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 appropriately. 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. Background: 1) Existing State Law : a) Creates comprehensive public employee pension reform AB 1222 (Bloom) 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 conditions. 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 AB 1222 (Bloom) Page 2 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: AB 1222 (Bloom) Page 3 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 schedule. 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. AB 1222 (Bloom) Page 4 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 benefits. 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.