Opinion
A127777
09-29-2011
CALIFORNIA ATTORNEYS, ADINISTRATIVE LAW JUDGES AND HEARING OFFICERS IN STATE EMPLOYMENT, Plaintiffs and Respondents, v. EDMUND G. BROWN, JR., as GOVERNOR, etc. et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Alameda County Super. Ct. No. RG-09-453982)
This appeal is one of several cases involving challenges to the Governor's imposition of mandatory two- and three-day-a month furlough programs for state employees. In response to California's budgetary crisis, the Governor issued executive orders mandating two- and three-day-per-month furloughs for state employees, including legal professionals. In this case the challenge was raised by California Attorneys, Administrative Law Judges, and Hearing Officers in State Employment (CASE), which persuaded the trial court to issue a writ of mandate invalidating the programs. The Governor appeals, primarily contending the trial court misinterpreted certain statutes. In light of our Supreme Court's decision in Professional Engineers in California Government v. Schwarzenegger (2010) 50 Cal.4th 989 (Professional Engineers), and the decision of Division Five of this Court in Union of American Physicians & Dentists v. Brown (2010) 195 Cal.App.4th 691 (American Physicians), we agree with the Governor that the furlough programs are valid. Accordingly, we shall reverse. We order a limited remand for the reasons explained below.
I. FACTS & PROCEDURAL BACKGROUND
A. Sources of State Employee Salaries
The salaries of state employees are paid from one or more of three funding sources: the state's General Fund, state special funds earmarked for specific programs or agencies, and federal funds received by the state as a passthrough. Many special funds agencies deposit unused cash in the Pooled Money Investment Account, which creates a financial resource from which the state may borrow to meet current fiscal obligations. If this resource is insufficient to meet the General Fund's cash needs, the state may directly borrow from special funds held by a particular department or agency. Certain special funds are designated by statute as "non-borrowable," i.e., cannot be borrowed to pay General Fund fiscal obligations. Federal funds designated for particular state agencies are also non-borrowable.
See California Medical Assn. v. Brown (2011) 193 Cal.App.4th 1449 for a discussion of borrowing from special funds.
B. California's Financial Crisis and the Furlough Programs
The financial crisis facing this state is well known. In Professional Engineers, the Supreme Court set forth a detailed description of the economic factors which led to the furlough programs. (Professional Engineers, supra, 50 Cal.4th at pp. 1000-1008.) We need not repeat that description here other than to note that "[i]n early November 2008, the Department of Finance reported that the state faced a revenue shortfall of $11.2 billion for the 2008-2009 fiscal year . . . and stated that '[i]f no action is taken to reduce spending, increase revenues, or a combination of both, the state will run out of cash in February and be unable to meet all of its obligations for the rest of the year.' " (Id. at p. 1001, quoting Dept. of Finance, Rep., Governor's Budget, Special Session 2008-09, p. 1.) Our colleagues in Division Five characterized this financial crisis as "almost unprecedented." (American Physicians, supra, 195 Cal.App.4th at p. 694.)
On December 19, 2008, the Governor issued Executive Order S-16-08, which directed the Department of Personnel Administration (DPA) to " 'implement a furlough of represented state employees and supervisors for two days per month, regardless of funding source.' " (Professional Engineers, supra, 50 Cal.4th at p. 1003, italics omitted.) The program was to be effective from February 1, 2009, though June 30, 2010. (Ibid.)
When the financial crisis worsened, the Governor expanded the furlough program from two days to three. On July 1, 2009, he issued Executive Order S-13-09, which directed the DPA to adopt an amended plan " 'to implement a furlough of represented state employees for three days per month, regardless of funding source.' " (American Physicians, supra, 195 Cal.App.4th at p. 694.) The expanded furlough program ran from July 1, 2009 through June 30, 2010. (Ibid.)
C. The Procedural Background of This Case
CASE filed a petition for writ of mandate challenging the furlough programs, naming the Governor and officials of numerous state agencies as respondents. CASE represents legal professionals in Bargaining Unit 2 who work in approximately 80 state departments, boards, and commissions. Apparently, a majority of CASE members work in positions that are entirely, or almost entirely, funded by monies from sources other than the General Fund. The trial court found as follows:
"For instance, the Department of Insurance, which employs 71 CASE-represented employees, is funded entirely from non-General Fund monies. A furlough of these employees does not result in a direct General Fund savings. Similarly, the Department of Corporations, the Department of Managed Health Care, the Department of Real Estate and the Department of Motor Vehicles, to name but a few, are funded entirely by non-General Fund monies. Of the agencies whose heads are named in the CASE petition, at least 6 exclusively specially-funded agencies, and at least 13 primarily specially-funded agencies, pay their employees with non-borrowable funds."
