PECG Hotline

The Legislature and the Governor have failed to reach agreement on anything as the 2008-09 fiscal year came to a close at midnight on June 30. Democratic Legislators passed several bills by majority vote to attempt to reduce the deficit, but the Governor vetoed all bills which didn’t eliminate the entire deficit in a manner satisfactory to him. Efforts by the Democrats to implement a number of program cuts while increasing taxes or fees on tobacco and oil drilling died as midnight on June 30 passed without agreement. The Legislature also sought to cut $3.3 billion from the 2008-09 budget by reducing education spending and shifting redevelopment funds.

As a result, the Governor says the General Fund budget deficit now exceeds $26 billion. He will issue an Executive Order adding a third furlough day per month for State employees. Ninety-five percent of PECG’s members are paid through Special Funds which are not part of the General Fund deficit. The furloughs mean that State employee pay will be cut further while the State continues to outsource the work of PECG-represented employees at more than twice the cost, despite the Governor’s Executive Order telling departments to stop outsourcing goods and services. PECG will be filing legal challenges against the third furlough day. PECG’s lawsuit and grievance challenging the original two-day furloughs are working their way through the court system and administrative processes.

In the last couple of days, the Governor demanded that any budget solution also include a new tier-two retirement plan to be imposed on new employees to greatly reduce their retirement and health benefits even though any impact on the budget wouldn’t be felt for decades. He also proposed that current as well as new State employees pay more money into the retirement system so the State would pay less. Neither of these proposals got anywhere but could continue to be an issue in the budget discussions.

State Controller John Chiang stated he will begin issuing IOUs on July 2 to state vendors and local governments. The first IOUs will probably be sent to those who are entitled to State income tax refunds. While the State isn’t out of cash yet, the Controller is trying to reserve some funds to pay constitutional obligations to schools and bondholders later this month.

The status of State employee paychecks at the end of the July will depend to an extent on whether the Legislature and Governor can reach agreement on a budget deficit solution in the coming weeks. Based on a federal Court ruling, State employees cannot be paid with IOUs.

The Assembly approved a package of program cuts and shifting of funding to address at least part of the $24 billion state General Fund budget deficit, but the Senate did not go along with it. The Governor has opposed any package of bills which is only a partial solution and is also opposing any tax or fee increases. Thus, the parties continue to be deadlocked as we head to the end of the fiscal year. The State Controller has stated that he will have to start issuing IOUs to vendors and others shortly if nothing is done to balance the budget, which is an important factor in borrowing money to continue to pay the state’s bills during these difficult economic times. However, state employees will receive full paychecks for June, not IOUs.

The issue of the long-overdue pay raise for PECG-represented supervisors who are in the same or similar classes as their Bargaining Unit counterparts has still not been resolved. 95% of the supervisors are paid through Special Funds so the $24 billion hole in the General Fund is not a factor. Despite support for the increases from DPA and several department heads, the Governor’s Office has not agreed to release the already-budgeted funds for that purpose. As a result, PECG has filed a formal request with DPA to authorize the raises under the state law which requires equal pay for comparable work for supervisors. DPA has the statutory authority and obligation to pay comparable salaries, if they agree that salaries between different groups of employees are comparable and there is funding available to do so. DPA has not yet responded if they agree or if they will conduct a hearing to find out if they agree.

The Legislature is putting the final touches on the budget revision bills to send over to the Governor for his signature, veto, or blue penciling. The package does not include the Governor’s proposed 5% pay cut for state employees. The Governor proposed closing most state parks. The Legislature would keep the parks open by increasing the vehicle license fee, but the Governor has said he would veto any tax or fee increases which reach his desk.

Confirming wide-spread rumors in recent weeks, Caltrans Director Will Kempton will be leaving at the end of July. Kempton has been widely recognized as an effective Caltrans Director, is highly respected by the transportation community and the Legislature, and has been very supportive of Caltrans employees. PECG appreciates Will’s outstanding public service and wishes him well. His Chief Deputy Director, Randy Iwasaki, will be taking his place.

The Governor has proposed a blanket 5% pay cut for all State employees, both General Fund and Special Fund, on top of the current two day per month furloughs. The joint Legislative Budget Committee rejected the pay cut proposal, although the issue could be raised again. Earlier, the same Committee unanimously approved continuing the historic ratio of 90% State staff to 10% outsourced staff for Caltrans Capital Outlay Support, its primary engineering program. The Legislature found that a State Engineer costs the taxpayer $103,000 per year, while an outsourced Engineer costs $232,000 per year.

The Governor earlier announced 5,000 layoffs for State employees over the next year. This actually means a reduction of 5,000 positions which can include attrition and not filling vacancies. More than two-thirds of the reductions are in the Department of Corrections. Eighteen PECG members received notices of layoff for an unspecified date. Thus far, all but four of those employees have been placed in vacant positions and PECG is working with DPA and the departments to resolve the problem for the four remaining employees.

Be assured that PECG is continuing to work closely with the Administration, Legislative leaders, and affected departments to insure that any negative impact on PECG-represented employees and the services you provide are minimal during these difficult economic times.