David W.

Tyra

916.321.4500 dtyra@kmtg.com

December 14, 2010

Clerk of the Court

Court of Appeal - First Appellate District, Division 5 350 McAllister St.

San Francisco, CA 94102

Re: Union of American Physicians and Dentists v. Arnold Schwarzenegger, etc., et aI, First District Court of Appeal Case No. A127775

Dear SirlMadam:

Appellants Governor Arnold Schwarzenegger, David Gilb, Cindy Ehnes, Carrie

Lopez, Tony Sauer, David Maxwell-Jolly, John A. Wagner, and Kimberly Belshe ("State

Appellants") submit this reply to the supplemental opposition letter brief filed by

Respondent Union of American Physicians and Dentists (hereinafter "Respondent

UAPD").

I. INTRODUCTION

In Professional Engineers in California Government, et al v. Schwarzenegger,

etc., et al, ("Professional Engineers") (2010) 50 Cal. 4th 989, the California Supreme

Court held that the Legislature's enactment of the Revised Budget Act of 2008, which

included a provision for reduction of state employee compensation through "existing

administration authority," constituted a legislative ratification of the Governor's furlough

program.

Clerk of the Court December 14,2010 Page 2

Respondent UAPD ignores the Court's holding and makes several arguments that

are inconsistent with the holding in Professional Engineers. For instance, Respondent

UAPD argues that the Legislature could not have intended that the furlough program

apply to employees who work in departments or agencies that receive federal funds.

However, this argument is incorrect because the Supreme Court in Professional

Engineers held that the Legislature in the Revised Budget Act of 2008 validated the

entirety of the furlough program, which included furloughs of employees in agencies and

departments that receive federal funds. There is no language in either the Court's

decision or the Revised Budget Act of 2008 that supports Respondent UAPD's

contention that the Legislature ratified only a portion of the Governor's furlough

program. Furthermore, the Supreme Court in Professional Engineers held that the

Revised Budget Act of 2008 reduced the appropriation for state employees'

compensation as reflected in the Memorandums of Understanding ("MOU") between the

State and its recognized bargaining units, including that unit represented by UAPD. At

the time the budget act was passed, employees working in federally funded agencies and

departments were covered by MOUs negotiated by UAPD as reflected by Respondent

UAPD's representation of those employees in this action.

Respondent UAPD also argues that the rationale applied by the Supreme Court in

Professional Engineers cannot be used to uphold the third furlough day as added by

Executive Order S-13-09 in July 2009. However, the language of Section 3.90 of the

Clerk of the Court December 14,2010 Page 3

Revised Budget Act of 2009 is unambiguous and authorizes the third furlough day in the

same manner as in the Revised Budget Act of2008.

Respondent UAPD also argues incorrectly that the first furlough day, on February

6, 2009, was not ratified by the Revised Budget Act of 2008. However, in making this

argument, Respondent UAPD ignores the holding from Professional Engineers, which

was that the Legislature, in the Revised Budget Act of 2008, validated the entirety of the

then-existing furlough program, which included the February 6,2009 furlough day.

Lastly, Respondent UAPD's arguments that the furlough program violated

California Government Code section 16310, subdivision (a) ignore the fact that section

16310, subdivision (a) only acts to prohibit transfers of funds from special fund agencies

or departments to the General Fund when such transfers have the effect of interfering

with the object for which the special funds were created. The statute does not address

reductions in state employee work hours and is not applicable to the furlough program.

Accordingly, State Appellants request that this Court follow the holding of the

Supreme Court in Professional Engineers, and uphold the furlough program as applied to

all state employees.

II. IN PROFESSIONAL ENGINEERS, THE SUPREME COURT HELD THAT THE REVISED BUDGET ACT OF 2008 VALIDATED THE FURLOUGH PROGRAM AS IT EXISTED AT THE TIME THE ACT WAS PASSED.

Respondent UAPD speculates that the Legislature "could not have intended for its

authorization to include authorization for furloughing federally-funded state employees."