CASE argued that the furloughing of employees who are not paid from the General Fund provided no savings to that fund and, as such, those furloughs were arbitrary and irrational. CASE also argued furloughing special fund positions interfered with the purpose of those funds by impeding the operations of special funds departments and agencies and decreasing services to the public.
After trial, the court ruled the furlough programs were illegal. The court based its decision on its application and interpretation of two statutes, Government Code sections 19851 and 16310.
The present case was tried together with two other cases raising challenges to the furlough programs. The trial court's ruling in one of those cases led to Division Five's decision in American Physicians. The appeal from the ruling in the third case was recently decided by Division Two of this Court. (Service Employees Internat. Union, Local 1000 v. Brown (2011) 197 Cal.App.4th 252.)
Subsequent statutory references are to the Government Code unless otherwise indicated.
As here pertinent, section 19851, subdivision (a) states: "It is the policy of the state that the workweek of the state employee shall be 40 hours, and the workday of state employees eight hours, except that workweeks and workdays of a different number of hours may be established in order to meet the varying needs of the different state agencies."
The trial court found the furlough programs violated section 19851 because they did not take into account " 'the varying needs of the different state agencies' " as described in the statute: "Each State agency has differing needs relating to its function and to the sources of its funding. Respondents' refusal to consider those varying needs of the different state agencies before ordering and implementing furloughs conflicts with the requirements of Section 19851." (Fn. omitted.) The court concluded respondents violated their mandatory duty to comply with the statute and thus abused their discretion.
As pertinent here, section 16310, subdivision (a) states: "When the General Fund in the Treasury is or will be exhausted, the Controller shall notify the Governor and the Pooled Money Investment Board. The Governor may order the Controller to direct the transfer of all or any part of the moneys not needed in other funds or accounts to the General Fund from those funds or accounts, as determined by the Pooled Money Investment Board, including the Surplus Money Investment Fund or the Pooled Money Investment Account. All moneys so transferred shall be returned to the funds or accounts from which they were transferred as soon as there are sufficient moneys in the General Fund to return them. No interest shall be charged or paid on any transfer authorized by this section, exclusive of the Pooled Money Investment Account, except as provided in this section. This section does not authorize any transfer that will interfere with the object for which a special fund was created . . . ." (Italics added.)
The trial court found the furlough programs violated section 16310. The court rejected the Governor's argument that, even though furloughing special funds employees does not save General Fund any money, those furloughs were still valid because they increased the amount of unallocated special fund monies from which the state could borrow to meet its fiscal obligations. The court ruled the "basic fact alone" that state agencies were closed three days per month was "at least a prima facie showing of interference with the object of the special fund agencies, specifically the agencies' ability to carry out their respective missions."
Subsequent to issuing its ruling, the trial court conducted a hearing to determine the form of judgment. After oral argument, the court issued a judgment directing the issuance of a writ of mandate compelling the Governor to set aside furloughs of employees of the departments and agencies which had been named in the complaint. The court stated that its ruling was to include "all employees" of the named departments and agencies regardless of whether they were members of CASE. The trial court also ordered back pay.
The Governor appealed. While the appeal was pending, the Supreme Court issued its decision in Professional Engineers, supra, 50 Cal.4th 989 on October 4, 2010. That case involved the validity of the two-day furlough program implemented by Executive Order S-16-08 on December 19, 2008. The court stated the key issue was whether "the Governor on December 19, 2008, possessed authority to institute a mandatory furlough of represented state employees . . . ." (Id. at p. 1000.) The court concluded the Governor did not possess that authority. The court found that "[n]either the constitutional authority granted to [the Governor] by the California Constitution [n]or the existing statutory provisions pertaining to the terms and conditions of state employment granted him or the DPA the authority unilaterally to impose a mandatory unpaid furlough on state employees." (Id. at p. 1041.)
