Despite the existence of a “no strike clause,” SEIU 1000 members recently authorized a one-day strike on December 5th if they cannot reach an agreement with the Brown Administration on a new contract.
Governor Brown has offered a 12% raise over four years, which is larger than many other similarly situated workers can expect. But union members are rejecting the offer because Brown wants state workers to “pay an offset of the cost of their retirement health benefits,” according to the Sacramento Bee.
“That deduction could climb to about 4 percent of an employee’s salary over four years, according to similar contracts that other state unions have accepted,” states the Bee report.
A more recent Sacramento Bee article suggests that the Brown Administration should cave to the union’s demands and now only has less than a week to wrap up negotiations with the state’s largest public sector union, which represents about 95,000 workers in nine of its 21 bargaining units.
According to the Bee, the alternative would be to “risk embarrassing disruptions for lawmakers’ return to the Capitol on the first day of the new session and during the annual Christmas tree-lighting ceremony that evening,” according to the Bee report.
The Bee’s line of reasoning is exactly what SEIU 1000 and union members want everyone to believe but represents terrible advice for the Brown Administration.
Secondly, and perhaps more importantly, Governor Brown has already made an extremely generous offer. A 12% raise over four years is more than most workers get, and exceeds inflation which generally averages 2.5% per year.
The real embarrassment would occur if Brown cedes to union pressure and breaks from his offers to other unions on the most essential piece of the deal, which is the requirement that union members actually pay for at least part of the high cost of their retiree health care which is a huge unchecked looming liability for the State of California and its taxpayers.
Nearly a year ago, Governor Brown promised in his State of State address to address the state’s looming $74 billion unfunded retiree health care liability.
According to the Governor’s final 2016 budget summary, “the strategy for addressing the liability includes equal cost-sharing between the employee and employer to prefund retiree health benefits, and for new employees, extending the period to qualify for retiree health benefits, and reducing the employer subsidy for retiree health benefits.”
Recent collective bargaining agreements reached with the Correctional Peace Officers, Engineers, Scientists, Craft and Maintenance Workers, and Public Safety Officers have included these retiree health cost sharing provisions.
Given that the stated intent is equal cost-sharing, that means that the 4% the Governor is asking for only really covers half, if that, of the total cost which is likely valued at 8% or more of payroll. (in excess of 10% of salary if paying off the unfunded liability is included)
The 2016 approved budget only included $582 million in funding for state employee compensation and retiree health care prefunding for active employees. The 2016 budget also included a one-time allocation of $240 million to “pay down the state’s unfunded liability for retiree health care.”
But these amounts are wholly insufficient to cover the costs of these cost increases, which are estimated at $6 billion for retiree health benefits alone, according to the state’s independent audit report.
Thus, notwithstanding the promises the Governor made in January 2015, the State of California will continue to accumulate additional debt for state employee retiree health obligations which now stand at $74 billion, according to the Governor’s 2016 budget.
If the Governor in fact gets that 4% health care contribution, which will likely take effect on the last day of the contract, that will only partially offset the $5 billion plus in annual debt the State of California continues to accumulate due to future retiree health care obligations. The State is on the hook for what amounts to the other 4% plus matching payroll contribution, but never pays that amount, based on a review of budget records.
Brown has also suggested requiring five more years of state service to become eligible for retiree health care, but it is not clear that this is part of this package. Current state workers are eligible for 50% coverage after 10 years on the job, increasing to 100% after 20 years, according to Calpensions.com.
SEIU 1000 members in the largest state bargaining unit #1, which compose roughly 22% of the state work force reaped an average of $102,000 in total compensation in 2014, according to a state compensation report.
Some 66% of their total compensation is in the form of benefits paid, and that assumes unrealistic assumptions for retiree health care and pension contributions, according to the state report. This is dramatically higher than the percentage from five or 10 years ago which has typically been in the 30-40% range for benefit costs as a percent of salary.
A truly fiscally responsible compensation package would require increased contributions for all benefit costs including health care, retiree health care, and pension costs. Governor Brown is only asking for an equal cost-sharing of which amounts to 50% or less of the state’s cost of retiree health care costs.
This increased cost to workers is more than offset by a 12% raise over four years, under the Governor’s proposal.
Most workers in the private sector would jump at that deal, but California state employees, bolstered by favorable state law and huge political clout, live in an alternative universe in which they can make demands that are well in excess of the bounds of fiscal responsibility for the State of California and what could be objectively considered “fair” compensation.
Lastly, apparently it is also OK for them to authorize what amounts to an “illegal” strike on Dec. 5th without any real threat of legal retaliation from the State of California.
David Kersten is the president of the Kersten Institute for Governance and Public Policy. Kersten is also an adjunct professor of public policy at the University of San Francisco and specializes in public sector budgeting, fiscal issues, and labor policy. He has also served as an expert witness and financial analyst for dozens of major sets of collective bargaining negotiations in California.