California risks transit funding if it stands by pension reforms
The new secretary of labor has come out in favor of collective bargaining at the expense of a state's efforts to control its pension costs.
U.S. Secretary of Labor Thomas Perez and California officials are clashing over provisions in the state's 2012 public pension reform law. If state officials stand by the pension reform, California could lose more than $1.5 billion in federal funding for public transit this year alone.
The Labor Department had given the state until Aug. 16 to back down. But on that day, both sides reported they were still negotiating, although they didn't specify a new deadline.
Mr. Perez inherited a fight that began after California passed the Public Employees' Pension Reform Act last September, which, among other things, raised pension contributions for existing state, local and transit district employees, while boosting the retirement age for new employees and decreasing their benefits.
In an effort to exempt their members from the changes, leaders of unions representing California's public transit workers protested under a provision in the Federal Transit Act that allows the Department of Labor to hold up federal transit funding if they find collective bargaining rights are impeded. Officials at the Amalgamated Transit Union and the International Brotherhood of Teamsters argued California's pension law impeded those rights. At least 15 transit districts are affected by the funding dispute, including the Los Angeles County, Metropolitan Transportation Authority, which runs one of the largest public transit systems in the country.
The protest prompted then-Acting Secretary of Labor Seth Harris in November to hold up release of $1.6 billion in federal transit funds for California, until the state could prove the transit workers' collective bargaining rights were protected when the pension reforms took effect.
Several attempts at negotiating a resolution failed. Mr. Perez, who took over as labor secretary in mid-July, wrote to Gov. Edmund G. “Jerry” Brown Jr. Aug. 1, saying the DOL “appreciates the fiscal challenges faced by California, including the solvency of the state's public pension system.” But, he added, “We are concerned that PEPRA diminishes both the substantive rights of transit employees under current collective bargaining agreements and narrows the future scope of collective bargaining over pensions.”
Mr. Brown has been digging in his heels and standing behind the pension reform law.
In a May letter to Mr. Harris protesting the transit funding hold, Mr. Brown defended his commitment to bargaining rights and the “thoughtful” and bipartisan pension legislation that was needed to fix a chronically underfunded pension system. A handwritten note at the end of the letter said, “This is very important to the people of California — both for jobs and pension reform!”
The tug of war between a state and a labor secretary over bargaining rights and transit funding is not unique to California. But it is the only state where the issue is related to public pension funds.
In California's case, Terry Matsumoto, chief financial services officer for the Los Angeles County Metropolitan Transportation Authority, said transit agencies need the state to resolve the conflict with the Department of Labor.
“There has to be a legislative remedy” exempting transit workers from the 2012 pension law, he said. Mr. Matsumoto said the Los Angeles system had $266 million in federal transit funding it expected to receive last year on hold because of the dispute and would lose more than $3 billion in coming years if the dispute is not resolved.
“The wisest thing is to resolve this,” agreed Steven Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees in Washington. Exempting California transit workers from the new pension law “is pennies on the dollar” compared to the lost federal transit funds, he said.
Part of California officials' political calculation is based on fears that other workers will also fight to be exempt from the new pension law, even though the FTA only protects transit workers.
The potential economic damage is big. Mr. Brown's office uses the figure of $2 billion as being at stake from statewide transit funding for fiscal year 2013.
Meanwhile when the new pension law took effect last year, the estimated savings for the state projected by the $263.2 billion California Public Employees' Retirement System, Sacramento, over the next 30 years was between $10.6 billion and $12.55 billion.
A spokesman for Mr. Brown, Jim Evans, said the governor's office was “gratified” that the DOL had agreed to hold off on deciding whether federal transportation grants can flow to California transit districts. “The administration will continue to work closely with the federal government in an effort to resolve this issue,” he said.
But political observers say regardless of any deadline from the Labor Department, the real deadline is the mid-September end of the California legislative session. Before that, lawmakers could act to exempt the transit workers from the pension law.
Such an exemption, Mr. Perez wrote in the August letter, “has historically provided a solution.”
A spokesman for State Assembly Speaker John Perez said negotiations were on-going between the governor and the Legislature and a possible solution would be to exempt transit workers from the pension reform.
This article originally appeared in the August 19, 2013 print issue as, "Perez backs unions in pension melee".