Gov. Gavin Newsom wants to cut roughly $767 million from the state’s payroll expenses in salaries and wages to help close a larger-than-expected deficit California is facing. The Governor’s Office said Newsom does not seek to cut existing salaries.
In a revised budget released Wednesday, Newsom’s administration said it hopes to reach that savings target through negotiations with the state’s 21 bargaining units. But if no agreement is reached, the administration said it will “impose reductions,” without detailing what those might involve.
“The governor’s budget proposal aims to achieve savings by delaying pay increases,” Tara Gallegos, a spokesperson for the Governor’s Office, said in a statement. “Ultimately, this will be decided as part of collective bargaining.”
Finance Director Joe Stephenshaw told reporters Wednesday: “The intent is really to avoid increased costs in the upcoming fiscal year and it’s not to implement furloughs or (personal leave programs) or those types of things.”
This year, salary savings are expected to begin in July. Seven bargaining units are already in active talks with the California Department of Human Resources to reach new agreements.
Union leaders reacted swiftly to the proposed cuts.
“While we understand the state’s budget realities, balancing the budget on the backs of hardworking state workers is not the answer,” Ryan Smith, the vice president of the state attorneys’ union, said in a Wednesday statement. “We are disappointed the governor chose to undermine the collective bargaining process by threatening our members with pay cuts.”
Ted Toppin, the executive director of the Professional Engineers in California Government, said the state has weathered previous downturns and should continue to pay competitive wages.
“Projecting a budget deficit that has yet to materialize does not absolve the Administration from the need to pay fair and competitive wages to recruit and retain the state-employed engineers and related professionals we represent,” Toppin said in a statement. “PECG is at the table now and will continue to bargain in good faith with the administration for the best agreement possible.”
Neil Flood, the president of the labor group representing correctional officers, said his union is committed to working with the administration to reach “responsible solutions.”
“We believe these issues are best addressed collaboratively at the bargaining table, where we’ve consistently found common ground in the past,” Flood said.
The proposed salary reductions are one part of the governor’s strategy to close a $12 billion shortfall for 2025-26. The budget also includes cuts to health care spending, a pause on Medi-Cal enrollment for undocumented adults, and the use of $7.1 billion from the state’s rainy-day fund.
The governor attributed the economic slump to the Trump administration’s tariffs, though he denied blaming the deficit entirely on President Donald Trump.
Director Stephenshaw confirmed Wednesday that the state budget did not include money for a 1% salary increase employees represented by Service Employees International Union Local 1000 hoped to secure this year.
Two years ago, SEIU Local 1000 negotiated a contract provision that would grant rank-and-file members a 1% raise — on top of a guaranteed 3% salary increase — based on the Finance Department’s determination of whether the state has enough extra money in the budget to grant the increase.
“We’re not in a position to provide that additional 1% at this time,” Stephenshaw said.
In a Wednesday statement, SEIU Local 1000 President Anica Walls said, “The administration may be seeking savings, but our position is clear: we are not here to help the state cut our pay. We’ll fight to protect jobs, pay, and the services our communities rely on.”
Earlier this year, the Finance Department estimated the additional 1% would have cost $120 million. Nine of the union’s 10 bargaining units — 1, 3, 4, 11, 14, 15, 17, 20 and 21 — were eligible for the 1% raise.
Without the conditional raise, SEIU Local 1000-represented employees are slated to receive a 3% raise in July, on par with salary increases from the previous two years. The 3% increase is expected to cost the state $360 million, according to the Finance Department’s projections earlier this year.
The Bee Capitol Bureau’s Stephen Hobbs contributed to this story.
This story was originally published May 14, 2025 at 2:32 PM.
CORRECTION: This story has been updated to clarify comments from the Governor’s Office about proposed spending reductions in the May budget revision. Officials said the unspecified cuts would not include reductions in employee pay.