BILL ANALYSIS Ó SENATE COMMITTEE ON ELECTIONS AND CONSTITUTIONAL AMENDMENTS Senator Norma J. Torres, Chair BILL NO: AB 822 HEARING DATE: 6/18/13 AUTHOR: HALL ANALYSIS BY: Darren Chesin AMENDED: 4/30/13 FISCAL: YES SUBJECT Local government retirement plans DESCRIPTION Existing law requires a charter or charter amendment proposed by a charter commission, whether elected or appointed by a governing body, for a city or city and county to be submitted to the voters at an established statewide general, statewide primary, or regularly scheduled municipal election date, as specified. Existing law requires the Legislature and local legislative bodies (except school districts or county offices of education) to secure the services of an actuary to provide a statement of the actuarial impact upon future annual costs, including normal cost and any additional accrued liability, before authorizing changes in public retirement plan benefits or other postemployment benefits. Local agencies must make public at a public meeting the future costs of changes in retirement benefits or other post-employment benefits at least two weeks before the adoption of any changes in public retirement plan benefits or other post-employment benefits, as specified. This bill requires local measures that propose a change to municipal employee retirement benefit plans to be submitted to voters only at established statewide general elections, and requires an independent actuarial statement regarding such measures to be prepared and printed in the voter information portion of the sample ballot. Specifically, this bill : 1)Requires the governing body of a local government entity to do all of the following whenever a local measure qualifies for the ballot that proposes to alter, replace, or eliminate the retirement benefit plan of employees of the local government entity, whether by initiative or legislative action: a) Secure the services of an independent actuary to provide a statement, not to exceed 500 words in length, of the actuarial impact of the proposed measure upon future annual costs of the retirement benefit plan, including normal costs and any additional accrued liability; and, b) Make public at a public meeting, at least two weeks prior to the election that the measure has qualified for the future annual costs that will result from the changes to the retirement plan proposed by the measure. 2)Requires the actuarial statement to be printed in the voter information portion of the sample ballot preceding the arguments for and against the measure, if any. 3)Requires, if the entire text of the measure is not printed on the ballot, nor in the voter information portion of the sample ballot, there shall be printed immediately below the independent actuarial analysis, in no less than 10-point bold type, a legend substantially as follows: "The above statement is an independent actuarial analysis of Ordinance or Measure ____. If you desire a copy of the ordinance or measure, please call the elections official's office at (insert telephone number) and a copy will be mailed at no cost to you." 4)Requires, if a measure described in this bill qualifies for the ballot pursuant to an initiative petition described in current law governing county, city or district petitions, the proponents of the measure to pay an additional filing fee to pay for the costs of the actuarial impact statement in an amount to be established by the local governing body, not to exceed five hundred dollars ($500). If the measure is adopted by the voters, the fee shall be refunded to the proponents. 5)Requires measures described in this bill that qualify for the ballot to be submitted to the voters only at an established statewide general election. 6)Provides the following definitions: a) "Actuary" means an actuary who is an associate or fellow AB 822 (HALL) Page 2 of the Society of Actuaries; b) "Future annual costs" includes, but is not limited to, annual dollar changes, or the total dollar changes involved when available, as well as normal cost and any change in accrued liability; and, c) "Local government entity" includes a city, county, city and county, school district, community college district, county board of education, and special district. 7)Applies this bill's requirements to a charter city, charter city and county, or charter county. 8)Finds and declares that the security of public moneys and the fiscal integrity of local governmental entities in this state, including charter cities and charter counties, have a direct impact on the long-term well-being of all residents of this state. Further, many local governments experiencing budgetary crises have difficulty providing sufficient public safety services and place additional burdens on resources of the state. Accordingly, ensuring an informed electorate with respect to the statewide integrity and security of government pension systems and ensuring the sufficiency of public safety services are matters of statewide concern and not a municipal affair, as that term is used in Section 5 of Article XI of the California Constitution. BACKGROUND Actuarial Analyses of Proposed Pension Changes and Previous Legislation : The Public Employee Post-Employment Benefits Commission (Commission) was established by Executive Order S-25-06 to propose ways for addressing unfunded post-employment benefits. In early January 2008, the Commission delivered its final report to the Governor and the Legislature, which contained 34 recommendations for improving the functioning of public retirement systems and the delivery of other post-employment benefits, and for controlling the costs of public employee benefits. SB 1123 (Wiggins), Chapter 371, Statutes of 2008, enacted several of the Commission's recommendations, including a requirement for local agencies to secure an actuary to provide AB 822 (HALL) Page 3 an actuarial impact statement of future annual costs before authorizing changes in public retirement plan benefits or other post-employment benefits. AB 822 extends this requirement to local ballot measures that propose changes to local agency employee retirement benefits. This provision applies to cities and counties (including charter cities and charter counties), school districts, community college districts, county boards of education, and special districts. COMMENTS 1.According to the Author : Across California, there have been increased efforts to make changes to city employee compensation packages relative to pension benefits. The fiscal changes resulting from these initiatives can have far-reaching impacts on the retirement security of workers and their families as well as dramatic and often unexpected impact on local budgets. The availability of an actuarial impact report, prepared by an expert actuary, provides public notice of an initiative's fiscal impact and empowers voters to make informed decisions at the ballot box. Prior to a state or local government altering employee retirement benefits, state law requires an independent analysis and public hearing requirement to discuss the proposed changes. However, this is not required in the case of benefit changes considered by local ballot initiatives. In some instances, these initiatives can have far reaching impacts on the retirement security of workers and unexpected impacts on local budgets. 