Davis’ Union Pact Defers Costs

The Davis administration has negotiated an agreement with the state’s largest union that would defer a pay raise yet increase the amount of money workers take home beginning in January, give them a dozen extra paid days off, and build in hundreds of millions in added costs for the state over the next 15 years.

Gov. Gray Davis’ top negotiator hailed the pact as a $150-million saving this fiscal year. But the deal reached earlier this week after months of negotiation with the California State Employees Assn. and three smaller unions would cost the state more in the long run.

The union negotiations, aimed at helping close the state deficit, came at a sensitive time, paralleling the recall effort. Davis was forced to turn to his most loyal supporters and ask for $1.1 billion in concessions in order to keep the budget he signed last month in balance. Unions have been strong allies, contributing money and also mounting a major get-out-the-vote effort as Davis attempts to defeat the Oct. 7 recall.

Davis administration officials said the agreement they reached with the state employee unions was the best deal possible, and they denied the impending recall affected the outcome.

Under the contract proposal, workers would defer a 5% pay increase that they received this summer, but they would not lose any take-home pay because the state would cover employee contributions to the state pension fund. The state would make those payments over the next 15 years, a total of about $200 million plus interest at a rate that could be as high as 8.25%.

The 12 paid days off could be taken one a month, but most employees are expected to bank the days and cash them out when they retire, generally at higher pay. In addition, at a time when health care costs are rising sharply, the state agreed to pick up an increasing share of employees’ health premiums for the next three years. That would translate into an increase of take-home pay effective Jan. 1.

“What we agreed to is deferring payments during a crisis and paying it back later on,” said state Personnel Director Marty Morgenstern.

Such an approach is not unusual; other administrations, including that of Republican Gov. Pete Wilson, negotiated similar trade-offs during fiscal crises.

Officials have said they would have to lay off employees if they couldn’t reduce costs sufficiently through negotiations, and Morgenstern called the package a “fiscally responsible approach.”

Wall Street analysts don’t see it that way. “If you are doing something this year that will cost more in the future, I wouldn’t call that a savings,” said Steven G. Zimmerman, a managing director at Standard & Poor’s bond-rating service.

Former state Controller Kathleen Connell, a Democrat, was more blunt: “It becomes a house of cards that will topple under its own weight in future years when all these payments, whether for bonds or employee benefits, come due,” she said. “We have to get control over the runaway negotiations with some of these unions.”

The deals require approval by the Legislature, which ends its regular session today.

The portion involving pension payments would also need to be approved by the board of the California Public Employees Retirement System, which meets Wednesday.

State Finance Director Steve Peace said any contract negotiations involve a degree of risk, and that nailing down agreements now could turn out to save money later.

“Anytime you are analyzing agreements when you are doing multiyear deals you are inherently guessing,” Peace said. “These may turn out to be the best deal from a taxpayers’ perspective and they may not. We just don’t know what the future will hold.”

Among those covered by the deal announced Wednesday night are the 90,000 state workers represented by the California State Employees Assn.

“We think we are giving back,” said Perry Kenny, president of CSEA, whose members will be asked to ratify the proposed agreement. “The state wouldn’t be able to give us these contracts if they didn’t show a cost savings.”

Last month smaller unions representing California Highway Patrol officers, state firefighters, nurses, social workers and doctors reached agreements that did not include the pension pickup but were otherwise similar.

The state is still negotiating with prison guards, teachers in correctional facilities, state attorneys and law judges, craft and maintenance workers, psychiatric technicians and engineers who make up the rest of the 181,000 state employees covered by unions.

The latest agreements represent a retreat from a tougher stance at the bargaining table by the administration in the spring, before the recall qualified for the ballot. Since the recall began to gather momentum, state employee unions and their affiliates have given more than $1 million to committees fighting the effort to oust Davis from office.

Peter Ragone, a spokesman for the Davis campaign, said the contributions had no impact on the governor’s policy decisions. “I am as unequivocal as can be about this,” Ragone said. “The governor makes policy decisions based on principle and what’s best for the state.”

The California Professional Firefighters, an umbrella union that represents all firefighters in the state, has been among the governor’s staunchest allies. Union President Dan Terry is running the governor’s anti-recall campaign committee, Taxpayers Against the Governor’s Recall, which has received more than $2.4 million in contributions since it was created at the end of May.

During talks just before that committee was formed, union leaders said, “It became very clear that [the administration] had specific instructions to cut employee compensation or implement the proposed layoffs.... [The administration] was unwilling to entertain any proposal that cost money in the current and subsequent budget year.”

