MOU Fiscal Analysis: Bargaining Units 6 and 13

LAO 70 YEARS OF SERVICE April 8, 2011 MOU Fiscal Analysis Bargaining Units 6 and 13 L E G I S L A T I V E A N A L Y S T ’ S O F F I C E Presented to: The California Legislature Pursuant to Section 19829.5 of the Government Code April 8, 2011 LAO Background on the State Memorandum of Understanding (MOU) Process 70 YEARS OF SERVICE  Ralph C. Dills Act Provides for State Employee Collective Bargaining. With passage of the Dills Act in 1977, the Legislature authorized collective bargaining between unions representing rank-and-fi le state employees and the administration. Currently, about 200,000 state workers belong to one of the state’s 21 bargaining units.  Legislature and Employees Must Ratify MOUs. Fiscal provisions of MOUs must be ratifi ed by the Legislature and MOUs must be approved by bargaining unit members in order to take effect. In addition, under the Dills Act, the Legislature annually may choose whether to appropriate funds in the budget to continue the fi nancial provisions of each MOU.  Fiscal Analysis Required by State Law. Section 19829.5 of the Government Code—approved by the Legislature in 2005— requires the Legislative Analyst’s Offi ce (LAO) to issue a fi scal analysis of proposed MOUs.  MOUs for Two State Unions Now Before Lawmakers. The MOUs addressed in this analysis apply to employees in the fi nal bargaining units to reach an agreement with the administration: rank-and-fi le correctional peace offi cers and stationary engineers. Our analysis examines all MOU documents for correctional peace offi cers submitted to our offi ce on April 1 and April 4 and all MOU documents for stationary engineers submitted to our offi ce on March 30. If ratifi ed, the term for both MOUs would begin April 1, 2011 and end either July 1, 2013 (stationary engineers) or July 2, 2013 (correctional peace offi cers). LEGISLATIVE ANALYST’S OFFICE 1 April 8, 2011 LAO Bargaining Units at a Glance 70 YEARS OF SERVICE  Unit 6. Unit 6 is the second largest of the state’s 21 bargaining units, and represents about 30,000 rank-and-fi le employees. Salaries and related expenses for Unit 6 employees and their supervisors total about 40 percent of all such dollars paid from the General Fund. This fi gure results from (1) the salary levels of correctional offi cers (which are relatively high compared with other state classifi cations), and (2) the fact that the personnel costs for correctional staff—unlike many other groups of state employees—are funded almost entirely from the General Fund. About 80 percent of Unit 6 employees belong to the civil service classifi cation of correctional offi cer. These offi cers confi ne and supervise felons within the state’s prison system. Almost all Unit 6 employees work for the California Department of Corrections and Rehabilitation (CDCR). Unit 6 employees are represented by the California Correctional Peace Offi cers Association (CCPOA).  Unit 13. Unit 13 is one of the smallest bargaining units, and represents less than 1,000 rank-and-fi le employees. Unit 13 employees maintain and operate heating, cooling, water, waste- water, and other major mechanical systems at state facilities. Among the largest classifi cations are stationary engineers and water and sewage plant supervisors. More than half of Unit 13 employees work for CDCR. The remaining employees work in other departments—including the Department of General Services, Department of Developmental Services, and Department of Mental Health. Unit 13 employees are represented by the International Union of Operating Engineers Local 39. LEGISLATIVE ANALYST’S OFFICE 2 April 8, 2011 LAO Current MOUs 70 YEARS OF SERVICE  Bargaining Unit Contracts Have Expired. Both bargaining units’ MOUs are expired—Unit 6’s MOU expired in 2006 (known as the 2001-06 MOU) and Unit 13’s MOU expired in 2008. Generally speaking, the provisions of an expired MOU continue in effect until new MOUs are approved pursuant to the “evergreen” provision of the Dills Act (Section 3517.8 [a] of the Government Code).  Both MOUs Provided Salary Increases. Employees in both bargaining units received pay increases under their current MOUs. The last pay increase for Unit 6 was in 2006 and the last pay increase for Unit 13 was in 2007.  