutional appropriation. Those
employees would be paid full salaries whether or not a budget is
in place by the start of a new fiscal year. It is estimated
that the monthly payroll is about $680 million General Fund for
SB 270 (Hernandez)
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employees who could be forced to receive an hourly minimum wage
payday. However, the calculation of that amount is also
complicated by the fact that the Fair Labor Standards Act (FLSA)
mandates that if an employee works one hour of overtime during a
pay period, that employee is entitled to his or her full salary
for the same entire pay period. It is impossible to project
which employees will work overtime during a given month.
Additionally, to the extent that managers and supervisors are
not paid
their salaries, they are treated as hourly employees for
purposes of the FLSA and therefore are also entitled to overtime
pay. If even one hour of overtime was worked, these managers
and supervisors would also have to be paid their full salaries.
For all of
these reasons, it is not possible to accurately estimate the
fiscal impact of salaries that would be temporarily held back if
the minimum wage rule were in effect.
In regards to the state's cash flow, according to the State
Controller's Office, the State General Fund has not been cash
positive since July 2007. By way of illustration, the amount of
General Fund receipts for July 2009 were roughly $4.4 billion
while disbursements for that same month were $10.5 billion and
beginning General Fund cash was $0. In order to meet the
State's obligation for the monthly deficit of $6.1 billion in
June, the State borrowed $6.2 billion from the special funds.
Therefore, it could be argued that there would not be general
fund savings achieved through a minimum wage program since the
State is in a deficit cash position. Therefore, since
disbursements in July outpace revenues, every dollar of general
fund cash is needed to pay all other July expenditures leaving
no funds to invest.
Preventing the SCO from having to pay state employees minimum
wage, SB 270 will save potentially hundreds of thousands of
dollars in information technology costs since the current state
payment system is not capable of handling the complications that
arise from reducing payroll to minimum wage for an
unidentifiable select subgroup of employees. Aside from the
issue of which employees are to receive minimum wage as
discussed previously in this analysis, it would require
determining the appropriate treatment of multiple deductions for
each employee - some court ordered, and then, after the budget
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is enacted, restoring full pay and again determining the
appropriate level of deductions to offset the prior adjustments.
The last time this issue arose, administrative costs were
estimated at nearly $1 million since the existing information
technology system is incapable of handling such calculations,
and most of the tasks would have to be completed manually or
outsourced. However, staff notes that upon implementation of
the new state payroll system, MyCalPays, these costs will likely
be minimal.
SB 270 provides that if there is a memorandum of understanding
(MOU) in effect, the compensation and contribution for employee
benefits shall be at a rate consistent with the provisions of
that MOU for represented employees. State employees excluded
from collective bargaining shall be provided compensation and
contributions consistent with the rate approved by the
Department of Personnel Administration prior to the commencement
of the fiscal year for which a Budget Act has not been enacted.
If an MOU is not in effect, compensation and contribution for
employee benefits will be at the rate in effect at the
expiration of the last fiscal year for which a budget was
enacted.
SB 270 authorizes the Department of Finance to reduce the
applicable Budget Act allocations to reflect monies already paid
to state employees under the continuous appropriation. It
should also be noted that many of the State's bargaining units
now have contracts that contain provisions that continuously
appropriate funds for employee compensation in the event the
budget is not enacted by July 1 of any year during the contract
period.
This bill is similar to AB 1699 (Hernandez) and AB 790
(Hernandez), both of which failed passage on the Senate floor in
2010.