By July, the administration’s position had softened.

“What was most intriguing about the [July] meeting was the new and different approach presented by [the administration],” the memo said. “For the first time they presented tangible benefits and minimal impacts to our members.”

The memo was particularly enthusiastic about the paid personal days, characterizing them as “a bank account where the value grows with future salary increases.”

In a July 31 letter to members, Mark Muscardini, president of the California Assn. of Highway Patrolmen, called the deal being offered “a solution to future concerns that may not be available to us a year from now. Who knows, they may not be available to us three months from now!”

Morgenstern said the state softened its stance at the bargaining table in the summer because that is the normal rhythm of negotiations.

“We each go in there with our demands and we always recognize we won’t get everything,” he said. “Over three months, I would expect a change in negotiating posture. We saw one on their part, they saw one on our part.”

Officials at both the state’s personnel and finance departments say there are no cost estimates on a key part of the proposed deal, the personal days. They said they could not calculate how much the days would cost taxpayers, because the amount depends on when employees cash out their days and how much they earn when they do so.

According to the state controller’s office, more than 327,000 days that accumulated when former Gov. Wilson made a similar arrangement have yet to be used or cashed out, despite efforts by many state departments to clear them from the payroll by paying off state workers when the state was flush with cash.

State officials said the increased health benefits would cost $66 million in the first year if all 12 state unions were covered. They offered no projections for future years, but the cost would clearly rise. By 2006, the state would cover 85% of the premium for state workers and 80% for their dependents, which the Highway Patrol union estimates as equivalent to a 4% raise.

Without the new agreement, the state would cover only 72% of the cost of health premiums as of Jan. 1.

The pension-for-salary swap is an extension of a provision in the current contracts for most state workers, which took effect in August 2001, just as state revenues were beginning to drop precipitously. To avoid paying more money upfront, the state agreed then to cover employees’ pension costs temporarily, 2.5% the first year and the full 5% the second year. Employees deferred their raises until July 1, 2003, so the pension provision did not hurt the state treasury, but the net effect was a boost in pay.

The pension fund agreed to let the state spread the payments, $685 million, over 15 years. In addition, the state agreed to pay interest to the pension fund -- up to 8.25% -- if the overall performance of the state’s pension investments were not strong enough. Pension funds are invested in various ways, primarily in the stock market, and their performance generally mirrors the economic climate.

This year, when state employees received their raises on July 1, they resumed making pension payments equal to 5% of their salary. But because they got a 5% raise, their take-home pay remained the same.

If the latest pension-for-salary swap goes through, the state will owe CalPERS an additional $200 million for the coming year’s pension payments, bringing the total to more than $885 million for de facto raises for state workers granted since the budget crisis began in 2001.

Morgenstern argued that most state employees are far behind where local government workers are in terms of pay and benefits, and are doing a service to the state by not demanding more.

“You can’t keep underpaying employees forever,” he said. “We are down to a minimum of what a government agency would pay.”

He said the Legislature directed him to reopen contracts this year and save as much money for the state as possible. And that, he said, is what he did. “I did the best I could,” he said.

Morgenstern also negotiated an agreement with the Professional Engineers in California Government and the California Union of Safety Employees that would extend their contracts until July 1, 2008. Those contracts guarantee the unions pay increases that would bring member salaries in line with other unions -- local engineers, for the former, and prison guards, for the latter. State officials said they could not estimate the cost.

Terry McHale, policy director for the union that represents state firefighters, dismissed as “ridiculous” the idea that the unions’ support for the recall had any bearing on the negotiations.

“This is the most dangerous profession in America,” McHale said. “Should these firefighters have appropriate health benefits? Yes they should.”

Kenny, the CSEA president, also praised Davis and said he had consistently been a friend to labor, noting unions had supported him back to his 1998 campaign, when many political observers thought Davis had no chance of becoming governor.

“We supported him when he was road kill, so certainly we are going to support him now,” Kenny said.

“He is a candidate we can work with.”

