Governor Schwarzenegger Sends Letter to Senator Steinberg Regarding Negotiations with Public Employee Unions

Governor Arnold Schwarzenegger today sent the following letter to Senator Steinberg expressing his support of good faith negotiations with California’s public employee unions regarding employment contracts and pension reform:

Thank you for your letter on the status of contract negotiations with California’s public employee unions regarding employment contracts and pension reform.

We are, in fact, in active negotiations with 19 of the 21 bargaining units at this time. Of the two units not yet in active negotiations with us, one has requested delay until its new head of bargaining is in place, and a formal meeting is scheduled for next week. The last remaining bargaining unit, Unit 6 (CCPOA), has made it clear that it is not interested in negotiating this year.

I believe all our negotiations to date, both informal and formal, have been in good faith, and you are correct that most of the unions do understand that the state continues to face an extremely difficult fiscal situation as well as unsustainable and unfunded pension and retiree health care costs.

The CalPERS transparency legislation you referenced in your letter is most definitely among the issues being raised in negotiations with the unions. As I have made clear since my State of the State address in January, our unsustainable pension costs must be addressed this year. I have tried to be as up front about this as I possibly can: I will not sign a budget this year without budget reform and pension reform.

While my administration is negotiating in good faith with the unions on all aspects of the pension reform measures we are proposing, there are four elements that must be done legislatively separate and apart from any memorandums of understanding:

1. Roll back the expansion of pension benefits adopted in Senate Bill 400 (Chapter 555, Statutes of 1999) for all new hires upon adoption by the Legislature.

2. Permanent five percent increase in employee pre-tax contribution toward retirement benefits.

3. Calculate the retirement rate based on the highest three years of wages during employment instead of the highest single year.

4. Require the CalPERS’ chief actuary to submit a report to the Legislature on investment return assumptions based on both lower and higher estimates than the actuarial return assumption and have this report evaluated by a qualified third party.

I believe the CalPERS transparency legislation, while causing some anxiety at first, is not something that CalPERS and the unions will oppose. In fact, CalPERS has told my staff that it will support this legislation and is working with us on the exact language. The unions have told us that if CalPERS supports the legislation, they will likely also support.

The most difficult aspect of negotiations so far has been the employee compensation elements in the context of addressing California’s $19.1 billion budget gap. We have very little negotiating room in terms of capturing the savings proposed in my May revision of the budget, especially in the absence of the Legislature making some progress on a workable alternative framework to close the gap.

Nonetheless, we continue to negotiate in good faith and, if I can conclude new contracts with any bargaining units in a way that achieves the necessary budget savings and pension reform we need, I will sign those agreements and present them to the Legislature. But the budget will not be signed without legislation on budget reform and pension reform as outlined above regardless of how successful we are in negotiations with the unions.

I will do my best, and I know that you will, too. I look forward to working together to get through this difficult period.

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