2.Can This Bill Be Made Applicable to Charter Cities ? The California Constitution generally gives charter cities the right to adopt ordinances that conflict with general state laws, provided that the subject of the regulation is a municipal affair, rather than an issue of statewide concern. In fact, Section 5 of Article XI of the California Constitution expressly grants charter cities plenary authority to provide for the compensation of city employees. In light of this fact, and notwithstanding the findings and declarations in this bill that "ensuring an informed electorate with respect to the statewide integrity and security of government pension systems and ensuring the sufficiency of public safety services" are matters of AB 822 (HALL) Page 4 statewide concern, it is not clear whether the provisions of this bill can be made applicable to charter cities. 3.Timing of Votes on Measures Dealing with Retirement Benefit Plans : As noted above, existing law already requires city and city and county charter proposals to be submitted to the voters only at a statewide primary or general election, or at a regularly scheduled municipal election. These requirements were enacted in 2011, as a response (in part) to a situation where the City of Bell adopted a charter in 2005 at an election scheduled just five days after Thanksgiving. That charter proposal was the only item on the ballot, and was promoted by city officials as a change that would give the city more local control. The ballot language included no mention of the fact, however, that the change also gave the city council the ability to set council members' salaries. Fewer than 400 voters turned out to vote on the charter proposal in the city of over 36,000 residents. The rationale for requiring charter proposals to be submitted to voters only at statewide primary or general elections, or at regularly scheduled municipal elections, was that a city charter is akin to a Constitution for charter cities -- a foundational set of rules that govern the essential operations of the city that adopts it. In light of that fact, requiring charter proposals to be voted on at regularly scheduled elections helps ensure broader voter participation in establishing those foundational rules, and helps prevent situations like the one in the City of Bell where votes on charter proposals are deliberately scheduled at a time when few voters will participate. This bill proposes an even more restrictive standard for when local ballot measures that propose to alter, replace, or eliminate the retirement benefit plan of local government employees may appear on the ballot, requiring such measures to be considered by voters only at a statewide general election. The stated rationale for this proposed policy change is that local retirement-related proposals can have dramatic impacts on local budgets, as well as far-reaching impacts on the retirement security of California workers and their families. However, it is unclear whether local retirement-related proposals differ in this respect from other local ballot measures that voters may be asked to consider. For instance, AB 822 (HALL) Page 5 local ballot measures dealing with taxes or with the issuance of bonds could have very significant impacts on local budgets, yet they would not be required to appear only at statewide general elections under this bill. The committee may wish to consider whether retirement-related proposals are materially different from other local government ballot measures that voters are asked to consider, and if so, whether such differences warrant a requirement that retirement-related proposals be considered only at statewide general election ballots while local measures not dealing with retirement benefits continue to appear on the ballot at other times. 4."General" Election in June ? As previously stated, this bill requires local measures that propose a change to municipal employee retirement benefit plans to be submitted to voters only at established statewide general elections. However, Section 324 of the Elections Code defines "general election" as either the election held throughout the state on the first Tuesday after the first Monday of November in each even-numbered year or any statewide election held on a regular election date (which includes June primary elections, among others). If it is the author's intent (and the will of the committee) to limit these ballot measures to statewide November general election ballots then this bill should be amended to clarify that intent. 5.Previous and Related Legislation : SB 1123 (Wiggins), Chapter 371 of 2008, required the Legislature, and local legislative bodies to secure the services of an actuary to provide a statement of the actuarial impact upon future annual costs, including normal cost and any additional accrued liability, before authorizing changes in public retirement plan benefits or other postemployment benefits. SB 311 (Padilla), which is pending in Assembly policy committee, would require a city charter or amendments to a city charter to be submitted to the voters only at a statewide general election. AB 1344 (Feuer & Alejo), Chapter 692, Statutes of 2011, required a city charter or amendments to a city charter to be submitted to the voters at an established statewide general, statewide primary, or regularly scheduled municipal election, among other provisions. AB 822 (HALL) Page 6 SB 202 (Hancock), Chapter 558, Statutes of 2011, provided that state initiative and referendum measures that qualify for the ballot on or after July 1, 2011, shall appear on the ballot only at the November statewide general election or at a statewide special election, among other provisions. 6.Double Referral . This bill is double-referred to the Senate Governance and Finance Committee. PRIOR ACTION Assembly Local Government Committee: 7-1 Assembly Elections and Redistricting Committee: 5-2 Assembly Appropriations Committee: 12-5 Assembly Floor: 52-19 POSITIONS Sponsor: California Professional Firefighters Support: California Professional Firefighters (sponsor) American Federation of State, County and Municipal Employees, AFL-CIO Association for Los Angeles Deputy Sheriffs California Labor Federation California Nurses Association California School Employees Association, AFL-CIO (CSEA) California State Association of Electrical Workers California State Pipe Trades Council Coalition of California Utility Employees Glendale City Employees Association Laborers' International Union of North America Local 777 Laborers' International Union of North America Local 792 Orange County Employees Association (OCEA) Organization of SMUD Employees Peace Officers Research Association of California (PORAC) Public Employees Union, Local One San Bernardino Public Employees Association AB 822 (HALL) Page 7 San Luis Obispo County Employees Association Santa Rosa City Employees Association Western States Council of Sheet Metal Workers Oppose: None received AB 822 (HALL) Page 8