Unit 6 Pay Increases Linked to California Highway Patrol (CHP). The original version of the 2001-06 MOU provided for salary increases on four specifi c dates: July 1 of each of the years 2003, 2004, 2005, and 2006. The salary increases were to be based on a methodology that linked correctional offi cer pay to that of CHP offi cers, which in turn had been linked to that of fi ve urban police departments. Although a 2004 MOU addendum reduced the pay increases, we estimate that the MOU resulted in correctional offi cers receiving general salary increases of about 34 percent from 2003-04 to 2007-08. These salary increases were more than twice as much as the increase for the average state employee over the same period.  Pay Increases for Unit 13. All Unit 13 employees received a 3.5 percent general salary increase in 2006 and a cost-of- living adjustment of 3.4 percent in 2007. The expired MOU also provided pay differentials for specifi c classifi cations. LEGISLATIVE ANALYST’S OFFICE 3 April 8, 2011 LAO Current MOUs (Continued) 70 YEARS OF SERVICE  State Contributes Flat Dollar Amount to Employee Health Care. The state’s contribution to both units’ health care premium costs is a fl at dollar amount. The last increase to the state’s contribution to Unit 6 health care was in 2006 and was based on the 85/80 formula (85 percent of the average employee premium plus 80 percent of the average additional premiums for dependents). The last increase in the state’s contribution to Unit 13 health care was in 2008 and was based on the 80/80 formula (80 percent of the average employee premium plus 80 percent of the average additional premiums for dependents).  Employee Pension Categories. About 97 percent of Unit 6 employees are in the peace offi cer/fi refi ghter (PO/FF) retirement category of California Public Employees’ Retirement System (CalPERS). More than half of Unit 13 employees are in the safety CalPERS retirement category and the remaining employ- ees eligible for CalPERS are in the miscellaneous category.  Unit 6 Defi ned Contribution Retirement. The state contributes 2 percent of Unit 6 PO/FF employees’ base pay toward a defi ned contribution retirement plan—the State Peace Offi cers’ and Firefi ghters’ Defi ned Contribution Plan (PO/FF II).  For More Details… This analysis does not describe every provi- sion of the current or proposed MOUs. For a more complete look at the history and provisions of the 2001-06 MOU, please read our February 7, 2008 report, Correctional Offi cer Pay, Benefi ts, and Labor Relations, available from our website: http://www.lao. ca.gov/2008/stadm/ccpoa_pay_020708/ccpoa_pay_020708.pdf. Summaries and text of MOUs are available at the Department of Personnel Administration’s (DPA’s) website: http://www.dpa.ca.gov/bargaining/contracts/index.htm LEGISLATIVE ANALYST’S OFFICE 4 April 8, 2011 LAO Proposed MOU— Personal Leave Program (PLP) 70 YEARS OF SERVICE  One Day of Unpaid Leave Each Month for 12 Months. The proposed MOUs would establish a 12-month PLP. For the fi rst 12 months of the MOUs, the PLP provides every employee eight hours of unpaid leave each month, resulting in a 4.6 percent pay reduction. Unused leave under the PLP accrues on a monthly basis. For Unit 6, unused PLP days do not expire (unlike the PLP provided in the other bargaining units’ MOUs ratifi ed in 2010). For Unit 13, unused PLP days expire July 1, 2014.  No Furloughs During PLP. The MOUs would end the three- day-per-month furlough program that the prior administration imposed—through Executive Order S-12-10—on nearly all Unit 6 and 13 employees. During the 12-month PLP, the proposed MOUs specify that the state shall not impose a furlough program on Unit 6 and 13 employees. The state could reinstate a furlough program on Unit 6 and 13 employees after the PLP has ended.  Reduced Take-Home Pay Does Not Affect Retirement Benefi ts. Although employee and employer pension contribu- tions to CalPERS are based on the lower pay levels for employ- ees, the PLP would not reduce the amount of fi nal compensation used to determine employee pension benefi t levels.  