Clerk of the Court December 14,2010 Page 4

(UAPD Supplemental Brief, p. 8.) However, the Court in Professional Engineers held

that in enacting the Revised Budget Act of 2008, the Legislative validated the "then-

existing furlough program." (Professional Engineers, supra, 50 Ca1.4th at 1047.) The

Supreme Court stated that the legislative history of the Budget Act of 2008 "makes it

abundantly clear the Legislature contemplated that the reduction in appropriations for

employee compensation ... could be achieved through the furlough plan that was then in

existence." (ld. Emphasis added.) The "then-existing" furlough program was the

furlough program that existed on February 19,2009. The furlough program that existed

on February 19,2009 was the program implemented by the DPA pursuant to Executive

Order S-16-08. Executive Order S-16-08 specifically directed DPA to "adopt a plan to

implement a furlough of represented state employees and supervisors for two days per

month, regardless offunding source." (Joint Appendix ["JA"], Vol. I, Tab 21, JAOOI70.)

As such, Executive Order S-16-08 applied to all state employees, regardless of whether

the agency or department in which they worked received federal or state funds.

Additionally, on February 3, 2009, the Department of Personnel Administration issued a

memorandum to Personnel Management Liaisons, which provided instructions as to how

to implement the furlough program in their agencies. (JA, Vol. III, Tab 103, JA00716-

JA00721.) The Personnel Management Liaison memorandum did not exempt employees

at agencies or department who received federal funds, but did include the limited

exemptions of agencies and departments written into Executive Order S-16-08.

Clerk of the Court December 14,2010 Page 5

Furthermore, Respondent DAPD's argument ignores the Court's holding that the

Legislature's enactment of the Revised Budget Act of 2008 modified the MOD for all

state employees. Specifically, the Supreme Court held

[W]e conclude that on February 19 and 20, 2009, when the Legislature enacted, and the Governor then signed, legislation revising the 2008 Budget Act, the validity of the mandatory furlough program fundamentally changed. The new legislation explicitly reduced the 2008-2009 fiscal year appropriation for state employee compensation to a level reflecting the reduced compensation to be paid to employees under the Governor's furlough plan. By reducing the appropriation for employee compensation, the Legislature no longer had 'fully funded' the provisions of the MODs supporting the higher level of pay that previously had been approved, and thus, under sections 3517.6 and 3517.7, the provisions of the applicable MODs that supported the higher level of pay the employees had been receiving prior to the implementation of the furloughs no longer were effective. (Cf. White v. Davis, supra, 30 Ca1.4th at pp. 572 - 573, 133 Cal.Rptr.2d 648, 68 P.3d 74.)

(Professional Engineers, supra, 50 Ca1.4th at 1043.) Respondent DAPD does not dispute

that the terms and conditions of employment for the employees at federally-funded

agencies and departments are covered by the MODs. Employees at the California

Department of Social Services Disability Determination Service are covered by MODs

between the State and the bargaining unit represented by Respondent DAPD. Therefore,

the Legislature'S ratification of the Governor's then-existing furlough program modified

the MODs of all state bargaining units, including those that cover the employees at

Clerk of the Court December 14,2010 Page 6

agencies and departments who receive federal funds that Respondent UAPD argues

should be excluded from the ambit of the furlough program.

Finally, Respondent UAPD's argument that the Legislature intended to exclude

agencies or departments with non-borrowable funds or that are funded through federal

funds from the reductions in employee compensation mandated by Section 3.90 is belied

by the language of that section. Section 3.90 of the act provides that approximately

$285,196,000 of the reduction in compensation must come from "other funds" and

$385,762,000 from the General Fund. Respondent UAPD's argument that the funds

saved by furloughing employees who work in agencies and departments funded by

federal funds is not included in the $285,196,000 savings from "other funds" is without

any support in the record and is contrary to the language of the Court's holding in

Professional Engineers, as well as the language of the Budget Act.

The express language and legislative intent of Section 3.90 was to ratify the

furlough program implemented by Executive Order S-16-08 for all state agencies and

departments, regardless of funding source. Therefore, Respondent UAPD's argument

that employees who work at federally funded agencies or departments must be exempted

from the furlough program based on their funding source directly contradicts both

Section 3.90 and the Supreme Court's holding Professional Engineers.

Clerk of the Court December 14,2010 Page 7

III. THE SAME RATIONALE APPLIED BY THE SUPREME COURT IN PROFESSIONAL ENGINEERS CAN ALSO BE USED TO UPHOLD THE THIRD FURLOUGH DAY ADDED BY EXECUTIVE ORDER S-13-08 IN JULY 2009.

