LAO: California Gov. Gavin Newsom could cut vacant state worker jobs to solve budget deficit

State departments could lose some funding for personnel and operations this fiscal year as California leaders try to whittle down spending and deliver a balanced state budget.

The nonpartisan Legislative Analyst’s Office estimates in a new report that salaries and benefits for California’s roughly 250,000 state employees cost the state roughly $40 billion a year.

“It’s kind of hard to envision a full solution that doesn’t touch personnel costs,” said Nick Schroeder, an LAO analyst who specializes in public employment and state worker labor relations. “Personnel costs constitute a significant portion of every department’s budget.”

Union contracts generally prevent layoffs, pay cuts and suspension of health and retirement benefits. But one target for funding cuts are vacant positions that departments have the funding for but, for whatever reason, haven’t filled. Departments can re-purpose the money that would otherwise pay those salaries and benefits for vacant positions. To save money, the state could identify which vacancies the departments could survive without and then cut departmental budgets by the cost of those positions.

Vacancies have been unusually high across the board, according to the latest LAO report. While the statewide vacancy rate has consistently hovered above 10% for at least the last 20 years, vacancies in recent years have at times ballooned to more than 20%. As of last month, about one in five state jobs was vacant.

How would the governor cut vacant positions?

Gov. Gavin Newsom’s administration has proposed cutting $1.5 billion in vacant staff positions across departments. These cuts would reduce salary and benefits costs by about 4%. For comparison, the Personal Leave Program imposed during the pandemic reduced personnel costs by 4.62%.

The “vacancy sweep” would save the state’s General Fund an estimated $762.5 million. The General Fund currently faces a projected $73 billion deficit, according to the LAO (the administration originally tabulated the deficit closer to $38 billion).

Under the governor’s proposal, the cuts would be “unallocated,” meaning the budget bill would not precisely outline which programs and positions would be cut. Instead, the Department of Finance would work with each department to take an inventory of vacancies and determine which positions could be cut. The administration wants to “minimize disruptions to state services and operations” and essentially reduce inefficiencies. The cut costs would be reinstated for the 2025-26 fiscal year under the current budget proposal.

The LAO argues that the proposed method elbows the Legislature out of the decision-making process. It also says the speedy timeline required to reap savings in the 2024-25 fiscal year would likely lead to fewer dollars saved than originally projected.

“Unallocated cuts can be difficult to achieve in full,” the report states. “This especially is true when the reductions are determined through a collaborative process that allows for departments to be exempt from any reductions or receive a lower level of reduction.”

On top of that, questions remain about whether public safety departments that rely heavily on the General Fund, such as the Department of Corrections and Rehabilitation and Cal Fire, would be excluded from the cuts.

Instead, the LAO recommended the Legislature try a different approach for this fiscal year and use the vacancy analysis to identify ongoing and one-time cost savings for the 2025-26 fiscal year. As for this fiscal year, the state could reap savings similar to those in Newsom’s proposal if it imposed an up-to 1.5% across-the-board reduction in General Fund spending levels from the 2023-24 fiscal year.

The nonpartisan analyst also questioned the wisdom of reinstating the costs a year later, if the governor’s goals is to reduce inefficiencies in state government.

“Under any circumstance, but especially given the severity of the state’s budget problem, we question the value of reinstating any of these funds if their reduction does not affect state services or operations.”

State employee telework stipend would be ‘disproportionately difficult’ to cut

The governor’s January budget also proposed doing away with the state employee telework stipend that was introduced in 2021 via contract bargaining. Currently, state workers who work remotely more than 50% of the time are eligible for $50 monthly stipends. Those who work remotely up to 50% of the time receive $25 in monthly stipends. These payments are in lieu of reimbursements for Wi-Fi or extra telework equipment.

But the LAO argues that eliminating telework stipends, as the governor previously suggested, “likely would result in difficult labor relations and an erosion to any savings.” Typically, unions won’t give up a benefit in their contract without receiving something of equivalent value in return. If the state were to unilaterally impose the cut “it is possible that state employee unions would sue the state.”

“Implementing the governor’s proposal seems disproportionately difficult relative to the modest savings that would be achieved,” the report said.

The governor’s office has also not yet mentioned the possibility of furloughing state employees, although Schroeder said CalHR would likely face significant pushback from state worker unions given the circumstances of the last furlough-like program.

“It’s a difficult situation, because in 2020, the bargaining units did agree to the Personal Leave Program, and then that year we ended up not having a budget problem,” Schroeder said. “It kind of makes it more difficult for the state to try to get concessions of that size again.”

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