Cash Value for Unused PLP Days. Although all recent MOUs for other bargaining units specify that PLP days have no cash value, the proposed Unit 6 MOU contains a provision that states that DPA would issue a Personnel Management Liaison (PML) Memo—a memo sent to human resources offi cers to implement or clarify new personnel policies—that would give cash value to PLP days for all six bargaining units with MOUs pending before the Legislature (Units 2, 6, 7, 9, 10, and 13). The DPA indicates that it intends to implement this provision by directing managers to ensure that employees use their PLP days before separation from state service and that PLP days would be cashed out only upon “rare occasions” where this has not occurred. LEGISLATIVE ANALYST’S OFFICE 5 April 8, 2011 LAO Proposed MOUs—Pay and Employee Pension Contribution Changes 70 YEARS OF SERVICE  All Employees Contribute Larger Share Towards Pension. All Unit 6 employees would contribute an additional 3 percent of their monthly pay towards their pension beginning in April 2011. All Unit 13 employees would contribute an additional 5 percent of their monthly pay toward their pension beginning April 2011. Figure 1 summarizes how each classifi cation would be affected by the increased contribution rates.  PO/FF II Defi ned Contribution Retirement Eliminated. The PO/FF II defi ned contribution retirement program provided under the expired MOU would be eliminated under the proposed Unit 6 MOU. This would eliminate the state’s future contribution of 2 percent of employee pay to the program.  Pay Increases to Top Step in 2013-14. The proposed Unit 6 MOU specifi es that all Unit 6 classifi cations shall be adjusted by increasing the top step by either 3 percent or 4 percent (for employees enrolled in PO/FF II) effective July 1, 2013. The proposed Unit 13 MOU would adjust the top step of all classifi cations by 5 percent on the same date. Figure 1 Current and Proposed Employee Pension Contributions (Percent of Monthly Paya) Contributions Under Retirement Category Current Contributions Proposed MOUs Unit 6 Miscellaneous/Industrial 5% 8% Police Offi cer/Firefi ghter 8 11 Unit 13 Miscellaneous/Industrial 5 10 Safety 6 11 a A small portion of monthly pay is excluded from the calculation. In some cases, different contributions are applicable for employees not subject to Social Security. LEGISLATIVE ANALYST’S OFFICE 6 April 8, 2011 LAO Proposed MOUs— Personal Development Days 70 YEARS OF SERVICE  Two Days Off. Both MOUs would provide employees two days off per year (per fi scal year for Unit 13 and per calendar year for Unit 6) for activities that “promote professional and/or personal growth.” These days functionally would be the same as the “professional development days” granted under the MOUs ratifi ed in 2010. These days could be used by employees for any professional or personal purpose. Unit 6 employees would not receive any of these days in 2011, but would receive four days in 2012. LEGISLATIVE ANALYST’S OFFICE 7 April 8, 2011 LAO Proposed MOUs— Health Care and Other Financial Provisions 70 YEARS OF SERVICE  Increase State’s Flat Dollar Contribution to Health Care. The proposed MOUs would increase the state’s fl at dollar contribution to employee health care on April 1, 2011 and again on January 1, 2012 and January 1, 2013. Both MOUs would base the state’s contribution on the 80/80 formula, and would also increase the state’s contribution to employee dental and vision coverage.  Continuous Appropriations. The administration and unions agree to seek legislative approval for the economic terms of these agreements to be continuously appropriated for the duration of these agreements. Such a continuous appropriation would protect these employees from having wages lowered to the federal minimum during budget impasses.  Contract Protection Clause. The proposed MOUs include a contract protection clause. The clause would go into effect if any other bargaining unit were to enter into an agreement with the state that did not include pension reform or provided a greater value/total compensation package than that provided by each unit’s respective proposed MOU. Under such an event, Unit 6’s contract protection clause would require the parties to meet and discuss the differences and an implementation plan, and Unit 13’s would automatically extend the difference to its members.  