The furloughs mandated by Governor Arnold Schwarzenegger in February of this year may not save as much money as their designers hoped, according to a report released by UC Berkeley’s Center for Labor Research and Education on Oct. 15.
“Right now [the furloughs] are too much of a burden on workers and the local economy for what the state gets in return,” said Ken Jacobs, Chair of the Labor Center at UC Berkeley and author of the report.
The study estimates the reduction in wages and benefits from the furloughs will amount to roughly $2.01 billion over the course of a year.
According to the study, however, the furloughs will result in so much lost income and sales tax revenue, that the net savings will be only $236 million out of California’s expected $85 billion General Fund expenditures for 2010.
“Three days of furloughs is far too much,” said Senate President Pro Tempore Darrell Steinberg. “The report … and the numbers it collects show how state workers are being unfairly hit in an already tough economic time.”
In addition to inducing stress and poor morale among employees that sustain what amounts to seven weeks without pay per year via the furloughs, the study says the reduced wages will cause further declines in spending, which causes the state to lose tax revenue. The pay cuts result in less income tax as well.
“There’s no question that the cutback in government spending overall in the state can be expected to prolong the recession and delay any return to growth and economic activity,” Jacobs said.
In spite of the study’s claims, the governor maintains that the furloughs were a necessary compromise amidst the looming economic crisis.
“The Executive Order was issued in order to alleviate part of the State’s catastrophic and ever-worsening fiscal crisis,” according to a respondent’s brief issued by the Governor’s attorney group. “In the absence of immediate action, the State was projected to run out of cash by February 2009 [and] the Governor took action to…realize immediate necessary cash savings to the General Fund.”
Jacobs pointed out, however, that the workers affected by the furloughs are not all paid directly by California’s General Fund. Roughly 58 percent are paid with the state’s General Fund, while the remaining 42 percent receive support from federal and special funds. The furloughing of the latter employees, many of whom are in charge of gaining federal support for California residents, results in further loss of income for the state.
“The big differences between the UC and state furloughs are that the state cutbacks come out of federally-funded dollars … and revenue generating departments, [whereas] the UCs are from time-paid on grants,” Jacobs said. “That’s not to say there aren’t problems, but the UC furloughs are not as poorly designed.”
Though the study points out many issues regarding the state furloughs, it also outlines some more efficient alternatives for saving money. According to Jacobs, the implementation of a single furlough day per month as opposed to the current three days would reduce revenue losses to $50 million and save the state an additional $20 million, totaling $256 million. Restricting furloughs to non-revenue producing employees paid outside of the General Fund would also help.
“We’re in an economic crisis. The budget crisis is real,” Jacobs said. “Furloughs will be some part of the answer, [but] if we use them, we have to do them right.”
ARNOLD LAU can be reached at email@example.com.