State workers got furloughs before with a $40 billion budget hole. Now it’s $54 billion

The last time California faced a massive budget deficit, the governor soon started talking about furloughs.

Republican Gov. Arnold Schwarzenegger proposed unpaid days off for state workers in 2008, when the state faced a roughly $40 billion deficit.

On Thursday, the Department of Finance projected a $54 billion deficit, raising questions about where the state will look to reduce spending this time around.

Furloughs have not been discussed – at least publicly. So far, departments have been directed to avoid unnecessary travel and contracts, to use discretion in hiring and to cancel leave buyback programs.

Gov. Gavin Newsom said this week that the state is better-positioned financially than it was last time to cope with its budget problems. Former Gov. Jerry Brown left him a substantial reserve because he anticipated another recession, even before the coronavirus pandemic cut state revenues and drove up its costs.

He added that California “is one of the most efficient per capita in the number of employees of any state in the country.”

But he said the state’s ability to come through the crisis this time will depend on the degree of federal support.

“Because of this pandemic, because of what it has done, these revenue shortfalls are bigger even than the state of California,” said Newsom, who will have more to say on the budget on Thursday.

Twelve years ago, Schwarzenegger’s aggressive approach to pay reductions in the Great Recession embittered state workers and set new legal precedents that could affect how furloughs would proceed if they are considered again.

Here’s what happened last time:

The Republican set the tone for the pay battle when he tried to reduce all state workers’ pay to $6.55 an hour during a budget impasse in the middle of 2008. That was the federal minimum wage at the time.

The effort failed after unions sued and former State Controller John Chiang refused to carry it out.

Amid another standstill with legislators, Schwarzenegger claimed emergency authority and ordered furloughs that went into effect Feb. 1, 2009. He announced the reductions in a letter to state employees that began, “Dear state workers.”

Most of the state’s civil servants, with the exception of Highway Patrol officers, firefighters and some others, were forced to take off the first and third Friday of each month, a pay cut of about 10 percent that was to save the state $1.3 billion over 17 months.

Unions sued, arguing the governor didn’t have the legal authority to impose furloughs.

The deficit grew by another $20 billion. Furloughs increased to three days per month, representing a pay reduction of about 15 percent.

State workers started to look for second jobs and cancel vacations, they told The Sacramento Bee at the time.

Schwarzenegger threatened adding a fourth furlough day but never ordered it.

The legal fight over the furloughs went all the way to the state Supreme Court. In October 2010, the court ruled the governor doesn’t have the authority to impose furloughs unilaterally, ruling authority over state pay rests with the Legislature.

But the justices said that since the Legislature had “tacitly” approved the reductions in their annual budget votes, the furloughs were legal.

The traditional approach to furloughs had been through collective bargaining. That approach, using “personal leave programs,” eventually resumed under Schwarzenegger and continued under Gov. Brown, a Democrat, through June 2013.

The negotiated agreements were for one furlough day per month, and they applied to patrol officers and firefighters.

State worker layoffs hovered over the budget process through the Great Recession, and thousands of workers received notices that they might be laid off, but few occurred. Civil services layoffs take six to nine months, so the savings would take longer to materialize than through furloughs.

A more common cost-saving strategy was eliminating vacant positions. Vacancies started to arrive with more frequency as older state workers accelerated their retirement plans amid the worsening conditions.

State workers lost two paid holidays, Columbus Day and Lincoln’s birthday, but later obtained floating leave days to replace those days.

Many workers accumulated large leave balances during the furloughs. The state Legislative Analyst’s Office reviewed the furloughs and the leave in 2013, finding that while the furloughs were effective in achieving short-term savings, costs accumulated over time.

Many state workers still carry large leave balances, representing an expense the state has to reckon with as older workers retire.