Changes in Holidays and Overtime. The MOUs would eliminate Columbus Day and Lincoln’s Birthday from the list of holidays granted to Units 6 and 13 employees. The MOUs also would prohibit any days off as being counted as “time worked” by an employee for purposes of computing cash compensation for overtime. Both of these provisions align the MOUs with Chapter 4, Statutes of 2009, Third Extraordinary Session (SBX3 8, Ducheny). Unit 6’s proposed MOU would also eliminate holiday credit and pay employees 16 hours for working on a holiday. Unit 13’s proposed MOU would reinstate premium holiday pay for six holidays. LEGISLATIVE ANALYST’S OFFICE 8 April 8, 2011 LAO Proposed MOUs— Provisions Unique to Unit 6 70 YEARS OF SERVICE  Night and Weekend Shift Differential. Under the proposed Unit 6 MOU, Department of Juvenile Justice (DJJ) parole agents and case managers would be eligible for a night and weekend shift differential. The night differential provides an additional 50 cents per hour for these DJJ employees who work at least two hours of a scheduled work shift falling between 6 p.m. and 6 a.m. The weekend differential provides an additional 15 cents per hour to any other shift differential already paid, and 65 cents per hour for second watch employees who work four or more hours of a scheduled shift on either a Saturday or a Sunday.  Recruitment and Retention Incentive. The Unit 6 proposed MOU, “in recognition of recruitment and retention problems,” would create a recruitment and retention incentive for Unit 6 employees working at Pelican Bay State Prison, High Desert State Prison, and the California Correctional Center at Susanville. Each of these employees would receive an incentive of $200 per month until a total of $6 million is spent among the three facilities.  Union Release Time Bank. The proposed MOU would require the state and CCPOA to meet and agree (within 60 days of ratifi cation) to develop a union release time bank system. Any fi ve designated CCPOA representatives may authorize time withdrawal from the bank for use by a Unit 6 employee to conduct union business. Each July, Unit 6 employees would be required to contribute one hour of vacation to the bank. Under current law, the number of hours in the time bank is limited to 10,000.  Eliminate Cap for Vacation. The proposed Unit 6 MOU would eliminate the current maximum number of hours (640 hours) of vacation an employee can carry over to the following calendar year. LEGISLATIVE ANALYST’S OFFICE 9 April 8, 2011 LAO DPA Fiscal Estimate 70 YEARS OF SERVICE Figure 2 Department of Personnel Administration’s (DPA’s) Cost Estimatea (In Millions) 2010-11 2011-12 2012-13 2013-14 Proposal GF AF GF AF GF AF GF AF Provisions Included in Both MOUs 24 furlough days (August 2010 through -$252.4 -$254.6 — — — — — — March 2011) Personal leave program (fi rst 12 months) -31.5 -31.8 -$94.6 -$95.5 — — — — Increased employee pension contributions -13.6 -13.8 -55.1 -56.1 -$57.1 -$58.1 -$59.0 -$60.0 Two personal development days — — — — — — — — Six holidays with premium payb — — 0.3 0.3 0.3 0.3 0.3 0.3 Health benefi ts 11.9 12.0 85.5 86.1 128.7 129.6 140.3 141.4 Increase to top step — — — — — — 89.1 90.4 Subtotals, Costs(+)/Savings(-) (-$285.6) (-$288.2) (-$64.0) (-$65.2) ($71.8) ($71.9) ($172.0) ($173.4) Provisions From Unit 6 MOU Eliminate PO/FF II -$10.5 -$10.5 -$42.0 -$42.0 -$42.0 -$42.0 -$42.0 -$42.0 Night shift and weekend differentialsc — — — — — — — — Recruitment and retention incentive — — 5.3 5.3 0.7 0.7 — — Treatment of holiday pay UK UK UK UK UK UK UK UK Subtotals, Costs(+)/Savings(-) (-$10.5) (-$10.5) (-$36.6) (-$36.7) (-$41.3) (-$41.3) (-$42.0) (-$42.0) Totals -$296.1 -$298.7 -$100.6 -$101.8 $30.5 $30.5 $128.7 $130.1 a We adjusted the numbers we received from DPA to refl ect cumulative costs and savings in each year. b This provision is only in Unit 13’s proposed MOU. c Rounds to zero. GF = General Fund; AF = all funds; MOU = memorandum of understanding; PO/FF II = State Peace Offi cers’ and Firefi ghters’ Defi ned Contribution Plan; UK = unknown.  