BILL ANALYSIS                                                                                                                                                                                                    

                               Dr. Richard Pan, Chair
                                2015 - 2016  Regular 

          Bill No:            SB 292          Hearing Date:     4/27/15
          |Author:    |Pan                                                  |
          |Version:   |4/21/15    As amended                                |
          |Urgency:   |No                     |Fiscal:    |No               |
          |Consultant:|Pamela Schneider                                     |
          |           |                                                     |
          Subject:  Public Employees'Pension Reform Act (PEPRA):  employee  

            SOURCE:   Peace Officers Research Association of California
                    California Professional Firefighters
           DIGEST:    This bill specifies that the requirement for  
          employees subject to PEPRA to pay 50% of the actuarial normal  
          cost of their pension benefits does not apply in specific cities  
          and one county in which voter-approved tax levies were enacted  
          prior to 1978 for the purpose of paying pension costs.

          Existing law:
          1)Requires, under PEPRA, that new public employees hired after  
            January 1, 2013, shall pay at least 50% of the actuarial  
            normal cost of funding their pension benefits, as specified.

          2)Limits, under the state Constitution (Proposition 13, 1978)  
            property tax rates to 1% of the purchase price of the property  
            with specified adjustments.

          3)Exempts from Proposition 13's 1% property rate limit a  
            property tax rate approved by voters prior to July 1, 1978,  
            for the purpose of paying the pension costs of the city or  
            county.  Twenty-five cities and one county were thus  
            grandfathered under Proposition 13.


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          4)Prohibits the imposition of new extraordinary ad valorem  
            property tax rates for indebtedness at the local level other  
            than for general obligation bonds.

          5)Freezes extraordinary tax rates for pensions approved by  
            voters before Proposition 13 at their 1982-83 percentages.
          This bill:  

          Exempts a public employer and the employer's employees from the  
          requirement under PEPRA for employees to pay 50% of the  
          actuarial normal costs of their pensions in cases in which the  
          city or county passed a voter-approved tax levy prior to July 1,  
          1978, for the purpose of paying for the costs of the city's or  
          county's pension benefits.


          Proposition 13 and Extraordinary Tax Rates for Pensions

          Proposition 13 limited property taxes to 1% of the purchase  
          price of the property.  However, the 1% limit on property tax  
          rates did not apply to special assessments used to pay for  
          indebtedness approved by voters before July 1, 1978.  In 1982,  
          the Supreme Court ruled in Carman v. Alvord that extraordinary  
          tax rates approved by voters before July 1, 1978 to fund  
          employee pension systems are valid exemptions under Proposition  
          13.  These levies vary by city, range from 0.05% to 0.45%, and  
          are levied in addition to the 1% general property tax rate.

          In 1983, the Legislature enacted a moratorium on property tax  
          rates for indebtedness other than bonds (AB 377, Roos).  This  
          moratorium was made permanent in 1985(AB 13, Roos).  AB 13 also  
          froze voter-approved extraordinary tax rates for pensions at  
          their 1982-83 percentage levels.  The extraordinary rates are  
          frozen as a specific percentage of total tax revenues;  
          therefore, if total property values grow over time, the total  
          dollar amount of the extraordinary tax revenues increases in  
          tandem, even though the rate does not increase.

          Cities and County with Extraordinary Tax Rates for Pensions

          The cities and county with extraordinary tax rates for pensions  
          that are also subject to PEPRA are as follows:


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          Albany, Alameda, Bell, Berkeley, Cloverdale, Coalinga, Compton,  
          El Monte, Huntington Beach, Huntington Park, Inglewood, Lynwood,  
          Maywood, Monrovia, Montebello, Monterey Park, Oakland, Oxnard,  
          Richmond, San Fernando, San Gabriel, Watsonville, and Santa  
          Clara County.