Respondent UAPD also argues that the Supreme Court's holding in Professional

Engineers did not affirm implicitly the third furlough day directed by the Governor in

Executive Order S-13-09, issued on July 1, 2009. Respondent UAPD argues that the

legislative history underlying AB4 XI, the Revised Budget Act of 2009, which mandated

personnel cost savings to be achieved through "existing administration authority" in the

same fashion as the Budget Act of 2008 analyzed by the Court in Professional Engineers,

demonstrates an intent to reject the Governor's use of a third furlough day. Specifically,

Respondent UAPD cites to the Senate Floor Analyses of July 23, 2009, for ABX4 1,

which states that the Legislature is rejecting the Governor's proposal of a five percent pay

cut for state employees "thereby maintaining the two-day furlough for all employees."

(UAPD Supplemental Brief, at p. 10.)

Contrary to UAPD's argument, the legislative history underlying ABX4 1 is

ambiguous because in contrast to the Senate Floor Analysis on which UAPD relies, the

Assembly Floor Analysis for the bill indicates that the revised budget "reflects $850

million in savings achieved by the Governor's executive order two [sic] additional

furlough days." (See State Appellants' Request for Judicial Notice, Exhibit 1, Emphasis

added.) While the reference to two additional days is inaccurate, the Assembly Floor

Clerk of the Court December 14,2010 Page 8

Analysis does reference additional furlough days beyond those already in existence.

Furthermore, whereas the Senate Floor Analysis makes no reference to furloughs - only a

rejection of a pay cut proposed by the Governor - the Assembly Floor Analysis indicates

a legislative intent to achieve further personnel cost savings through additional furlough

days. Thus, the Assembly Floor Analysis demonstrates a legislative intent to rely on the

additional furlough days implemented pursuant to Executive Order S-l3-09. In any

event, the legislative history underlying ABX4 1 is ambiguous.

What is not ambiguous is the language of Section 3.90 of the Revised Budget Act

of 2009, the parallel section to the one analyzed by the Court in Professional Engineers

in connection with the 2008 Budget Act. That section mandates personnel cost savings in

the total amount of $1,477,917,000 from the General Fund and $973,058,000 from other

funds, or a total of $2,450,975,000 in total personnel costs savings to be achieved through

either the collective bargaining process or through "existing administration authority,"

the exact phrase the Court found to constitute a legislative ratification of the Governor's

then-existing furlough program. In the case of the Revised Budget Act of 2009, it was

passed on July 28, 2009, nearly a month after the Governor had directed a third furlough

day pursuant to Executive Order S-13-09. Accordingly, the same logic that led the Court

to find the use of the phrase "existing administration authority" in the Revised Budget

Act of 2008 to be a legislative ratification of the Governor's two-day furlough program

Clerk of the Court December 14, 2010 Page 9

should lead this Court to find that same phrase in the Revised Budget Act of 2009

constitutes a legislative ratification of the third furlough day.

IV. PROFESSIONAL ENGINEERS HELD THAT THE LEGISLATURE VALIDATED THE ENTIRETY OF THE FURLOUGH PROGRAM, INCLUDING THE FEBRUARY 6, 2009 FURLOUGH DAY.

Respondent UAPD argues that the Legislature failed to state specifically that

Section 3.90 of the Revised Budget Act of 2008 was retroactive, so there was no

authority for the February 6, 2009 furlough day. (UAPD Supplemental Brief, p. 11.)

However, this argument fails because in Professional Engineers, the Supreme Court held,

"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 reduction in employee

compensation to be achieved through the then-existing furlough plan." (Professional

Engineers, supra, 50 Cal. 4th at 1046.) The "then-existing" furlough plan is the furlough

plan that existed as of February 19, 2009. The furlough plan that existed on February 19,

2009 included the February 6, 2009 furlough day.

Retroactivity is not an issue here. The February 6, 2009 furlough day was not

implemented retroactively by the Legislature. The Legislature did not implement a new

program, but affirmed an existing program. Section 3.90 did not retroactively reduce the

workweek hours of state employees but instead validated the already existing reduction

Clerk of the Court December 14,2010 Page 10

of state employee work hours. As such, it was unnecessary for the Legislature to state

that Section 3.90 applied retroactively.'

