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Study says California furloughs will save less than anticipated

By Kathleen Maclay, Media Relations | 15 October 2009

BERKELEY — Much of the savings from California state workers' three-day-a-month mandatory furlough will be offset by reduced revenue and increased costs to the state general fund in future years, says a study released today (Thursday, Oct. 15) by the University of California, Berkeley's Center for Labor Research and Education.

"The High Cost of Furloughs" analyzes the broad impact of furloughing state employees for three days a month, or the equivalent loss of seven weeks of pay, compared to requiring a single monthly mandatory furlough day. It concludes that the expanded furloughs will save the general fund only 12 cents for every dollar cut in wages and benefits.

General Fund impact of monthly furloughs (in millions)
	Three Days	One Day
Total Wage and Benefit Cut	$2,013	$671
General Fund Wage and Benefits	1,161	387
FY 2009-2010
Reduced Tax Collections	(363)	(26)
Reduced Employee State Tax Obligations	(60)	(20)
Sub-Total	(423)	(46)
Total General Fund Savings	738	341
Out Years
Reduced Tax Collections	(475)	(33)
Collection of Delayed Tax Revenue	163	8
Repayment to CalPERS	(191)	(60)
Sub-Total	(503)	(85)
Total Savings to General Fund	236	256
Due to rounding, “Total Savings to General Fund” may be different than the sum total of the other variables. Source: The High Cost of Furloughs

"It is poorly designed, if the goal is to provide savings to the general fund," said study lead author Ken Jacobs, also chair of the Labor Center. "Key design problems include furloughing state workers in revenue-generating positions, continued accumulation of pension and benefit debt, and inclusion of workers whose salaries are paid by the federal government and other special funds, in addition to the general fund."

Jacobs said the state should consider reducing furloughs to one day each month and making up the difference in savings in the short term by raising revenues.

Based on new data from Office of the State Controller on actual furlough savings incurred since February, the Labor Center report estimates a reduction in wages and benefits of $2.01 billion for the 193,000 affected workers this current fiscal year.

And accounting for furloughed workers not paid with general funds, along with lost revenues and increased costs due to the furloughs, the net general fund savings for fiscal year 2009-2010 is calculated at $738 million. But, the study says, this year's furloughs will result in a loss of $503 million in future years for a net savings to the general fund of $236 million.

By comparison, a one-day-a-month furlough plan for the current fiscal year would result in a net savings to the general fund of $256 million, once future year costs are factored in, the study says.

Detailed reasons for the reduced savings include:

An estimated 42.3 percent of the reduction in pay and benefits comes from federal and self-supporting, special funds.
The Franchise Tax Board and State Board of Equalization estimates that furloughs and related cuts will result in a loss of $675 million to the state's general fund, including a loss or delay of $363 million in fiscal year 2009-2010.
A mandatory three-day-a-month furlough will result in a projected reduction in pension payments of approximately $299 million this fiscal year, but those funds must be paid back - with interest - through an automatic adjustment in the formula for state payments to the fund, pushing the costs to subsequent years.

The report further finds that the loss of income to state employees will have ripple effects in the economy. For example, Sacramento County can expect a loss of an estimated 4,100 private sector jobs due to the reduced spending by the county's many state workers.

"The furloughs are not only costly to workers, they are also costly to the local economy," said Jacobs.

The full report will be posted on the Labor Center Web site at:http://laborcenter.berkeley.edu/.