On February 12th, 2015

The Governor’s Budget and Its Impact on State Employees

csleaBy Craig Brown, CSLEA Legislative Consultant & former California Director of Finance

Last month, the Governor released his budget proposal for the upcoming fiscal year.  Reflecting the strong growth in California’s economy, the Governor projects that current-year revenues will rise by about $2.5 billion more than was predicted when the budget was signed last June.  Under the State Constitution, almost all of the increase must be allocated to K-12 education and the community colleges, leaving little for the rest of the state budget. 

What’s in the Budget for State Employees?  The Governor’s Budget includes over $500 million to fund increases in employee compensation consistent with currently negotiated contracts between the state and its 21 bargaining units.  Consistent with recent budget history, the budget includes nothing for any possible cost increases for the four bargaining units with contracts expiring this year.  These four units (BU 6—Corrections, BU 9—Professional Engineers, BU 10—Scientists and BU 12 (Craft and Maintenance) will begin bargaining sometime in the spring.  BU 8 - DF Firefighters has a reopener that either the State or the union can exercise beginning July 1, 2015. The remaining bargaining units—including CSLEA—will engage in bargaining with the Administration in Spring 2016.

In 2012, Governor Brown focused on retiree pension costs and, with the Legislature’s concurrence, significantly reduced retirement benefits for state employees first hired after January 2013.  In 2014, he focused on eliminating the funding shortfall in the teachers’ retirement system.  This year, the Governor is focused on reducing the costs of employee and retiree health, which are projected to cost the state almost $5 billion in the next budget year, an amount that approximates the state’s share of employees’ pension costs.

First, the Governor proposes that CalPERS, which manages health plans for the state employees, contract for a “high deductable” plan.  Under that concept, employees who accept the new high deductable plan would also receive deposits into an employee managed “Health Savings Account” to help fund the higher deductibles resulting from them becoming responsible for more of their health care costs.  For employees enrolling in this approach, the state would incur reduced premium costs. For employees with excellent health in their family, this approach could make sense depending on the details of the plan. 

Assuming that a significant number of state employees accept the new plan, it will impact other state employees in two ways.  By taking the healthier (and lower cost) employees out of the remaining plans, costs of those plans will likely increase over time.  Also, since the state share of employee health care is based on the average of the total costs of the four plans with the highest enrollment, a high deductable plan could become one of the four, thereby lowering the average cost on which the state’s share is based. 

Second, the Governor proposes to include in upcoming bargaining agreements a provision that state employees help “prefund” retiree health care costs in a manner similar to how pensions are funded currently.  Today, money is accumulated by CalPERS during an employee’s entire career in order to provide a funding source for the employee’s pension.  In contrast, no funds are set aside to pay for retiree health care. Rather such costs are funded out of each year’s budget.  The Governor’s goal is to have employees pay one-half of the costs of future benefits, with the state paying the other half. 

As mentioned above, the Governor has indicated that he plans to negotiate this prefunding at the bargaining table.  It is reasonable to expect that this will be a major issue for contract negotiations this year and next.  In order to be prepared for our negotiations next year, CSLEA will be watching closely the agreements, if any, reached by the bargaining units negotiating this year.

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