BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 292


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          SENATE THIRD READING


          SB  
          292 (Pan)


          As Amended  June 25, 2015


          Majority vote


          SENATE VOTE:  25-10


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Public          |5-0  |Bonta, Cooley,        |                    |
          |Employees       |     |Jones-Sawyer,         |                    |
          |                |     |O'Donnell, Rendon     |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Specifies that the prohibition against an employer  
          paying an employee's required contribution for pension benefits,  
          as established under the California Public Employees' Pension  
          Reform Act of 2013 (PEPRA), does not apply in cities or counties  
          in which voter-approved tax levies were enacted prior to July 1,  
          1978, for the purpose of paying pension costs, as specified. 


          EXISTING LAW:








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          1)Requires, under PEPRA, that new public employees hired after  
            January 1, 2013, pay at least 50% of the actuarial normal cost  
            of funding their pension benefits, as specified, and prohibits  
            an employer from paying any of the required employee  
            contribution.


          2)Exclude the University of California and charter cities and  
            counties that do not participate in a retirement system  
            governed by state statute from the PEPRA requirements.


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


          4)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. 


          FISCAL EFFECT:  Unknown.  This bill is keyed non-fiscal by the  
          Legislative Counsel.


          COMMENTS:  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.








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          In 1983, the Legislature enacted through AB 377 (Roos), Chapter  
          491, Statutes of 1983, a moratorium on property tax rates for  
          indebtedness other than bonds.  This moratorium was made  
          permanent in 1985 through the passage of AB 13 (Roos), Chapter  
          112, Statutes of 1985.  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.


          The cities and county with extraordinary tax rates for pensions  
          that are also subject to PEPRA are as follows:  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 a  
          retirement system governed by state statute and instead maintain  
          their own independent retirement systems.  These cities are  
          independent charter cities that maintain independent retirement  
          systems and are exempt from PEPRA.  They can, therefore,  
          continue paying their retirement obligations using revenue  
          generated by their respective levies. 










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          The Peace Officers Research Association of California (PORAC),  
          in support of the measure states, "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 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 292."


          According to the California Professional Firefighters, also in  
          support, "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.   








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          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."


          The City of Oxnard is opposed to the bill, stating, "The 1982  
          Supreme Court decision in Carman v. Alvord validated the  
          override of property tax limitations to pay the costs of  
          pensions obligations approved by the voters prior to the  
          adoption of Proposition 13 in 1978.  Later court rulings and  
          legislation, however, have capped the amount of the property tax  
          pension override.  The City of Oxnard is now at that cap.   
          Public safety pension benefits in Oxnard were increased after  
          1978, and the pension contribution associated with that increase  
          cannot be paid through the override.  Further, the property tax  
          override rate the City can charge is capped at the rate imposed  
          in fiscal years 1982-83 and 1983-84."


          "As a result of those limitations, the property tax override  
          cannot cover the full costs of the current level of Oxnard  
          public safety pension benefits.  The proposed Oxnard City Budget  
          for Fiscal Year 2015-16 projects that the City's General Fund  
          will have to cover several million dollars in public safety  
          pension costs.  Thus, if these new employees are exempted from  
          the 50% employee contribution requirement of PEPRA, the costs  
          for the pension contribution no longer required by the employee  
          would place an additional burden upon the City's General Fund."


          The opponents conclude, "Oxnard is currently facing huge budget  
          shortfalls and is struggling to meet the obligations on the  
          City's general fund.  SB 292 would exacerbate the financial  








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          situation which is already at crisis levels in Oxnard." 




          Analysis Prepared by:                                             
                          Karon Green / P.E.,R., & S.S. / (916) 319-3957    
                                                                    FN:  
          0001092