State Compensation Insurance Fund —in the midst of major downsizing –witnessed its rank and file union member employees picketing at 16 office locations today. The unions blame Governor Schwarzenegger's failure to negotiate a new union contract for its employees. But State Fund employees, many of whom may be laid off, need not look much further than their own front office to see who's really holding their contract hostage.

Despite the usual union vitriol being spewed towards the governor, State Fund management is also involved in the negotiations – SCIF Management has a seat at the table – and may have suggested to its unions that it was the Governor not them who is calling the shots.

Chanting slogans such as: "Arnie, Arnie and your henchmen, keep your hands off our pensions," members of the Service Employees International Union lambasted the governor for waffling on its contract. The contract for all state employees expired in June.

But it's not the governor's office State Fund is negotiating with. The governor's office tells Workers' Comp Executive that the governor designates the Department of Personnel Administration to negotiate contracts for the various state employee bargaining units.

"State Fund does have a management representative at the table," says Lynelle Jolley, spokeswoman for DPA, confirming that it is State Fund management negotiating not Governor Schwarzenegger.

The protest is part of larger state protest organized by the Service Employees International Union which boasts 87,000 members. State Fund's member employee total some 8,000.

State Fund's market share has been dropping precipitously over the last 18 months and a recent insurance industry study says that State Fund has dropped from its peak of writing 58 percent of the market in 2003 to 36 percent in 2005. As a result, State Fund is downsizing its operation including moving staff to new locations and probable layoffs.

According to Stephen McVeigh, SEIU bargaining representative in S.F. who works at State Fund's home office underwriting as a systems analyst, State Fund employees have not gotten a wage increase in almost four years, and the governor is the only person that can authorize DPA to negotiate on money. "Basically," McVeigh says, "state workers are underpaid anywhere from 20 to 35 percent..."

McVeigh explains "We have people that have 500, 600, 700, 800 hours of vacation and they can't use it. You've got departments at State Fund that do not allow their people to take vacations, or they'll allow it if they give one year's advance notice.

"All these workers [at the demonstration] have come down out of their offices to protest. The majority of them work in billing premium for our workers' comp clients, underwriters, auditors, some claims representatives and some of the fiscal departments at State Fund. There has been discussion [of a strike] and we are organizing toward some sort of strike action in the future," McVeigh told the Executive.

The concern is that with a competition retuning to the California workers' compensation marketplace, experienced State Fund professionals will seek greener pastures.

"They're going to jump," says Danny Beagle, a spokesman for SIEU.

Jim Zelinski, State Fund spokesman, did not comment.

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Story by Bess Shapiro in Sacramento Photo by Kevin Thompson in San Francisco