V. THE FURLOUGH PROGRAM DOES NOT VIOLATE GOVERNMENT CODE SECTION 16310, SUBDIVISION (a).

Respondent UAPD argues that even though the Legislature affirmed the entirety

of the furlough program, as it existed at the time the Revised Budget Act of 2008 was

passed, the furloughs of employees working in agencies funded by special funds violated

section 16310, subdivision (a) of the California Government Code. However,

Government Code section 16310, subdivision (a) was not violated by the implementation

of the furlough plan.

A. Government Code Section 16310, Subdivision (a) Is Not Implicated By The Furlough Program, The Revised Budget Act of 2008, Or The Decision In Professional Engineers.

Government Code section 16310, subdivision (a) states specifically,

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

I Additionally, Respondent UAPD's argument that the February 6,2009 furlough was unfair because it denied "state doctor [sic] advanced notice of the reduction and an opportunity to seek out other better-paid employment," is specious and should be disregarded by the Court. The furlough program was implemented by Executive Order S- 12-08 issued on December 19,2008. State employees received approximately a month and a half notice that the first furlough day was to occur on February 6, 2009.

Clerk of the Court December 14, 2010 Page 11

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 or any transfer from the Central Valley Water Project Construction Fund, the Central Valley Water Project Revenue Fund, or the California Water Resources Development Bond Fund.

Section 16310, subdivision (a) authorizes the transfer of moneys "not needed" in

funds and protects agencies and departments by specifically preventing the "transfer" of

funds that "interfere with the object for which a special fund was created." Respondent

UAPD has not presented any evidence that the actual transfer of funds from special

agencies or departments interfered with the object for which any special fund agency or

department was created.

Instead, Respondent UAPD argues that the furloughs themselves interfered with

the object for which certain departments were created. However, even if accurate, this

evidence does not establish a violation of section 16310, subdivision (a). This evidence

is misplaced because section 16310, subdivision (a) refers only to any interference caused

by a transfer of funds; not a furlough program reducing employee work hours.

UAPD argues that the furlough program implicates section 16310, subdivision (a)

because one of the purposes of the furlough program was to create internal borrowable

Clerk of the Court December 14,2010 Page 12

resources for the General Fund. The argument about the stated purpose of the furlough

program is irrelevant to the transfer of funds authorized under section 16310, subdivision

(a). In addition, section 16310, subdivision (a) specifically refers to only acts of the

Governor. Here, the Supreme Court held that in enacting the Revised Budget Act of

2008, furloughs became an act of the Legislature. Section 16310, subdivision (a) is not

implicated by Legislative acts, including the ratification of the furlough program.

B. Legislative Validation Of The Furlough Program Does Not Violate The Single-Subject Rule.

Respondent UAPD argues that if the Revised Budget Act of 2008 gave the

Governor or DPA the authority to violate section 16310, subdivision (a), the Revised

Budget Act of 2008 would violate the single subject rule provided for by the California

Constitution. However, Respondent UAPD's single-subject argument is irrelevant and

should be ignored for two reasons. First, State Appellants have never argued that the

Revised Budget Act of 2008 gave the Governor or DPA authority to violate section

16310, subdivision (a). The implementation of the furlough program neither implicated

nor violated section 16310, subdivision (a), so no authority to violate section 16310,

subdivision ( a) would have been necessary.

Second, in ruling that the Legislature ratified the Governor's furlough program

through enactment of the Revised Budget Act of 2008, the Court in Professional

Engineers considered and rejected the unions' challenge to such a finding based on the

Clerk of the Court December 14,2010 Page 13

single-subject rule. In rejecting this challenge, the Court held that Section 3.90 of the

Revised Budget Act of 2008 "[did] not substantively amend or change any existing

statutory provision or expand or restrict the substantive authority of any state agency, and

cannot reasonably be described as a substantive policy change masquerading as a Budget

Act provision." (50 Cal.4th at 1049-1050, internal citations omitted.) The Court further

ruled that Section 3.90 of the Revised Budget Act of2008

does not alter the provisions of Government Code section 19826 or purport to grant the Governor or the DP A authority to impose unpaid furloughs unilaterally, but rather embodies the Legislature's determination that the two-day-a-month furlough plan is a permissible means by which the specific reductions set forth in section 3.90 may be implemented.