Savings in 2010-11 and 2011-12. As shown in Figure 2, the administration’s fi scal estimates indicate that the state would experience savings in Unit 6 and 13 employee compensation in 2010-11 and 2011-12. Most of the savings DPA shows for 2010-11 refl ect the furlough program that has been in effect since August 2010. LEGISLATIVE ANALYST’S OFFICE 10 April 8, 2011 LAO DPA Fiscal Estimate (Continued) 70 YEARS OF SERVICE  Rising Costs Beginning 2012-13. As Figure 2 shows, DPA estimates that the proposed MOUs would result in net costs in 2012-13 of $31 million General Fund. After the pay increase to the top step goes into effect on July 1, 2013, DPA estimates that the net costs in 2013-14 would grow to about $130 million ($129 million General Fund). LEGISLATIVE ANALYST’S OFFICE 11 April 8, 2011 LAO LAO Comments— DPA Fiscal Estimates 70 YEARS OF SERVICE  Includes Savings and Costs Attributable to Current Law. As shown in Figure 2, DPA’s estimate includes the state’s savings from the furloughs established in August 2010. These three-day-per-month furloughs were established by the previous administration as part of its plan to achieve the savings specifi ed in Control Section 3.91 of the 2010-11 Budget Act. The MOUs propose to end these furloughs (established by Executive Order S-12-10) and implement new employment policies. In its fi scal estimate, DPA includes the savings associated with the furloughs as well as the savings associated with the new MOU provisions. While DPA’s estimate acknowledges the impact of furloughs on employees, it overstates the savings the state would realize in 2010-11 from adoption of the MOUs.  Ignores Longer-Term Costs of Leave Days (Furloughs, PML, and Personal Development Days). As shown in Figure 3, the average Unit 6 employee has accumulated nearly 19 weeks of leave time to date, excluding sick leave, with a current cash value of over $600 million. (Although we do not have compa- rable data, Unit 13 employees may have similar leave balances.) As we describe later in this report, the MOUs give Unit 6 and 13 employees signifi cant time off: more than eight weeks off for most employees during the fi rst year of the MOU. Given this amount of time off, it is likely that many Unit 6 and 13 employees will have leave balances when they begin the process of termi- nating state employment. (Over a third of Unit 6 employees are over 46 years old and most are eligible for “3 percent at age 50” PO/FF retirement benefi ts.) When they terminate state employ- ment, the employees could (1) request that the state compensate them for their unused time and/or (2) cease working and draw down their leave time until it is exhausted. Either action imposes costs on the state. Cashing out leave time requires the state to directly compensate the employee. (The CDCR informs us that it paid separating employees nearly $100 million for unused leave time in 2010-11.) Drawing down leave time requires the state to continue paying an absent employee’s salary while paying for his LEGISLATIVE ANALYST’S OFFICE 12 April 8, 2011 LAO LAO Comments— DPA Fiscal Estimates (Continued) 70 YEARS OF SERVICE or her replacement (most CDCR positions are “posted positions,” meaning that the department must backfi ll behind any absence). Despite these large leave balances, the DPA assumes that the addition of 18 more days off (12 PLP and 6 personal develop- ment days) during the contract period will not result in increased state costs. Specifi cally, DPA indicates that departments will manage the PLP to not incur increased costs and that the state will avoid any costs associated with the personal development days because the MOU does not specify that these days have cash value. Figure 3 Unit 6 Accumulated Leave Time (Dollars in Millions) Weeks Off Per Payout Leave time Employee Amount Vacation and annual leave 9.2 $377.5 Holiday and Personal Holiday credit 5.5 219.9 Furlougha 3.5 — Otherb 0.6 13.2 Totals 18.8 $610.6 a Furlough time may be drawn down prior to termination from state employment, but does not have cash value. b Includes prior personal leave programs and compensating time off. LEGISLATIVE ANALYST’S OFFICE 13 April 8, 2011 LAO LAO Fiscal Estimate 70 YEARS OF SERVICE Figure 4 LAO Cost Estimate (Relative to Current Lawa) (In Millions) 2010-11 2011-12 2012-13 2013-14 Proposal GF AF GF AF GF AF GF AF Provisions Included in Both MOUs Nine furlough days eliminated $94.6 $95.5 — — — — — — (April through June 2011) PLP (fi rst 12 months) -31.5 -31.8 -$94.5 -$95.3 — — — — Increased employee pension