The court's analysis did not end there. The court also found subsequent actions of the Legislature validated the two-day furlough program implemented by Executive Order S-16-08. The court set forth its holding as follows:
"In mid-February, 2009—shortly after the furlough program went into effect—the Legislature enacted, and the Governor signed, legislation that revised the Budget Act of 2008 . . . by, among other means, reducing the appropriations for employee compensation contained in the original 2008 Budget Act by an amount that reflected the savings the Governor sought to obtain through the two-day-a-month furlough program. The February 2009 legislation further provided that the specified reduction in the appropriations for employee compensation could be achieved either through the collective bargaining process or through 'existing administration authority.' That phrase, in the context in which the revised budget act was adopted and in light of the provision's legislative history, reasonably included the furlough program that was then in existence and that had been authorized by the current gubernatorial administration. In particular, the bill analyses considered by the Legislature made specific reference to furlough-related reductions of employee compensation costs. Under these circumstances, we conclude that the Legislature's 2009 enactment of the revisions to the 2008 Budget Act operated to ratify the use of the two-day-a-month furlough program as a permissible means of achieving the reduction of state employee compensation mandated by the act.
Accordingly, we conclude that the 2009 budget legislation validated the Governor's furlough program here at issue, and reject plaintiffs' challenge to that program." (Professional Engineers, supra, 50 Cal.4th at p. 1000.)
We ordered the parties to file supplemental briefs on the impact of Professional Engineers on the resolution of this appeal.
II. DISCUSSION
A. The Validity of the Trial Court's Ruling in the Wake
of Professional Engineers
Professional Engineers involved only the two-day furlough implemented by Executive Order S-16-08. The case directly addressed one of the two statutes that formed the basis of the trial court's ruling: section 19851.
The court observed that the legislative history of section 19851's designation of a "workweek" for state employees showed the statute's purpose was "to establish the number of hours an employee must work before potentially becoming eligible for overtime compensation." (Professional Engineers, supra, 50 Cal.4th at p. 1028.) "Viewed in context, the provisions of section 19851, subdivision (a) simply were not intended to apply to the type of unpaid furlough at issue in the present case." (Id. at p. 1029.) Accordingly, we conclude the trial court erred by relying on section 19851 to invalidate the furlough programs. Division Five has reached the same conclusion. (American Physicians, supra, 195 Cal.App.4th at p. 697.)
Professional Engineers did not discuss section 16310. However, the American Physicians decision addressed the applicability of section 16310 as a matter of de novo statutory interpretation, and concluded the trial court's reliance on the statute was error. (American Physicians, supra, 195 Cal.App.4th at pp. 697-699.) American Physicians held section 16310, by its terms, applies only to transfers of funds and not to furloughs of state employees. (Id. at pp. 698-699.) We agree with American Physicians' analysis and conclusion.
The purpose of furloughing special fund employees is to create more borrowable funds for the General Fund. The American Physicians court noted there was no evidence before it that such transfers of funds, as opposed to the furloughs themselves, interfered with the object of the agencies from which the money was borrowed. (American Physicians, supra, 195 Cal.App.4th at p. 699.) In the present case, after incorrectly concluding the mere fact of a three-day-a-month reduction in operations ipso facto interfered with the object of the agencies, the trial court referred to CASE's evidence of increased caseloads, backlogs, and overtime. Closure by furloughs is not enough to fall within the strictures of section 16310. And it is still far from clear there is evidence in this appeal that transfers of funds are interfering with the objects of state agencies.
In his supplemental brief, the Governor states "there is no evidence in this case that the borrowing of funds from special fund agencies and departments, as opposed to the furloughs themselves, interfered with the object for which any special fund was created . . . ." In its later supplemental brief, CASE does not deny this assertion. But at oral argument, CASE referred us to the declaration of Veronica Chung-Ng, Program Budget Manager for the State Department of Finance. The declaration is mostly a general description of state finance and borrowing practices, and does not supply the necessary evidence.
In any case, section 16310 applies to the Governor. Professional Engineers made it clear that the furloughs at issue are a matter of Legislative prerogative.
We thus conclude that after Professional Engineers the trial court's order is erroneous with regard to the two-day furlough implemented by Executive Order S-16-08.
B. The Impact of Professional Engineers
on the Third Furlough Day
Professional Engineers did not address the validity of the third furlough day implemented by Executive Order S-13-09. (Professional Engineers, supra, 50 Cal.4th at p. 1007.) CASE contends in its supplemental brief the third furlough day was invalid because it was not ratified by the Legislature.
To resolve this issue we must explore further the legislative approval of the two-day furlough program.