          In some of the cities with extraordinary tax rates for pensions,  
          the pension costs covered are for the city's safety employees  
          only-primarily police and fire personnel.  Both employer and  
          employee contributions have traditionally been paid by proceeds  
          from the extraordinary tax levies.
          Two cities-Los Angeles and Fresno-do not contract with CalPERS  
          and instead maintain their own independent retirement systems.   
          These cities are independent charter cities that maintain  
          independent retirement systems and are exempt from PEPRA.  Thus,  
          they may continue paying their retirement obligations using  
          revenue generated by their respective levies, unlike the  
          ambiguity that has surfaced for those cities that contract with  
          CalPERS, which are subject to PEPRA.
          Employee Contributions Under PEPRA

          PEPRA (AB 340, 2012) requires that new public employees in  
          California first hired after January 1, 2013 must pay 50% of the  
          actuarial normal costs of their pension plans as member  
          contributions to the retirement systems.  For employees subject  
          to PEPRA, the employer is prohibited from paying the member  
          contributions.  PEPRA employees hired prior to 2013 (referred to  
          as "classic" or "legacy" members of the retirement systems) pay  
          contribution rates at the statutory pre-PEPRA levels set for  
          those employees unless they have collectively bargained a  
          different contribution level with the employer.

          PEPRA allowed a new employee to be grandfathered under the  
          classic or legacy employee contribution rate if the agency had a  
          collective bargaining agreement in place on January 1, 2013 that  
          set a specific contribution rate for employees.  However, PEPRA  
          states that upon expiration of that bargaining agreement, PEPRA  
          employees must, at that time, begin paying the required member  
          contribution rate equal to 50% of the actuarial normal cost of  
          their respective plans.

          Prior/Related Legislation
          AB 340 (Furutani, Chapter 296, Statutes of 2012) enacts PEPRA,  


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          which became effective on January 1, 2013.

          AB 13 (Roos, Chapter 112, Statutes of 1985) made the moratorium  
          on extraordinary tax rates for indebtedness other than bonds  
          enacted by AB 377 permanent and froze extraordinary tax rates  
          for pensions at their 1982-83 percentage levels.

          AB 377 (Roos, Chapter 491, Statutes of 1983) created a temporary  
          moratorium on extraordinary tax rates for indebtedness other  
          than bonds.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             No           Local:          No



          Peace Officers Research Association of California (co-source)
          California Professional Firefighters (co-source)
          Laborer's International Union of North America, Locals 777 & 792
          Oxnard Firefighters Association, Local 1684


          None received


          According to the Peace Officers Research Association of  

               SB 292 clarifies an issue that came to PORAC's attention  
               after the passage of California's pension reform  
               legislation, the California Public Employees' Pension  
               Reform Act (PEPRA), took effect on January 1, 2013.   A  
               section in the PEPRA calls for all new employees, and by  
               2018 most current employees, to contribute 50% of their  
               "normal cost".   Normal cost is the basic cost of providing  
               an employee's future retirement benefit, not including  
               unfunded liabilities or surpluses.  The issue that has come  
               to our attention centers around approximately two dozen  
               cities and one county whose voters approved a tax to fund  
               their local retirement obligations.  Some of these pension  


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               initiatives were approved by voters as early as the 1920's.  
                The pension levies pay for both the employer and employee  
               contributions out of their respective funds, thereby  
               allowing that city or county's general fund to be used in  
               other areas important to that jurisdiction.  

               If these local agencies are to subject to the PEPRA rule on  
               employee contributions, the impact will hit those agencies'  
               general fund and could potentially result in a serious loss  
               of employees due to the immediate increased cost.  Also, it  
               will truly impact recruitment for those entities due to the  
               higher contribution rates that would be required from their  
               general fund.

               The Governor's stated intent for the passage of PEPRA was  
               in large part to save employer cost for increasing pension  
               obligations.  Unfortunately, the PEPRA section mandating  
               increased employee contributions will have the opposition  
               effect for these cities and county impacted by Senate Bill  

          According to the California Professional Firefighters:
               Since PEPRA, ambiguity now exists as to whether these  
               employers may use this voter-approved tax revenue to pay  
               all of their retirement obligations, including the employee  
               share.  Consequently, these few jurisdictions are now  
               forced to backfill the cost of their retirement obligations  
               using other revenue sources.  Additionally, the provisions  
               of PEPRA as currently interpreted, present a conflict with  
               the will of the voters in enacting these pension levies  
               many decades ago.  Finally, this conflict presents a new,  
               unexpected strain on a local agency's general fund in  
               having to find other ways to meet its requirements, as  
               outlined in their various collective bargaining agreements.