Asking the Brown administration about state labor contract negotiations is like asking Coca-Cola for its soft drink recipe.
So it was surprising last week that Gov. Jerry Brown’s proposed 2016-17 budget dangled $350 million “to fund potential employee compensation increases.” That’s on top of approximately $383 million committed to raises bargained a few years ago.
The reason: Brown is starting talks with 15 bargaining units with contracts that expire this summer and he wants them to start paying into the state’s retiree health fund.
Brown had the same bargaining goals last year for another four bargaining units with contracts that expired in mid-2015. Correctional officers and maintenance workers still haven’t reached agreements. Scientists rejected a 15 percent raise over three years with incrementally rising contributions to the retiree health fund, which the state matches. Even with the raise, the scientists’ pay would have lagged behind the market.
The fourth group, state engineers, took a three-year deal with a total 7 percent in pay raises with retiree-health contributions that eventually reach 2 percent of pay matched by the state. The deal also requires engineers hired after a certain date to work longer for a lesser benefit.
Brown’s budget proposal calls the engineers’ agreement “progress” toward his long-term goal of knocking down an estimated $72 billion in unfunded medical obligations for retirees for the next 30 years. If unchecked, according to the administration, the liabilities will top $100 billion by 2020-21 and $300 billion in 2047-48. And that’s before inflation.
Unlike pension benefits, there’s virtually nothing put aside for the medical, vision and dental care that state retirees receive. Instead, taxpayers foot the bills as they come due. The liability will grow because more people will demand more benefits.
And the most difficult negotiations likely lie ahead. Engineers are among California’s best-paid state employees, so it’s easier for them to handle the new contribution. Lower-paid workers – many of them among the 95,000 service employees in SEIU Local 1000 – will have to pay a higher percentage of salary because, unlike pensions, the benefit level and the cost don’t correspond to salary.
And there’s this: State employees work 10 years to partially vest in retiree health care and 20 years to fully vest. Brown wants to add another five years for future hires. Under terms of the engineers’ agreement that Brown’s budget highlighted, the state gets to keep the money employees put in if they leave state service before they vest in the benefit.
“That might be where things get hung up,” said Ron Yank, a retired labor lawyer who negotiated for state unions before Brown tapped him to run the government’s human resources branch in 2011 and 2012.
Regardless, it looks like a season of tough talks lie ahead, so tough that Brown publicly put a number on what he’d do to make retiree health funding happen.