For a second year in a row, California canceled a program that allows state workers to cash out unused vacation time over budget concerns.

Earlier this year, state leaders said California had managed to recover from a massive budget shortfall. But after President Donald Trump imposed sweeping tariffs that upended the global economy, the outlook for the state’s budget soured.

“The current economic and fiscal climate has caused considerable fiscal uncertainty to the state’s budget,” California Department of Human Resources Director Eraina Ortega wrote in a memo last Friday to state agencies announcing the suspension of the leave buy-back program for the current fiscal year.

The program, when approved by the Finance Department, allows state workers to cash in on unused time off at the end of the fiscal year, in June. If individual departments also determine they can afford to pay workers for unused annual or vacation leave, most public employees can cash out up to 80 hours each year.

In the 2022-23 fiscal year, California paid workers $98.4 million as part of the voluntary leave buyback program, according to CalHR.

The Department of Finance issued a budget letter in December 2023 warning departments that California was facing significant budget deficits and action needed to be taken to reduce general fund expenditures. One of those actions included canceling the leave buy-back program for fiscal year 2023-24. The program was also suspended in 2020.

In her memo, Ortega advised agency leaders to encourage employees to use accrued time that exceeds the 640-hour maximum most workers can cash out at the end of their civil service.

Bargaining through budget concerns

The timing of Ortega’s announcement comes as seven of the state’s 21 bargaining units are in the middle of negotiating new contracts with the state.

Compared to California’s dismal financial position last year, union leaders said in January that they hoped the state’s improved budget would enable them to net salary increases beyond the typical 2-3% annual raises.

But the decision to suspend the leave buy-back program does not bode well for unions, which appear to be facing tougher budget headwinds than originally expected at the beginning of the year.

CalHR does not comment on active negotiations, a department spokesperson said.

Last year, correctional officers were the only public employees who were able to exchange unused leave for payments. The contract covering their bargaining unit included a provision allowing prison staff to cash out up to 80 hours of unused vacation time in 2023. The contract does not include a similar clause for 2024.

Expiring leave caps

During the pandemic, when California faced a $54 billion deficit, Gov. Gavin Newsom and the unions agreed to a “personal leave program” that gave state workers leave in exchange for a 9.23% monthly pay cut.

In recent years, the amount of leave on the books has increased significantly. Between 2019 and 2023, California’s unfunded liability for leave benefits, including vacation, owed to current employees increased 45%, the Los Angeles Times recently reported.

In recent years, several unions have negotiated contracts that increased the cap beyond 640 hours that would have allowed employees leaving state work to cash out more than 80 days of unused vacation time.

In July, many of those leave caps will revert back to 640 hours, which means employees will have to reduce the amount of leave they have on the books before cashing out at the end of their time with the state.

Employees with more than 640 hours in the bank who might have hoped to cash out their accrued vacation time will instead have to take time off.

“To encourage a healthy work-life balance and to comply with existing leave balance maximum caps,” Ortega wrote, “departments are encouraged to allow employees to use their leave credits to the extent operationally feasible.”