Analysis of Governor's Proposal to Suspend State Employee Pay Increases and Authorize Compensation Reductions in 2025
The May Revision of the California Governor's budget proposal includes significant measures concerning state employee compensation, specifically proposing to suspend scheduled pay increases and authorize the Department of Finance to impose compensation reductions if new labor agreements are not finalized by July 1, 2025. State employee compensation comprises salary, salary-driven benefits like pensions and Medicare, and non-salary-driven benefits such as health, dental, vision, and retiree health insurance.
These compensation components vary by job classification, bargaining units, and employment terms. Historically, California has used multiple strategies to reduce employee compensation costs during budget shortfalls, including furloughs, delaying pay raises, shifting pension costs to employees, and modifying health premium contributions. Labor relations are governed under the Ralph C. Dills Act, where collective bargaining agreements or MOUs must be ratified by the Legislature and union membership.
The Governor's proposal includes two control sections: 3.91 to suspend economic provisions of active MOUs, potentially reopening agreements with 14 bargaining units and yielding budget savings, and 3.90 authorizing the Director of Finance to administratively impose compensation reductions across all bargaining units without explicit funding or policy guidelines.
The broad authority proposed in Control Section 3.90 could potentially override legislative rejections of MOUs, raising concerns about separation of powers and legislative priorities. The analysis critiques the vagueness of the proposed control sections, recommending rejection of the proposals and urging the Legislature to seek detailed explanations from the administration, including the threshold budget conditions necessitating cuts and principles guiding negotiations.
Furthermore, it emphasizes the effect of imposed compensation reductions on labor relations and the importance of MOU durations that preserve legislative flexibility and labor harmony. If reductions are deemed necessary, the Legislature is advised to establish specific control section language that clearly defines reduction targets, authorized policies (e.g., furloughs), and procedural safeguards requiring legislative oversight prior to implementation. This approach aims to balance fiscal objectives with preserving legislative authority and minimizing labor disputes.