contributions -13.6 -13.8 -55.1 -56.1 -$57.1 -$58.1 -$59.0 -$60.0 Six holidays with premium payb — — 0.3 0.3 0.3 0.3 0.3 0.3 Costs for personal development, PLP, and UK UK UK UK UK UK UK UK furlough days Health benefi ts 11.9 12.0 85.5 86.1 128.7 129.6 140.3 141.4 Increase to top step — — — — — — 89.1 90.4 Subtotals, Costs(+)/Savings(-) ($61.5) ($62.0) (-$63.9) (-$64.9) ($71.8) ($71.9) ($172.0) ($173.4) Provisions From Unit 6 MOU Eliminate PO/FF II -$10.5 -$10.5 -$42.0 -$42.0 -$42.0 -$42.0 -$42.0 -$42.0 Release time bank UK UK UK UK UK UK UK UK Treatment of holiday pay UK UK UK UK UK UK UK UK Night shift and weekend differentialsc — — — — — — — — Recruitment and retention incentive — — 5.3 5.3 0.7 0.7 — — Subtotals, Costs(+)/Savings(-) (-$10.5) (-$10.5) (-$36.6) (-$36.7) (-$41.3) (-$41.3) (-$42.0) (-$42.0) Totals $51.0 $51.4 -$100.5 -$101.7 $30.5 $30.5 $128.7 $130.1 a For purposes of this analysis, current law is the continuing provisions of the expired MOUs, the 2010-11 Budget Act, and the executive order establishing the three-day-per-month furlough. b This provision is only in Unit 13’s proposed MOU. c Rounds to zero. GF = General Fund; AF = all funds; MOU = memorandum of understanding; PLP = personal leave program; UK = unknown; PO/FF II = State Peace Offi cers’ and Firefi ghters’ Defi ned Contribution Plan. LEGISLATIVE ANALYST’S OFFICE 14 April 8, 2011 LAO LAO Fiscal Estimate (Continued) 70 YEARS OF SERVICE  Erosions to Current-Year Savings. The proposed MOUs terminate the furlough program for Unit 6 and 13 employees beginning April 2011. As a result, Unit 6 and 13 employees would not be furloughed or experience furlough-related pay reductions for nine days in spring 2011. As shown in Figure 4, this decrease in furlough days—a change from current law—increases near- term state employee compensation costs. After accounting for other provisions in the MOUs, we estimate that they would erode assumed near-term savings in 2010-11 by $51 million General Fund.  Unknown Cost Associated With Days Off. As we discuss in more detail later, we disagree with the administration’s fi nding that there is no longer-term cost associated with the personal development or PLP days, but it is diffi cult to place a specifi c estimate on their cost impact.  Net Cost Beginning 2012-13. We agree with DPA that the MOUs would result in net annual costs beginning in 2012-13. LEGISLATIVE ANALYST’S OFFICE 15 April 8, 2011 LAO LAO Comments—Longer-Term Costs Associated With Days Off 70 YEARS OF SERVICE  MOUs Provide More Days Off Than Most Employees Could Use. A new employee hired at the beginning of the term of the MOUs would have nearly eight weeks of days off during his or her fi rst 12 months. These days include vacation, PLP, personal development days, and state holidays. More senior employees would have more days off (because they are eligible for longer vacations). The MOUs continue to provide a large (but signifi cantly reduced after the PLP ends) number of days off throughout the remainder of their terms. In our view, it is unlikely that Unit 6 and 13 employees would be able to take off all of this time. As a result, employees would likely reserve some of these days off for use in future years and cash the remainder out when they terminate state employment.  All Days Off Can Create an Out-Year State Fiscal Liability. Given the different fi nancial treatment of leave days, employees typically use days without cash value fi rst, and reserve or “bank” days with cash value. Thus, any action by the state to add a leave day that an employee does not use before he or she terminates employment can pose an out-year state fi scal liability. While we have not shown a cost associated with the PLP and personal development days (because of diffi culties in determining when state employees would terminate employment and what their salaries would be at that time), the large number of leave days provided by these MOUs likely would contribute to the already substantial out-year state fi scal liability. If we assume that the four personal development days and 12 PLP days provided during the fi rst 12 months of the MOUs have cash value (either directly or indirectly by banking a similar amount of vacation time), then the current value of these days would