Could a California revenue shortfall mean furloughs for state employees? Here’s what to know

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If you want to spook a California state employee, just utter the words “revenue shortfall.”

This week, the state’s Department of Finance acknowledged an “increasing likelihood” that the state won’t bring in as much cash as it initially projected. That means in January, Gov. Gavin Newsom and legislators will likely confront a budget gap larger than the projected $14 billion.

Due to an unprecedented six-month tax filing extension, the state expected a chunk of tax revenue to arrive in October. But as of Oct. 25, California had only collected $18 billion — a far cry from the $42 billion the state forecast back in June.

Understandably, this news might make employees nervous. Threats of potential deficits likely conjure painful memories of past furloughs they’ve taken to help ease budget crunches.

But experts say it’s too soon to know whether state workers could see pay cuts this time. Just because unions have multi-year contracts doesn’t mean the state couldn’t negotiate furlough-like programs, as it did in 2020.

“It’s possible. It all depends on the severity of the problem and the solutions that the governor proposes,” said Nick Schroeder, a public employment analyst at the Legislative Analyst’s Office. “But I have no crystal ball for what the revenues will look like come January.”

Former Gov. Arnold Schwarzenegger forced state workers to take as many as three furlough days a month following the Great Recession, reducing their pay by about 15%. The move sparked a multi-year court battle and embittered workers.

Most recently, Newsom in 2020 negotiated a 9.23% pay cut after his administration projected a $54 billion pandemic-induced deficit. Workers took two furlough days per month for a year as part of the “personal leave programs.” Ultimately, though, that shortfall never materialized, replaced instead by two years of historic surpluses.

A budget deficit could also hurt unions at the bargaining table next year, which include those representing state firefighters and California Highway Patrol officers. Notably, Cal Fire Local 2881 will propose to reduce their work week from 72 hours down to 66. That change would likely cost the state more in overtime pay and additional personnel.

H.D. Palmer, a spokesman for the Department of Finance, reiterated that the state’s financial picture could still change between now and Jan. 10 when Newsom’s budget is due. He also said the state was “in a lot better situation now” than it was following the Great Recession.

“We caution not to jump to conclusions based on any given month’s worth of revenue data,” Palmer said.

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