California Code, Government Code - GOV § 16280

No state funds from the state surplus or state loan funds shall be available to any local public agency which provides a cost-of-living wage or salary increase in the 1978-79 fiscal year for local public agency employees or cost-of-living increases for any other individuals, including AFDC and other welfare recipients, if such increase is in excess of the cost-of-living salary increase provided for state employees. The cost-of-living salary increase provided for state employees shall be determined by dividing the total amount made available by the Legislature for salary increases to state employees by the total salaries paid to state employees. If the Legislature limits the cost-of-living salary increase for state employees on the basis of salary range, the local public agency shall likewise limit any cost-of-living increase for local public agency employees and other individuals on the same basis.

Any provision of a contract, agreement, or memorandum of understanding between a local public agency and an employee organization or an individual employee which provides for a cost-of-living wage or salary increase to local public agency employees in excess of such increase provided for state employees is null and void to the extent of such excess.

This section shall not preclude regular merit increases, established prior to June 6, 1978, longevity or educational increments, promotions, or transfers, but shall preclude the transfer of employees to new positions created with higher pay schedules for the purpose of circumventing this chapter.

As used in this section, the terms “salary” and “wage or salary” shall not include any compensation other than wages or salaries, such as health benefits, retirement benefits, life insurance, vacation time, sick leave, perquisites of all kinds, and reimbursement of expenses.

The amendment of this section made by Chapter 332 of the Statutes of 1978 does not constitute a change in, but is declaratory of, the existing law.