California’s Side Letters With CCPOA and SEIU

Much less than meets the eye.

So far as we can tell, there’s much less than meets the eye to the side letter arrangements negotiated with CCPOA and SEIU in connection with furloughs. The CCPOA side letter agreement imposes a furlough day per month but a bit less than half of the savings is given back to employees via suspension of employee contributions to OPEB (Other Post Employment Benefits), and since OPEB is not being eliminated or reduced and thus the state is still on the hook for the future OPEB benefits to which the suspended contributions relate, the suspension of employee contributions is therefore a borrowing by the state, the interest cost on which equals the discount rate applied to OPEB obligations. The SEIU side letter agreement employs the same sleight-of-hand with different parameters.

To be clear, we are not fans of furloughs, which impose a cost not only on workers but also on residents who benefit from the services provided by the workers being furloughed. We think there are much fairer ways to save much larger sums (eg, eliminate OPEB!) and also find it hard to believe the federal government would provide more COVID-related support for California that in significant part would go to cover the cost of the country’s most expensive — and least necessary given Covered California’s unique subsidies — OPEB program.

On another financial matter, we noticed yesterday that Governor Newsom stated at his noon briefing that our education system is still substantially underfunded compared to other states. That statement is correct only if the governor means funding net of spending on school retirement costs. That’s the case in California, where on top of pensions major school districts provide unlimited OPEB benefits far exceeding those of any other state. OPEB expense per pupil at San Francisco’s school district is 15x more than Portland’s and if eliminated could produce an $8k per year raise for every active teacher. But if the governor is suggesting that gross funding for our education system compares poorly, he should check his facts. In 2018 the LAO said that California’s gross spending on schools ranked in the middle of US states — and that was based on 2015 data, before California schools were the recipients of the country’s fastest growth in school revenues. For a glimpse of that steep growth in school revenues, see the chart on page 68 of the Governor’s January Budget. Then take a look at the steeper growth in retirement spending at any major California school district. There you will find your problem — and also your solution.

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Originally posted on Medium, 6/23/20.