BILL ANALYSIS Ó SB 292 Page 1 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: SB 292 Page 2 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. SB 292 Page 3 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. SB 292 Page 4 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. SB 292 Page 5 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 SB 292 Page 6 situation which is already at crisis levels in Oxnard." Analysis Prepared by: Karon Green / P.E.,R., & S.S. / (916) 319-3957 FN: 0001092