As bargaining concludes, CA’s labor agreements save now, create future liabilities
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- CA recouped $737M in labor costs through leave programs, paused retirement contributions.
- Two state unions remain in talks; pay raises could be withheld if no deal is struck.
- Deferred contributions reduce prefunding by $2.7B, raising future state liabilities.
Bargaining between California and its workforce is largely in the rearview mirror and the latest numbers, according to the Finance Department, show the various budget saving measures have allowed the state to recuperate $737 million in compensation expenses.
Most of those savings stem from new leave programs that involve pay reductions and suspending retirement contributions, which nearly all of California’s 21 bargaining units agreed to in some form over the last month as the state and unions finalized contracts.
The budget bill passed by the Legislature saved the state $800 million by broadly reducing payroll expenses that the state would have paid in the absence of recent deals with public employees’ unions. That number includes non-bargaining related savings that also come from reductions to employee compensation, the Finance Department said. The legislation outlined expectations that the administration and bargaining units will “meet and confer in good faith” before July 1.
That deadline has now passed, but two unions are still at the bargaining table.
If a consensus isn’t reached through negotiations, the state will have to find those savings one way or another, “which the administration could interpret to mean reducing the scheduled pay increases for the bargaining units,” said Nick Schroeder, the Legislative Analyst’s Office’s public employment analyst.
While pay cuts would likely lead to a legal challenge, Schroeder said the authority is ultimately on the side of the employer. State labor law allows the Legislature, with the power of the purse, to not fund provisions of an agreement.
“We’re pleased to have reached an agreement with our labor partners that delivers significant savings, consistent with the Governor’s May Revision,” Camille Travis, a spokesperson for CalHR, the department that handles the state’s labor negotiations, said in a statement. “We appreciate the collaborative approach that led to these agreements — achieving desired cost savings while maintaining operational efficiency and effectiveness.”
CalHR declined to comment on active negotiations with the unions still at the bargaining table. Those include units that represent scientists and psychiatric technicians who work in state facilities.
The deals that have been finalized will help California address its current budget deficit in the short term. In addition to the hundreds of millions the state expects to save this year, the LAO reported that California will save $645 million in fiscal year 2026-27 from these measures.
But the leave program and paused retirement payments, the LAO warned, will ultimately lead to higher state costs in the years to come.
‘Not putting the money in today’
Perhaps the largest contributor to future unfunded liabilities is the state’s decision to temporarily stop contributing to retirement funds for retiree health care, such as dental and vision benefits, also known as Other Post-Employment Benefits. This fund was intended to replace California’s practice of paying-as-you-go for these retiree benefits.
The Legislative Analyst’s Office estimated that two years of suspended contributions, and phasing those payments back in for various units, by California and state employees, will result in a $2.7 billion loss in OPEB prefunding. The state would have paid $1.5 billion in contributions between this fiscal year and 2029-30, with roughly half coming from the general fund. The rest would have come from employee contributions.
Because Proposition 2 requires the state to use the general fund to pay for retirement liabilities broadly each year, California will still have to contribute to state workers’ post-employment benefits. Instead of making OPEB contributions, the state will use general funds to make supplemental pension payments to the California Public Employees Retirement System, the LAO reported, which creates a new unfunded liability for the state.
That issue is compounded by the fact that suspending contributions reduces the potential returns of assets designed to grow over three decades, Schroeder said.
“By not putting the money in today, we’re depriving the trust fund of potential investment gains before 2046,” the legislative analyst said, noting the year that future Legislatures could draw from the fund.
The administration previously expressed concern about the unfunded liabilities related to retiree health benefits, but argued the measures are necessary to close the budget shortfall.
Also of concern to the administration is the amount of vacation leave public employees have banked. The leave programs the state approved this year will invariably lead to higher leave balances.
In exchange for pay reductions, state workers can take time off work or save those hours in their leave banks. When employees separate from civil service and cash out their leave banks, they typically do so at higher salary ranges — meaning state workers could actually make money off the leave programs the state is using to save on payroll expenses this year.
The leave programs, which are offset by general salary increases, and paused retirement contributions are set to taper off within two fiscal years, though the exact details vary by unit. The financial impact of higher leave balances isn’t clear.
After those measures sunset, the LAO estimated that the state’s annual costs will increase by $1.8 billion in 2027-28 relative to this fiscal year.
Two unions, state still at odds
At the beginning of the year, seven bargaining units met with CalHR to begin negotiating a new contract for their members.
But as the scope of California’s budget shortfall came into focus in May, the other 14 units, including those represented by the state’s largest public sector union, SEIU Local 1000, were brought back to the table to draft side letters. Those resulted in similar deals that included leave programs, general salary increases and suspensions to retirement contributions.
In exchange, the administration also agreed to delay Newsom’s return-to-office order for nearly all state workers before its scheduled deadline of July 1. State employees represented by the California Association of Professional Scientists, which has resisted the state’s request to reopen its contract, were required to work in person four days a week without an exemption to the return-to-office mandate.
That is until a week later, when the state scientists union managed to secure the same telework protections as all the other units without agreeing to any other concessions.
“No strings attached,” the union celebrated on social media.
But the union may not be able to escape the leave programs and other budget-saving measures that its peers agreed to, the LAO’s Schroeder noted. Because the state has already budgeted reductions to payroll expenses this year, the raises that the scientist bargained for in their current contract — which took more than four years to settle on — could be withheld.
CAPS-UAW did not respond to multiple requests to answer questions.
The California Association of Psychiatric Technicians, the other unit that is still at the bargaining table, is in agreement with the state “in principle” over the leave program and retirement contributions, but the details are still being hashed out, said Sean Bedrosian, CAPT’s chief contract negotiator.
The hang-ups also include issues specific to the nurses CAPT represents, for whom telework is not an option so the union is trying to secure more favorable policies around the state’s reliance on contracted employees and mandatory overtime, Bedrosian said.
“For too long, mandatory overtime has been wrongly utilized by the state as a staffing tool and what they seem to treat as an unavoidable reality,” Bedrosian said in a statement. “We have long disagreed and are still standing strong at the table to lower the use of (mandatory overtime.)”
Bedrosian said the union was happy that the Legislature pushed back on some of the governor’s initial budget proposals related to employee compensation, which included salary freezes.
“If cost savings are necessary, then that should be done at the bargaining table,” he said.
This story was originally published July 23, 2025 at 5:00 AM.
