By Kevin Yamamura
Published: Tuesday, Sep. 28, 2010 – 12:00 am | Page 1A
Last Modified: Tuesday, Sep. 28, 2010 – 1:20 am

Gov. Arnold Schwarzenegger and legislative leaders have expressed nervous optimism about closing a budget deal soon and ending the state’s record-long impasse.

But several contentious items remain, none thornier than the state pension cuts that Schwarzenegger demands be part of the budget package.

The Republican governor wants a two-tier system of pensions that reduces benefits with stricter retirement formulas for new state workers. He also wants to reduce pay by roughly 10 percent for existing state workers this fiscal year through higher pension contributions and unpaid leave days.

The rub? Democrats still insist that Schwarzenegger negotiate any reductions with the labor unions that have not yet struck contract deals. The governor, meanwhile, says lawmakers could impose cuts on their own.

Schwarzenegger and legislative leaders announced Thursday that they had agreed on a “framework” for a budget deal. But they emerged from a 90-minute session Monday without a grand compromise and said they would return today.

Three of the four legislative leaders, including both Republicans, cited pensions as a specific issue dividing the leaders.

Senate Republican Leader Dennis Hollingsworth pointed the finger at Democrats for prolonging the pension debate. Democrats contend that the governor and unions must resolve the issue on their own.

“We still believe that collective bargaining is the appropriate and important way to finalize agreements with the representatives of the state employees,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento, after Monday’s meeting.

The governor, who has not yet struck deals with 15 of the state’s 21 bargaining units, has not backed down on his pension demand.

“We’re negotiating with the unions, but we also believe this could be done legislatively,” said Schwarzenegger press secretary Aaron McLear. “The Legislature got us into this mess and they have the responsibility to reverse that mistake.”

Lawmakers and then-Gov. Gray Davis approved a bill in 1999 that enabled the state to abolish the two-tier pension structure in place at the time. Unions say they obtained better pension benefits but gave up pay hikes they otherwise could have received.

Six bargaining units have struck deals this year with Schwarzenegger to change the formulas that govern pension benefits for new workers, such as increasing age requirements. The deals require current employees to increase pension contributions by as much as 5 percent. Some require workers to take 12 days of unpaid leave in exchange for a 5 percent pay cut. The deals include eventual step pay raises for those at the top of their job classifications.

Schwarzenegger officials are in the midst of talks with the biggest state employee union, Service Employees International Union Local 1000, which represents 95,000 workers.

The governor is not in ongoing discussions with any other union at the moment.

Democrats hope that SEIU negotiations lead to a deal soon. Absent an agreement, Schwarzenegger wants Democrats to impose cuts on state employees through legislation.

“The governor basically wants to sidestep collective bargaining, which is not a popular position from our view,” said Dave Low, a lobbyist representing a union coalition. “His responsibility is to bargain these things out.”

To read entire story, click here.