be more than $125 million. LEGISLATIVE ANALYST’S OFFICE 16 April 8, 2011 LAO LAO Comments— MOU Provisions That Reduce Transparency 70 YEARS OF SERVICE  Personal Development Days or Personal Holidays? Under the MOUs ratifi ed in 2010, employees received two annual non-accumulating leave days as “professional development days.” Because these days can be used for any purpose, we have commented in the past that referring to these days as “professional development days” is confusing and misleading. Under the proposed MOUs, Unit 6 and 13 employees would receive two “personal development days” that are functionally the same as the “professional development days” granted under the 2010 MOUs. These days could be used by employees for any purpose. We again recommend that, in the future, the administration refer to these days off as “personal holidays” to reduce confusion and promote transparency.  Fitness Incentive Pay? To encourage physical fi tness among Unit 6 employees, previous MOUs provided a $65-$130 per month incentive payment for employees who meet certain fi tness standards. The proposed MOU maintains this pay bonus, but provides it to any peace offi cer employee who receives an annual physical. The CDCR indicates that the proposed MOU conforms to existing administrative practices. That is, any peace offi cer—regardless of physical condition—currently receives the incentive payment if she or he submits verifi cation of receiving a health physical. To reduce confusion and promote transparency, we recommend that the administration simply provide this pay as an across-the-board increase, or change the name of the incentive to refl ect its purpose. LEGISLATIVE ANALYST’S OFFICE 17 April 8, 2011 LAO LAO Comments— Other Unit 6 MOU Provisions 70 YEARS OF SERVICE  Other Provisions Might Have a Fiscal Effect. The Unit 6 MOU is hundreds of pages long and extraordinarily complex. During the week since the DPA submitted the MOU to the Legislature for its review, we have not been able to determine whether some MOU provisions could result in costs or savings for the state. Below, we highlight some MOU provisions that might have a state fi scal effect.  No Vacation Cap. Under the MOU, the 640 hour cap on accrued vacation time is eliminated. We are not certain how this change could affect the state’s near-term and long-term fi scal liabilities associated with vacation days.  Increasing Holiday Pay and Eliminating Holiday Time Credit. The MOU eliminates holiday leave credit for Unit 6 employees and instead provides employees working on state holidays with 16 hours of pay. The DPA indicates that this change might generate state savings by allowing CDCR to reduce the total number of employees on its payroll.  Training Program and Shorter Academy. The MOU reduces the academy schedule from 16 weeks to 12 weeks, followed by 4 weeks of supervised on-the-job training. We are not certain whether this would increase or decrease net CDCR training costs. LEGISLATIVE ANALYST’S OFFICE 18 April 8, 2011 LAO LAO Bottom Line 70 YEARS OF SERVICE  MOUs Complicate Effort to Achieve Expected Savings for 2011-12. The 2011-12 budget, as approved by the Legislature, assumes that the state will save 10 percent ($515 million [$308 million General Fund]) in employee compensation costs for the six bargaining units with expired contracts (Units 2, 6, 7, 9, 10, and 13). Control Section 3.90 specifi es that these savings would be achieved through collective bargaining and administra- tive actions. The proposed MOUs for Units 6 and 13 would result in signifi cantly lower savings (about 3.6 percent), falling short of the assumed Units 6 and 13 savings target by $181.3 million ($179.8 million General Fund). The other four proposed MOUs (currently pending before the Legislature) also would result in signifi cantly lower savings. If all six proposed MOUs were ratifi ed, the state would fall short of its 2011-12 assumed employee compensation savings by $306.1 million ($197.7 million General Fund). If the Legislature wants to maintain the level of savings assumed in the budget, it could (1) reject some or all of the MOUs and request DPA to negotiate for more savings, or (2) authorize or require administrative actions, such as layoffs. LEGISLATIVE ANALYST’S OFFICE 19