California suspends leave buyback program for state workers to address $68 billion deficit

Less than a week after the Legislative Analyst’s Office projected California will face a $68 billion deficit, Gov. Gavin Newsom’s Department of Finance is asking state workers for financial sacrifices to help shore up the budget.

The Department of Finance announced an expenditure freeze Tuesday in a budget letter addressed to all agency secretaries, department directors and departmental budget, accounting, business services and human resources officers. The freeze applies to everything from non-essential travel to printer replacements, fleet vehicles and office supplies.

“It is vitally important that state government is efficient, effective, and only expends funds that are necessary to the critical operation and security of the state,” reads the budget letter, signed by finance director Joe Stephenshaw.

“As such, all state entities must take immediate action to reduce expenditures and identify all operational savings achieved.”

The letter notably suspends the state’s popular leave buyback program for everyone except correctional employees represented by the California Correctional Peace Officers’ Association (whose contract provides for an annual buyback of up to 80 hours of leave).

Once a year, state employees can usually cash out vacation and annual leave time to help the state slim down its leave balances. Carrying too much leave on the books can hurt the state financially further down the line, since employees cash out their remaining leave at a higher salary when they exit state service.

The letter says the buyback program is canceled for the 2023-24 fiscal year, which runs through the end of June 2024.

Are furloughs coming next?

The Department of Finance issued a similar expenditure freeze in April 2020 soon after the COVID-19 pandemic shuttered businesses and sent the U.S. economy into a tailspin.

State employees know all too well what followed.

The unions and the Newsom administration agreed to a “personal leave program” — essentially, a furlough that cut workers’ monthly pay by 9.23% and, in exchange, gave them 16 hours of leave. Ultimately, the anticipated deficit morphed into surpluses in the following two years and left some workers feeling shortchanged.

“Going into 2024, the governor and the Legislature are going to have a substantial challenge to close the budget gap,” said H.D. Palmer, spokesperson for the finance department. “This directive allows us to get a head start on that process.”

Palmer wouldn’t indicate whether Newsom would pursue furloughs or other concessions from the unions.

Nonetheless, SEIU Local 1000 board chair Bill Hall says the union will be there to defend its members to the best of its ability.

“Local 1000-represented employees just simply don’t have room in their pocketbooks to absorb any financial hits that result from our politicians failing to address the structural tax issues in our state,” Hall said. “State employees basically pay twice.”

What other spending cuts will departments make?

The letter instructs department leaders to not enter any new contracts or agreements to lease or purchase new equipment, goods and services. They should halt any non-essential IT purchases, such as replacement copiers and new cellphones.

“Minimal office supplies shall be ordered and kept in stock,” the letter reads. “Each department’s purchasing managers should heavily scrutinize all office supply orders to ensure the need.”

The budget letter also instructs departments to reevaluate costs associated with current information technology projects.

It’s unclear how this new mandate could affect long-anticipated and high-budget projects such as the Employment Development Department’s “EDDNext” — a billion-dollar bet to overhaul the state’s clunky unemployment and disability benefits system — or the California State Payroll System at the State Controller’s Office. The latter aims to bring the state’s outdated payroll process into the 21st century.

Neither department immediately provided answers to questions about how the budget letter would affect their respective projects’ timelines.