(Jd., at 1050. Emphasis both added and in original.) In finding that the furlough program

ratified by the Legislature constituted an act of legislative determination that the furlough

program was a permissible means of achieving personnel cost savings, the Court noted

that section 19826 "places no limitations on the Legislature's authority to increase or

reduce the pay of salaries of state employees, and section 3.90 simply represents an

exercise of the Legislature's reserved authority over state-employee compensation." (Jd.

at 1051.) As the Court concluded, "the budget provision here at issue concerns only the

one subject of appropriations to support the annual budget." (Jd.)

Clerk of the Court December 14,2010 Page 14

VI. CONCLUSION

For all of the foregoing reasons, and all of the reasons stated by State Appellants

in their opening supplemental brief, this Court should find that the California Supreme

Court's ruling in Professional Engineers fully disposes of all of the issues in this action.

As such, this Court should find in favor of State Appellants and reverse the trial court's

judgment in favor of Respondent UAPD.

Sincerely,

KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD

A Law Corporation

DWT

957401.1

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I, May Marlowe, declare:

PROOF OF SERVICE

I am a citizen of the United States and employed in Sacramento County, California. I am over the age of eighteen years and not a party to the within-entitled action. My business address is 400 Capitol Mall, 27th Floor, Sacramento, California 95814. On December 14,2010, I served a copy of the within document(s):

Appellants' Supplemental Reply Brief

D

by placing the document(s) listed above in a sealed Federal Express envelope and affixing a pre-paid air bill, and causing the envelope to be delivered to a Federal Express agent for first overnight, earliest next business morning delivery.

by placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, the United States mail at Sacramento, California addressed as set forth below.

by transmitting via e-mail or electronic transmission the document(s) listed above to the person(s) at the e-mail addressees) set forth below.

Attorneys for PetitionerlRespondent Union of American Physicians and Dentists

Andrew J. Kahn

Adam Zapala

Davis, Cowell & Bowe

595 Market Street, Suite 1400 San Francisco, CA 94105 E-mail: ajk@dcbsfcom

Attorneys for DefendantlRespondent John Chiang

Ross C. Moody

Deputy Attorney General

STATE OF CALIFORNIA ATTORNEY GENERAL'S OFFICE 455 Golden Gate Avenue, Suite 1100 San Francisco, CA 94102-7004

Fax: (415) 703-1234

E-mail: Ross.Moody@doj.ca.gov

ATTORNEYS AT LAW

KRONICK, MOSKOVITZ, 958144.1

TIEDEMANN & GIRARD

SACRAMENTO

Attorneys for RespondentlDefendant John Chiang

Robin B. Johansen

Remcho, Johansen & Purcell LLP 201 Dolores Avenue

San Leandro, CA 94577 E-mail: rjohansen@rjp.com

Attorneys for Defendants/State Appellants Gov. Arnold Schwarzenegger, David Gilb Cindy Ehnes, Carrie Lopez, Tony Saurer, David Maxwell-Jolly, John A. Wagner and Kimberly Belshe

will M. Yamada

Labor Relations Counsel DEPARTMENT OF PERSONNEL ADMINISTRATION

1515 S Street, North Building, # 400 Sacramento, CA 95811-7258

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PROOF OF SERVICE

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Attorney for Amicus Curiae American Association of Retired People

Michael R. Schuster

AARP

601 E Street, NW Washington, DC 20049 Email: mschuster@aarp.org

Attorney for Amicus Curiae American Association of Retired People

Barbara A. Jones

AARP Foundation Litigation

200 South Los Robles, Avenue, Suite 400 Pasadena, CA 91101-2422

Email: bjones@aarp.org

3 4 5 6

Attorneys for Amicus Curiae the United States of America

Mark B. Stern

Sarang V. Damle

Daniel J. Lenerz

Attorneys, Appellate Staff

Civil Division, Room 7217

Department of Justice

950 Pennsylvania Ave., N.W. Washington, D.C. 20530-0001 E-mail: sarang.damle@usdoj.gov

Supreme Court

350 McAllister Street San Francisco, CA 94012 (4 copies)

Honorable Frank Roesch

Alameda County Superior Court - Dept. 31

U.S. Post Office Building 201 Thirteenth Street Oakland, CA 94612

I am readily familiar with the firm's practice of collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit.

I declare under penalty of perjury under the laws of the State of California that the above is true and correct.

Executed on December 14, 2010, at Sacramento, California.

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ATTORNEYS AT LA W

KRONICK, MOSKOVITZ, 958144.1

TIEDEMANN & GIRARD

PROOF OF SERVICE

SACRAMENTO

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