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(BEGIN TEXT OF INFOBOX)

Union contributions

The following are recent contributions to Gov. Gray Davis and his anti-recall campaign committees by unions representing state workers. The unions have reached tentative agreements on pay and benefits with the Davis administration:

- American Federation of State, County

and Municipal Employees...$467,664

- California State Council of Service Employees...$400,000

- Service Employees International Union...$50,000

- California Department of Forestry Firefighters...$45,000

- California Assn. of Highway Patrolmen...$43,467

- California Union of Safety Employees...$25,000

- Professional Engineers in California Government...$15,000

TOTAL...$1,046,131

Source: Campaign contributions to Gov. Gray Davis Committee; Taxpayers Against the Governor’s Recall; and Californians Against the Costly Recall of the Governor

Los Angeles Times

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Contributions race

These contributions were reported by major candidates on the Oct. 7 ballot who have received at least $100,000 for their gubernatorial campaigns. Totals are for all contributions through Aug. 23 and contributions of $1,000 or more through Thursday. Donations of $1,000 or more must be reported within 24 hours of receipt.

*--* Contributions Candidate or committee Total reported Reported in the 24 hours ending Thursday Cruz Bustamante $1,532,492 $163,700 282 contributions 38 contributions

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- The California State Council of Laborers, a union, gave $21,200*. E.O. DeSilva, chief executive of the DeSilva Group, a Dublin, Calif., real estate development company, also contributed $21,200. Signature Properties, a builder of Bay Area residential communities, gave $10,000, doubling its total to Bustamante.

Bustamante controls three other committees: Californians for Stability, an anti-recall fund; the Cruz Bustamante Committee Against Proposition 54; and Lt. Gov Bustamante 2002, his former reelection campaign committee

Californians for Stability has reported raising $417,200. The Cruz Bustamante Committee Against Proposition 54 has reported more than $4.3 million, most of it transferred from Bustamante’s old campaign committee. And the Lt. Gov. Bustamante 2002 committee has raised more than $988,000.

- In the 24 hours ending Thursday, the California State Council of Laborers gave $40,000 to the anti-Proposition 54 fund and $80,000 to the old lieutenant governor committee.

*--* Arianna Huffington $549,552 $22,356 2,299 contributions 15 contributions

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- Individuals in the movie industry continued to support Huffington: Lisa Henson, daughter of Muppets creator Jim Henson and an executive at the Jim Henson Co., gave $1,000. Henry Jaglom, a writer and director of films including “Deja Vu” and “Shopping,” gave $2,000. Five other actors and directors gave a total of $5,100.

*--* Tom McClintock $810,672 $51,100 1,199 contributions 11 contributions

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- The Morongo Band of Mission Indians, owners of Casino Morongo, gave $20,000. MCS Education Services, a company that processes reports for more than 700 California school districts, county education offices and charter schools, gave $11,000. The Channel Islands Village apartment complex in Oxnard gave $10,000.

*--* Arnold $7,396,989 $593,000 Schwarzenegger 844 contributions 95 contributions

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- Alex Spanos, chairman of the A.G. Spanos real estate development companies, gave $21,200. Capital Pacific Holdings, a Newport Beach real estate company, gave an identical gift. And John Kilroy, executive at Kilroy Realty Co., also contributed $21,200. Steve Francis, an executive at AMN Healthcare, a company that dominates the state’s temporary nursing market, contributed $21,200.

Schwarzenegger also controls Arnold Schwarzenegger’s Total Recall, a pro-recall committee that has raised more than $1 million.

- Spanos gave $100,000 to the committee, and another real estate company, Capital Pacific Holdings, contributed $78,800.

Two anti-recall committees, Taxpayers Against the Governor’s Recall and Californians Against the Costly Recall of the governor, have raised more than $7.3 million to help Gov. Gray Davis. Davis directly controls the larger group, Californians Against the Costly Recall of the Governor.

Taxpayers Against the Governor’s Recall has reported receiving more than $2.4 million. Californians Against the Costly Recall of the Governor has reported raising more than $4.85 million.

Davis also continues to raise money through his former reelection committee, the Gov. Gray Davis Committee. The committee was recently reorganized as an anti-recall committee, although lawyers for the governor say they plan to reverse that change. Since the recall measure was certified for the ballot, more than $800,000 has been transferred to Californians Against the Costly Recall of the Governor. The old campaign fund has reported raising an additional $498,000.

- AT&T;, the telecommunications giant, gave $50,000 to Californians Against the Costly Recall of the Governor. Recording industry mogul Berry Gordy, owner of West Grand Media, contributed the same amount. Mercury General Co., a Los Angeles insurance company, gave $25,000; the company previously gave $10,000 to McClintock. Pacific Lumber Co. of Scotia, Calif,. gave $10,000.

*Contributions to candidates from each outside source are limited to $21,200. There is no cap on the amount candidates can give their own campaigns, or on any donations to noncandidacy committees.

Reported by Times staff writer Joel Rubin.

Source: Campaign reports filed with the California secretary of state.

Los Angeles Times