May revise targets employee compensation savings; LAO and unions urge negotiation and legislative guardrails

The Assembly Subcommittee 5 on State Administration reviewed administration proposals in the May revision that would defer or reduce scheduled employee compensation increases as part of the effort to close a projected budget shortfall.

Hanjou Ming of the Department of Finance said the May revision assumes $766.7 million in employee compensation savings, including $283.3 million of General Fund savings, and that the administration will attempt to achieve those savings through collective bargaining starting in July 2025. The May revision includes control-section language (discussed as control sections 391 and 390 in testimony) that would suspend scheduled pay increases for ratified agreements and would authorize the administration to impose reductions if bargaining does not yield the required savings.

The Legislative Analyst—s Office urged caution. The LAO recommended the Legislature reject the proposed control-section language because it lacked an explicit target and a mechanism to review specific implementation policies prior to imposition. "Imposing compensation reductions on bargaining units is within the legislature's authority, but adopting control language without specifying a target and the mechanisms to meet it risks undermining labor relations," the LAO summary said. The LAO recommended specifying reduction targets, identifying the policy tools (for example, furlough days) and requiring legislative review prior to implementation.

Union leaders and dozens of public commenters pressed the subcommittee to reject the proposed deferral or imposition of pay reductions. Union negotiators said their members have experienced multi-year freezes and recruitment and retention problems; many said the raises in negotiated agreements are modest cost-of-living adjustments and rescinding them would worsen staffing shortages in critical programs including public safety, corrections, public health and natural resources. Several union witnesses said they are prepared to bargain but warned that unilateral rescission would damage labor relations and could lead to strikes or other labor actions.

Administration officials said they prefer to reach negotiated agreements but included the control language to preserve budget options if the savings must be realized. The LAO and multiple members asked the administration to return with a clearer specific plan and to negotiate in good faith.

Ending: The subcommittee heard strong union opposition and LAO counsel urging the Legislature to provide clearer, targeted control language and to require prior legislative review of any imposed reductions; no final decisions were taken at the informational hearing.