Gavin Newsom hopes to save more on state worker costs with short-term tactics
AI-generated summary reviewed by our newsroom.
- California targets $800M in savings via leave programs and other tactics.
- Pausing retirement contributions and more replace earlier salary freeze proposal.
- Suspended retirement payments and leave banks may raise long-term state liabilities.
Last month, Gov. Gavin Newsom set a goal of saving California $767 million, in part, by freezing state workers’ salaries.
But now, the administration hopes to save slightly more — $800 million — through several compensation-related reductions, according to the latest numbers from the Finance Department.
How the state plans to achieve those savings isn’t finalized because the administration is still in active negotiations with several bargaining units.
But four unions have already made initial agreements with the state, suggesting that Newsom has pivoted away from freezing pay increases and is instead embracing personal leave programs and pausing some retirement contributions — actions that save money in the short term but increase costs to California taxpayers in the long run.
The “administration continues to have concerns about high leave balances and unfunded liabilities related to retiree health and pensions,” said H.D. Palmer, a spokesperson for the Finance Department. “That said, the administration continues to bargain in good faith to minimize the impact on employees’ pay, while achieving employee compensation-related savings to help close the budget shortfall.”
Several bargaining units — including, notably, the second largest — have signed off on a program that will reduce workers’ pay in exchange for credited time off. Alone, it might look like unpaid leave, but the state also agreed to a commensurate pay raise to offset the salary reduction.
Unions negotiate individually
Of the state’s seven bargaining units that began the process of negotiating a new contract this year, only a handful had posted tentative agreements on CalHR as of Friday. Newsom invited the remaining 14 units back to the bargaining table last month when it became clear some aspect of state workers’ compensation would be part of the budget solution to plug California’s $12 billion deficit.
Bargaining unit 12, which represents over 10,000 highway maintenance workers and equipment operators, was one of the unions not in active negotiations with the administration before the May revision.
Despite this, the International Union of Operating Engineers agreed to a side letter that includes a version of the leave program that looked similar to what was outlined in other unions’ tentative agreements.
CalHR, the state’s chief labor negotiator, said that negotiations with each bargaining unit are separate.
But generally in public sector collective bargaining other unions look to the largest units to see what the most powerful bargaining teams were able to secure, said Janet Cory Sommer, the chief executive officer of the California Public Employers Labor Relations Association.
The California Correctional Peace Officers Association is one of the largest and well financed unions, representing roughly 12% of the state’s 256,000 full-time employees. These workers’ salaries account for 29% of California’s general fund compensation costs, the Legislative Analyst’s Office reported in a recent analysis of the tentative agreement.
“I wouldn’t be surprised to see similar agreements from the other units,” Cory Sommer said. “I just don’t know what else they’ve got on the table.”
Pay reduction for time off
Last month, public employees were facing the threat of payroll pauses after Newsom unveiled a less-than-rosy budget proposal.
It was a pleasant surprise to some when several unions touted 3% raises earlier this week. But those pay increases will be effectively offset by the leave program bargaining units agreed to.
The leave program is similar to furloughs in that it is a pay reduction in exchange for time off, said Nick Schroeder, the public employment analyst at the LAO.
The difference is that personal leave programs are a result of bargaining, not imposed on workers. Many state workers remember when former Gov. Arnold Schwarzenegger instituted mandatory furloughs on several occasions.
Additionally, personal leave programs give state workers a choice: Take additional vacation hours now, or save that time in a bank, which can be cashed out later, and often at a higher salary rate. While employees’ salaries are reduced, in exchange for the credited time, many workers won’t see a change in their paychecks because the state agreed to 3% pay raises to offset the leave program.
It’s through this mechanism, in part, the state is able to save hundreds of millions in compensation costs.
In total, the budget plan aims to save $800 million from various reductions to employee compensation through negotiations with the unions, but only a handful of bargaining units have announced deals.
“The administration will bargain in good faith to achieve salary savings, but not every union will necessarily agree to the same terms,” Palmer said in a statement.
On top of that sum, the Finance Department said the state has saved $157 million by various reductions to rank-and-file employees’ compensation for those who are represented by bargaining units 6, 9, and 12, which were the first agreements made public.
As part of those agreements, several units secured a one-year delay to Newsom’s unpopular return-to-office order that goes into effect July 1.
Future liabilities
The provisions outlined in the correctional officers’ tentative agreement would likely serve as a guide for other units, the LAO noted in its analysis of the proposal earlier this week.
Even for those units that aren’t negotiating a new contract, the LAO said, “this agreement could serve as a precedent for any policies that the administration might impose on any of the other 20 bargaining units.”
So far, all the bargaining units that publicly announced a deal with the administration share a number of similarities: a personal leave program; a one-time general salary increase this year, but not in successive years; and some form of suspension to retirement contributions.
In the case of the agreement with the correctional officers’ union, the state is pausing contributions to a retirement health benefit trust fund for two fiscal years. Currently, correctional officers and the state both pay 4% of pay to the California Employers’ Benefit Trust.
In other agreements, such as the engineers’, state workers would also be exempt from making those payments, which would appear as a salary bump on their paychecks.
The Legislative Analyst’s Office warned that suspending contributions to the retirement trust would create an unfunded liability for the state in future years, which could potentially result in California’s missing its goal of fully funding the benefit for that unit by 2048. The LAO had additional concerns that other bargaining units would adopt similar provisions, exacerbating the unfunded liability.
Legislative analysts also noted the leave programs that several unions agreed to, and other bargaining units are expected to adopt, additionally increase California’s long-term liabilities. When employees don’t take vacation using the hours earned through these leave programs, that time is banked.
This leads to higher costs to California taxpayers because when workers leave civil service, they cash out that banked leave at their final — usually higher — salary levels.
On the correctional officers’ tentative agreement, Schroeder said, “The broad strokes of the structure of the agreement is to reduce short-term state costs but increase long-term costs.”
This story was originally published June 27, 2025 at 11:24 AM.