As noted, Professional Engineers upheld the validity of the two-day furlough because the Legislature ratified the program in the 2009 revisions to the 2008 Budget Act. One of those revisions, section 3.90(a) of the Budget Act of 2008, stated:
"Notwithstanding any other provision of this act, each item of appropriation in this act . . . shall be reduced, as appropriate, to reflect a reduction in employee compensation achieved through the collective bargaining process for represented employees or through existing administration authority and a proportionate reduction for nonrepresented employees (utilizing existing authority of the administration to adjust compensation for nonrepresented employees) in the total amounts of $385,762,000 from General Fund items and $285,196,000 from items relating to the other funds." (Professional Engineers, supra, 50 Cal.4th at p. 1044, italics added.)
The Professional Engineers court concluded the phrase " 'existing administration authority' " shows legislative intent to ratify the two-day furlough program that was then in effect. We quote from Professional Engineers at some length on this important concept.
"For a number of reasons, we conclude that the term 'existing administration authority,' as employed in the February 20, 2009, budget legislation, most reasonably is understood as embodying a legislative decision to permit the mandated reductions in employee compensation to be achieved through the then existing furlough plan.
"First, the legislative history of the provision in question clearly and explicitly establishes that the reductions in appropriations for employee compensation that were included in the bill reflected the two-day-a-month furloughs. Both the Senate and the Assembly floor analyses of Senate Bill 3X 2—material that was available to the legislators at the time they were considering the budget legislation—describe in similar language the various changes that the bill would make to the 2008 Budget Act, and indicate that the source of the analyses was the author of the bill, Senator Ducheny, the chair of the Senate Budget Committee. In describing the provision in the bill relating to state employee compensation, the Senate bill analysis states: 'Control Section 3.90 that reflects reductions across all budget areas to reduce employee compensation costs related to furloughs, the elimination of two state holidays, and minor changes to overtime calculations.' (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill 3X 2 (2009-2010 3d Ex. Sess.) as amended Feb. 14, 2009, p. 4, par. 22, italics added.) The comparable passage in the Assembly bill analysis states: 'Reflects reduction across all budget areas to reduce employee compensation costs related to furlough[s], the elimination of two state holidays, and minor changes to overtime calculations.' (Assem. Com. on Budget, Analysis of Sen. Bill 3X 2 (2009-2010 3d Ex. Sess.) as amended Feb. 14, 2009, p. 3, 2d par. 12, italics added.) This history makes it abundantly clear the Legislature contemplated that the reduction in appropriations for employee compensation set forth in section 3.90 could be achieved through the furlough plan that was then in existence.
"Second, aside from the furlough plan, the only other available 'existing administration authority' through which the state could have achieved the very substantial reduction in the appropriations for employee compensation mandated by the February 2009 budget legislation was the authority provided by section 19997, permitting a state appointing authority to 'lay off' state employees '[w]henever it is necessary because of lack of . . . funds, or whenever it is advisable in the interests of economy, to reduce the staff of any state agency . . . .' In our view it is not reasonable to suggest that the Legislature intended to compel the state, in the absence of a mutually agreed-upon collective bargaining resolution, to resort to layoffs of a significant percentage of state employees rather than to permit the state to utilize the furlough plan that was then already in use, particularly when the legislative history makes no reference to such layoffs.
"Third, although at the time the revised budget act was adopted on February 20, 2009, the trial court's judgment upholding the validity of the furlough program already had been appealed and the Legislature could not have known how the appeal ultimately would be resolved, it is reasonable to assume that body recognized that the reduction in employee compensation mandated by the revised 2008 Budget Act would have to be implemented prior to a final resolution of the appeal. We conclude that, in view of the exigent circumstances facing the Legislature, it intended to permit the then existing furlough program to be used as an alternative to other means that might be agreed upon through the collective bargaining process, without regard to whether the appellate courts ultimately determined that the Governor or the DPA possessed the authority to impose an unpaid furlough program unilaterally.
"Accordingly, we conclude that the phrase 'existing administration authority'—as used in section 36 of Senate Bill 3X 2—was intended to encompass the then existing furlough program. By enacting this provision, the Legislature, through the exercise of its own legislative prerogative, authorized the substantial reduction in the appropriations for employee compensation, mandated in the revised budget legislation, to be achieved through the two-day-a-month furlough plan." (Professional Engineers, supra, 50 Cal.4th at pp. 1046-1048, original italics.)
