The Davis administration has negotiated an agreement with the state's largest union that would defer a pay raise yet increase the amount of money workers take home beginning in January, give them a dozen extra paid days off, and build in hundreds of millions in added costs for the state over the next 15 years.
Gov. Gray Davis' top negotiator hailed the pact as a $150-million saving this fiscal year. But the deal reached earlier this week after months of negotiation with the California State Employees Assn. and three smaller unions would cost the state more in the long run.
The union negotiations, aimed at helping close the state deficit, came at a sensitive time, paralleling the recall effort. Davis was forced to turn to his most loyal supporters and ask for $1.1 billion in concessions in order to keep the budget he signed last month in balance. Unions have been strong allies, contributing money and also mounting a major get-out-the-vote effort as Davis attempts to defeat the Oct. 7 recall.
Davis administration officials said the agreement they reached with the state employee unions was the best deal possible, and they denied the impending recall affected the outcome.
Under the contract proposal, workers would defer a 5% pay increase that they received this summer, but they would not lose any take-home pay because the state would cover employee contributions to the state pension fund. The state would make those payments over the next 15 years, a total of about $200 million plus interest at a rate that could be as high as 8.25%.
The 12 paid days off could be taken one a month, but most employees are expected to bank the days and cash them out when they retire, generally at higher pay. In addition, at a time when health care costs are rising sharply, the state agreed to pick up an increasing share of employees' health premiums for the next three years. That would translate into an increase of take-home pay effective Jan. 1.
"What we agreed to is deferring payments during a crisis and paying it back later on," said state Personnel Director Marty Morgenstern.
Such an approach is not unusual; other administrations, including that of Republican Gov. Pete Wilson, negotiated similar trade-offs during fiscal crises.
Officials have said they would have to lay off employees if they couldn't reduce costs sufficiently through negotiations, and Morgenstern called the package a "fiscally responsible approach."
Wall Street analysts don't see it that way. "If you are doing something this year that will cost more in the future, I wouldn't call that a savings," said Steven G. Zimmerman, a managing director at Standard & Poor's bond-rating service.
Former state Controller Kathleen Connell, a Democrat, was more blunt: "It becomes a house of cards that will topple under its own weight in future years when all these payments, whether for bonds or employee benefits, come due," she said. "We have to get control over the runaway negotiations with some of these unions."
The deals require approval by the Legislature, which ends its regular session today.
The portion involving pension payments would also need to be approved by the board of the California Public Employees Retirement System, which meets Wednesday.
State Finance Director Steve Peace said any contract negotiations involve a degree of risk, and that nailing down agreements now could turn out to save money later.
"Anytime you are analyzing agreements when you are doing multiyear deals you are inherently guessing," Peace said. "These may turn out to be the best deal from a taxpayers' perspective and they may not. We just don't know what the future will hold."
Among those covered by the deal announced Wednesday night are the 90,000 state workers represented by the California State Employees Assn.
"We think we are giving back," said Perry Kenny, president of CSEA, whose members will be asked to ratify the proposed agreement. "The state wouldn't be able to give us these contracts if they didn't show a cost savings."
Last month smaller unions representing California Highway Patrol officers, state firefighters, nurses, social workers and doctors reached agreements that did not include the pension pickup but were otherwise similar.
The state is still negotiating with prison guards, teachers in correctional facilities, state attorneys and law judges, craft and maintenance workers, psychiatric technicians and engineers who make up the rest of the 181,000 state employees covered by unions.
The latest agreements represent a retreat from a tougher stance at the bargaining table by the administration in the spring, before the recall qualified for the ballot. Since the recall began to gather momentum, state employee unions and their affiliates have given more than $1 million to committees fighting the effort to oust Davis from office.