Gov. Jerry Brown's plan to furlough state employees has a big expense: It adds tens of millions of deferred dollars to California's state worker pension costs.
As part of closing the state's $16 billion budget deficit, Brown suggested cutting two hours from 214,000 state employees' weekly schedules and moving them to four-day workweeks.
The 5 percent cut in hours would yield about $839 million in payroll savings, $401 million of that from the general fund.
Brown wants to negotiate the cut with labor unions, but he's open to any other ideas that reach the savings.
(The cuts wouldn't apply to the state universities or the Legislature because the governor doesn't have authority over those bodies.)
Brown's plan leaves employee retirement benefits unchanged. This was true when former Gov. Arnold Schwarzenegger and the Legislature imposed furloughs. It was true when unions agreed to contracts that mandated leave days.
Pensions are the unions' hallowed ground. Unilaterally cutting the benefit for current workers would invite a wave of litigation, since conventional legal wisdom says the guarantees are protected by both state and federal law. Sure, Brown can insist on his furlough and a parallel pension reduction if he wants to guarantee a bargaining breakdown.
So why the millions of dollars in deferred cost?
Let's say for the sake of easy math that state worker Hy Pothetical earns $1,000 per month in pensionable income. Like most employees, Hy contributes 8 percent to his pension, or $80 per month.
Then Brown's four-day, 9.5-hour workweek kicks in. Now Hy earns $950 per month and pays $76 in pension contributions, 8 percent of his new lower wage.
Since the retirement benefit will be calculated as though Hy still earned $1,000, the state i.e., taxpayers picks up the $4 difference.
Brown's Department of Finance spokesman H.D. Palmer acknowledged that the state is on the hook for that cost, but said that multiplying $839 million by 8 percent $67 million overstates the expense. The state saves some money because the pay cut reduces its Social Security obligations, for example.
The state has never calculated increased employer pension costs from the old furloughs, contracts or Brown's plan, Palmer said, but he agreed that it's in the tens of millions of dollars.
The state doesn't pay the money immediately.
CalPERS wouldn't figure the extra cost for the government's employer pension payments for a year.
Then it would be tacked onto the state's unfunded liability, an estimated $85 billion to $240 billion, depending on who is doing the math. CalPERS treats furlough underpayments like a loan and annually charges the state its going interest rate, currently 7.5 percent.
That's furloughs for you. They ding state workers first, then nail taxpayers for years to come.