Gov. Strikes Deal With Union

Budget negotiations moved a step forward Sunday when Gov. Arnold Schwarzenegger made an agreement with an employees union that would allow the state to borrow nearly a billion dollars to help balance the budget.

But the deal doesn’t include cuts in state worker pensions that the governor had initially sought to provide money to repay the loan.

Instead, it relies on some accounting changes and the hope that thousands of state workers will cash out of their pension plans so the state wouldn’t have to match their annual contributions. That money could then be used to pay off the debt.

The governor made the agreement with the California State Employees Assn. as he becomes increasingly eager to get a $103-billion budget signed before California gets too far into the new fiscal year, which begins Thursday.

The 98,000-member union was given some deal-sweeteners that administration officials and lawmakers declined to specify.

“They got a couple of things, absolutely,” said Assembly Speaker Fabian Nunez (D-Los Angeles). “There are a couple of things they wanted that the governor has agreed to consider.”

The deal assumes that the state can raise $2.6 billion over the next 20 years by delaying its employee retirement contributions for the first two years workers are on the job. Employees still would make their own contributions. But they would have the option of taking out that cash after their first two years, and if they do, the state would not be required to match it.

The Department of Finance assumes that three of every four workers will opt to cash out, getting the state off the hook for tens of millions in matching payments a year.

“We think it’s significant reform,” said Schwarzenegger spokesman Rob Stutzman. “Having watched what was going on at the table and some of the demands that were being made, the governor finally put his foot down and kicked them back to the curb pretty hard.”

Some of the same Republicans and anti-tax groups who railed on such deals when they were put together under the administration of former Gov. Gray Davis are showing a willingness to line up behind this one.

“We have some degree of flexibility,” said Jonathan Coupal, president of the Howard Jarvis Taxpayers Assn.

The plan is based on optimistic investment models and the hope that most new workers will merely cash out. The state retirement system has run into trouble with rosy projections before -- and Schwarzenegger’s own draft budget is quite critical of them. It notes that the cost to taxpayers of funding state worker pensions shot up from $160 million to $2.1 billion over the last four years.

Pensions have been a sticking point in budget talks. The governor and lawmakers are trying to agree on cuts to local government, education and social services. They have acknowledged that they would likely fail to meet the June 30 budget deadline.