BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 1222 (Bloom) -  Public Transit Workers
          Amended: September 4, 2013      Policy Vote: PE&R: unavailable
          Urgency: Yes                    Mandate: No
          Hearing Date: September 6, 2013                         
          Consultant: Maureen Ortiz       
          This bill meets the criteria for referral to the Suspense File.
          Bill Summary:  AB 1222 exempts certain public transit workers  
          from the requirements of the Public Employees' Pension Reform  
          Act (PEPRA) until January 1, 2015, or earlier contingent on  
          specified events.  The bill also authorizes up to $26 million in  
          cash flow loans from the Public Transportation Account in the  
          State Transportation Fund to local mass transit providers.

          Fiscal Impact: 

           One-time start-up administrative costs of approximately  
            $109,000 to CalPERS and ongoing $90,000 to establish a process  
            for employers to provide notification of which employees will  
            be exempted from PEPRA, and to administer that enrollment  

           An estimate of actuarial costs/savings from exempting these  
            employees from PEPRA is not available as it is not known how  
            many employees will be affected at this time.

           Loans of up to $26 million from the State Transportation Fund  
            to local mass transit providers, to be repaid according to  
            three different scenarios described under the "Proposed Law"  
            section of this analysis.  AB 1222 requires the loans to be  
            repaid with interest, but allows the Director of Finance to  
            waive all interest charges.

          1)   Existing State Law  :

             a)   Creates comprehensive public employee pension reform  


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          Page 1

               through enactment of PEPRA (and related statutory changes)  
               that apply to  all  public employers (including public  
               transit agencies) and public pension plans on and after  
               January 1, 2013, excluding the University of California and  
               charter cities and counties that do not participate in a  
               retirement system governed by state statute.

             b)   Under PEPRA, changed the retirement benefit plans that  
               may be offered to new  public employees, including:

            i.   establishing uniform retirement formulas, including a 2%  
                 at age 62 formula for non-safety workers;

            ii.  requiring a 3-year final compensation period for  
                 determining a pension;

            iii.   requiring employee member contributions equal to 50% of  
                 the normal cost of the employee's benefit plan;

            iv.  capping the amount of compensation that can count toward  
                 a pension (currently approximately $113,000); and

            v.   restricting the pay items that may be included in  
                 pensionable compensation.

             a)   Protects the vested benefits of workers employed  prior   
               to the implementation of PEPRA and allows public workers to  
               collectively bargain over wages, working conditions, and  
               the impact of changes to their wages and working  

             b)   Specifies, with some exceptions, that the PEPRA  
               requirements (including those listed above) are applicable  
               to  new  retirement plan members who first become members on  
               and after January 1, 2013.

          2)   Existing Federal Law  :

             a)   Protects the collective bargaining rights of specified  
               transit workers employed in certain transit agencies and  
               districts that were, mostly in the 1960's through the  
               1970's, converted from private to public agencies.  (Many  
               such agencies are now included in CalPERS, 1937 Act, or  


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               other public retirement systems and plans.)

             b)   Requires, under Section 13(c) of the Federal Transit  
               Law, that these employee protections, commonly referred to  
               as "protective arrangements" or "Section 13(c)  
               arrangements" must be  certified  by the United States  
               Department of Labor (USDOL) and in place before federal  
               transit funds can be released to a mass transit employer  
               subject to the Federal Transit Law.  

               Section 13(c) requires, among other things, the  
               continuation of collective bargaining rights, and  
               protection of transit employees' wages, working conditions,  
               pension benefits, seniority, vacation, sick and personal  
               leave, travel passes, and other conditions of employment.

             c)   Allows the USDOL to determine if the collective  
               bargaining rights of an employee group protected under a  
               13(c) arrangement have been impaired, and if so determined,  
               to stop the flow of federal transportation funding until  
               such time as those rights have been restored.

          Last year the state adopted PEPRA, which became effective on  
          January 1, 2013.  Since that time, labor unions representing  
          certain public transit employees have asserted to the USDOL that  
          PEPRA impairs pension benefits contained in existing collective  
          bargaining agreements and restricts collective bargaining  
          rights, in violation of the protections in Section 13(c) of the  
          Federal Transit Act.

          In response, the USDOL has withheld certification of federal  
          grants to California transit agencies.   In response to the  
          USDOL action, the Secretary of the California Labor and  
          Workforce Development Agency outlined why he believes PEPRA does  
          not violate the goals and requirements of section 13(c), citing  
          the belief that PEPRA modifies, prospectively, certain aspects  
          of the defined benefit pension plan that can be offered by a  
          public employer while retaining the ability of current and  
          future employees to engage in good faith collective bargaining.

          Proposed Law: 

          AB 1222 contains the following provisions:  


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             a)   Makes an exemption to PEPRA for employees who are  
               covered by 13(c) arrangements  until  either:

            i.   a federal district court rules that the United States  
                 Secretary of Labor erred in determining that application  
                 of PEPRA precludes certification of federal transit  
                 funding; or

            ii.    January 1, 2015, whichever is sooner.

             a)   Specifies that if the federal district court  upholds  the  
               determination of the United States Secretary of Labor that  
               application of PEPRA precludes certification of federal  
               transit funding, then PEPRA shall not apply to an employee  
               protected under a 13(c) arrangement.

             b)   Authorizes the Director of Finance, in coordination with  
               the State Controller, to provide a cash flow loan of up to  
               $26 million from moneys in the Public Transportation  
               Account in the State Transportation Fund to local mass  
               transit providers upon their request to the Director.  The  
               loans shall be in an amount equal to the federal  
               transportation grant not received by the provider due to  
               noncertification by the US Secretary of Labor.

             c)   Requires the Director of Finance to provide a schedule  
               to the State Controller for the disbursement of the loan  
               amount for each local mass transit provider, and requires  
               the Controller to draw warrants against the Public  
               Transportation Account within 14 days of receiving the  

             d)   Provides a system for repayment of the loans, with  
               interest, under the following circumstances:

            i.   Within 60 days of the federal district court determining  
                 that the US Secretary of Labor erred in its determination  
                 to decertify federal funding.

            ii.  Within 60 days of the US Secretary of Labor providing  
                 certification that result in the receipt of funds by the  
                 local mass transit provider.


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            iii.   By not later than January 1, 2019, if neither of the  
                 above contingencies have occurred.

             a)   Allows the Director of Finance to waive interest charges  
               on repayment of the loans.

             b)   States that a cash flow loan, as authorized in this  
               bill, does not constitute a budgetary expenditure and that  
               the loan or repayment of the loan shall not affect the  
               budgetary reserve.

             c)   States that this is an urgency statute, necessary to  
               preserve funding for essential infrastructure projects  
               while balancing the need to control the costs of pension  

          Staff Comments:  To the extent a public agency has employees  
          that are exempted from PEPRA, and as a result, those employees  
          receive higher retirement benefits, then that agency's potential  
          savings due to PEPRA will be reduced.  However, the amount of  
          those costs will depend on the number of employees who will now  
          be exempted from the provisions of PEPRA.  

          AB 1222 will temporarily exempt local agencies' transit workers  
          from PEPRA, but preserves the state's ability to fight for the  
          pension reform law in court.  The legislation also creates a $26  
          million state loan program to assist transit operators, such as  
          Sacramento Regional Transit, that are at risk of losing federal  
          transit grants.