California Suspends Leave Buy-Back Program for State Workers

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The suspension of the leave buy-back program highlights California's ongoing financial challenges.

News Summary

California has suspended its leave buy-back program for state workers for the 2023-24 fiscal year due to ongoing budget concerns. This decision marks the second consecutive year without the option, and it comes as the state faces significant financial challenges. The leave buy-back program, which previously allowed employees to cash out unused vacation time, has been deemed unsustainable. State officials are now encouraging workers to use accrued leave amidst worsening fiscal conditions and budget deficits.

California has suspended its leave buy-back program for state workers for the 2023-24 fiscal year, marking the second consecutive year without this option due to ongoing budget concerns. The leave buy-back program, which allows employees to cash out unused vacation time, was deemed unsustainable as the state faces significant financial challenges.

The decision stems from a downturn in California’s fiscal outlook that has worsened since the imposition of tariffs by former President Donald Trump, which impacted the global economy. Previously, state leaders had expressed confidence that California had rebounded from earlier budget shortfalls, but the current financial status has revealed a different reality.

Eraina Ortega, the Director of the California Department of Human Resources, highlighted the prevalent financial uncertainty in a memo directed at state agencies. The leave buy-back program, typically approved by the Finance Department, allows most public employees to cash out up to 80 hours of unused leave each year. During the 2022-23 fiscal year, California expended $98.4 million to enable workers to participate in the leave buy-back option.

In mid-December 2023, a budget letter from the Department of Finance warned state agencies of considerable budget deficits, compelling state officials to implement measures for expenditure reductions. The leave buy-back program had also faced suspension previously in 2020 due to similar budget constraints.

To further address the growing fiscal challenges, Ortega has advised agency leaders to encourage employees to use their accrued leave, particularly as the maximum cash-out limit of 640 hours can become a significant liability for the state. The timing of the program’s suspension coincides with ongoing negotiations for new contracts involving seven of California’s 21 bargaining units. Union leaders had anticipated securing salary increases beyond the typical 2-3% annual adjustments amid improving budget conditions; however, the suspension of the program complicates these discussions.

In the previous year, correctional officers were the only group of public employees allowed to cash out unused leave due to specific provisions in their contracts. Meanwhile, California’s unfunded liability for leave benefits significantly grew by 45% from 2019 to 2023, amounting to a staggering $5.6 billion as of 2023. Although some recently negotiated union contracts enabled certain employees to accrue more than the capped 640 hours for cash-out, many of these caps will return to the original limit in July of the upcoming fiscal year.

Employees who exceed the leave cap will no longer have the cash-out option and will need to take time off instead. Ortega stressed the necessity for employees to utilize their vacation time to promote health and work-life balance. Despite the suspension of the leave buy-back program, some high-ranking state officials have continued to cash out significant amounts of unused vacation time, contributing to the growing liability for the state.

Concerns over California’s increasing unfunded liabilities and long-term financial sustainability have been raised by various stakeholders, including former state senator John Moorlach. The rise in accumulated leave is partially attributed to a reduction in time off taken during the COVID-19 pandemic, which has exacerbated the situation.

To manage costs effectively, state officials are considering potential budget cuts, which may include the elimination of 10,000 vacant positions and a reduction in state operations spending by nearly 8%. Additionally, overtime costs have surged in certain state departments, adding further pressure to the budgetary constraints. Any forthcoming changes to vacation policies would likely require negotiation with influential public-sector unions, making these adjustments politically sensitive.