American Physicians observed that Assembly Bill 4X 1 (2009-2010 4th Ex. Sess.) (Assembly Bill 4X 1), the revised 2009 Budget Act, "mandated reductions in personnel expenditures using the exact same language as was contained in the 2009 revisions to the 2008 Budget Act. Specifically, section 552 of the revised 2009 Budget Act states: 'Notwithstanding any other provision of this act, each item of appropriation in this act . . . shall be reduced, as appropriate, to reflect a reduction in employee compensation achieved through the collective bargaining process for represented employees or through existing administration authority and a proportionate reduction for nonrepresented employees (utilizing existing authority of the administration to adjust compensation for nonrepresented employees) in the total amount of $1,477,917,000 from General Fund items and $973,058,000 from items relating to other funds.' (Assem. Bill 4X 1, § 552, italics added.)" (American Physicians, supra, 195 Cal.App.4th at pp. 702-703.)
CASE argues that, unlike the legislative history of the 2008 Budget Act revision, the legislative history of the 2009 Budget Act revision shows the Legislature did not intend to authorize the third furlough day. A similar contention was rejected by American Physicians, which noted the legislative history of the 2008 Budget Act was only one of three factors relied on by Professional Engineers to determine the legislative intent to ratify the two-day furlough program. (American Physicians, supra, 195 Cal.App.4th at pp. 703-704.) The other two factors-that it was unreasonable to conclude the Legislature intended massive layoffs instead of furloughs, and it was reasonable to conclude that given the exigent circumstances the Legislature intended the existing furlough program to be an alternative to collective bargaining-remain applicable to the determination of the third furlough day's validity. (Ibid.)
American Physicians concluded: "Given that the language contained in the revised 2009 Budget Act is identical to that construed in Professional Engineers and given that two of the three factors that our Supreme Court cited in support of its ruling are equally applicable here, we think it is appropriate to reach the same result. We conclude the third furlough day was valid." (American Physicians, supra, 195 Cal.App.4th at p. 704, fn. omitted.)
We agree with American Physicians' analysis and conclusion, and uphold the validity of the third furlough day.
In its supplemental brief, CASE argues a handful of specific furlough days in 2009 are invalid because they were imposed at a time when no operative authorizing legislation was in place. A similar argument was rejected by Division Five. (American Physicians, supra, 195 Cal.App.4th at pp. 704-706.) We agree with American Physicians on this issue, particularly the point that the 2009 Budget Act revision ratified the existing furlough program then in place-i.e., the one imposed by the Governor on December 19, 2008. (Id. at p. 705.) The legislative history on this issue is unpersuasive.
C. Issue Requiring Limited Remand
Both section 3.90(a) of the revised Budget Act of 2008 and section 552 of the revised Budget Act of 2009 state: "Notwithstanding any other provision of this act, each item of appropriation in this act . . . shall be reduced, as appropriate, to reflect a reduction in employee compensation achieved through . . . existing administration authority. . . ." (Professional Engineers, supra, 50 Cal.4th at p. 1044, italics added; American Physicians, supra, 195 Cal.App.4th at p. 703.)
In its supplemental brief, CASE raises the issue that several state agencies involved in this litigation, for which its members work, are not items of appropriation in the annual state budget. CASE refers to agencies funded by the so-called "continuous appropriation" or from sources independent of the budget. For instance, the state Lottery Commission is not subject to any legislative appropriation. (§ 8880.3.) It is funded by a special fund in the Treasury, which is continuously appropriated, taking its revenue from the sale of lottery tickets. (§ 8880.61.) Likewise, the California Housing Finance Authority is "fiscally self-sufficient." (Health & Saf. Code, § 50956.)
Obviously, if there is no "item of appropriation" there is no predicate for the operation of "existing administration authority" to furlough employees. Furloughs in agencies not items of appropriation would not be valid. Understandably, this issue was not addressed below. Accordingly, we remand for the limited purpose of allowing the parties and the trial court to resolve this issue, involving the applicable agencies.
III. DISPOSITION
The judgment is reversed and the cause is remanded to the trial court with directions to: (1) recall the writ of mandate, (2) set aside the judgment granting the petition, and (3) conduct further proceedings as appropriate and enter a new judgment in conformity with this opinion. The parties shall bear their respective costs on appeal.
The Governor conceded at oral argument that he was abandoning his argument based on the doctrine of concurrent jurisdiction.
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Marchiano, P.J.
We concur:
Margulies, J.
Dondero, J.