BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        SB 292|
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                                UNFINISHED BUSINESS 


          Bill No:  SB 292
          Author:   Pan (D)
          Amended:  6/25/15  
          Vote:     21  

           SENATE PUBLIC EMP. & RET. COMMITTEE:  3-2, 4/27/15
           AYES:  Pan, Beall, Hall
           NOES:  Morrell, Fuller

           SENATE FLOOR:  25-10, 5/4/15
           AYES:  Allen, Beall, Block, Cannella, De León, Galgiani, Hall,  
            Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno,  
            Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Pan, Roth,  
            Wieckowski, Wolk
           NOES:  Anderson, Bates, Fuller, Gaines, Moorlach, Morrell,  
            Nielsen, Runner, Stone, Vidak
           NO VOTE RECORDED:  Berryhill, Hancock, Nguyen, Pavley

           ASSEMBLY FLOOR:  Not available

           SUBJECT:   Public employee retirement:  contributions


          SOURCE:    California Professional Firefighters
                     Peace Officers Research Association of California
          
          DIGEST:   This bill specifies that the requirement prohibiting  
          employers from paying employee contributions for employees  
          subject to the California Public Employees' Pension Reform Act  
          of 2013 (PEPRA), who are required 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.  In those cities and one county, the employer is  
          not prohibited from paying the employee contribution.








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          Assembly Amendments clarify that the exemption provided by this  
          bill applies to the requirement that an employer may not pay the  
          employee contribution.  Thus, when an employer pays its pension  
          program costs with revenues derived from a special tax rate  
          approved by voters in support of pension programs, the employer  
          is not prohibited from making the employee contribution.  The  
          amendments also clarify that the employee is still subject to an  
          employee contribution rate of 50% of the normal cost. Finally,  
          the amendments clarify that the exemption only applies with  
          regard to contributions on behalf of pension benefits covered by  
          the pension levies.  So in cases in which the levies only cover  
          certain personnel, such as safety and fire personnel, the  
          exemption is with regard to those employees' benefits only.


          ANALYSIS:
          
          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)Sets other required employee contribution rates for non-PEPRA  
            (sometimes called classic or legacy members), and allows, in  
            the case of those members, the employer and employees to  
            collectively bargain over whether or not the employer pays  
            some or all of the member contributions.

          3)Prohibits a public employer from paying any portion of an  
            employee's contribution when the employee is subject to PEPRA  
            and the 50% of normal cost contribution requirement.

          4)Specifies, in PEPRA, that charter cities with independent  
            retirement systems that are not subject to state laws are  
            exempt from PEPRA.

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








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          6)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.

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

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

          This bill exempts a public employer from the requirement under  
          PEPRA that prohibits the employer from making the mandated  
          PEPRA-employee contributions of at least 50% of the actuarial  
          normal costs of their pensions.  This exemption only applies 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, and it only  
          applies to the specific pension expenses covered by the special  
          tax levies.  Therefore, if the special tax levy is for fire and  
          safety personnel only, the exemption would only apply with  
          regard to those employees' contributions.

          In cases in which the employer is not prohibited from making the  
          employee contribution, the employee's contribution rate would  
          still be the statutory amount (e.g., 50% of the normal cost for  
          employees subject to PEPRA), and the employer and employee could  
          collectively bargain over whether or not the employer would pick  
          up the employee contributions in full or in part.

          Background

          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  








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          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:

          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.  Other employers have  
          extraordinary tax rates for all pension costs. Both employer and  
          employee contributions have been allowed to be paid by proceeds  
          from the extraordinary tax levies, subject to local collective  
          bargaining.

          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.








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          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 Legislation
          
          AB 340 (Furutani, Chapter 296, Statutes of 2012) enacted PEPRA,  
          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.:NoLocal:    No









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          SUPPORT:   (Verified9/10/15)


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


          OPPOSITION:   (Verified9/10/15)


          City of Oxnard

          ARGUMENTS IN SUPPORT:

          According to the Peace Officers Research Association of  
          California:

               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'  








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               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:

               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 

          ARGUMENTS IN OPPOSITION:The City of Oxnard notes that the  
          revenue received from its pension tax levy does not fully cover  
          its pension costs, and expresses concerns that this bill could  
          result in costs for employee contributions falling back onto the  
          city.



           Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519
          9/11/15 20:14:05


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