HomeMy WebLinkAboutAB1912_LetterToRodriguez_20180418City of San Luis Obispo, Office of the City Council, 990 Palm Street, San Luis Obispo, CA, 93401-3249, 805.781.7114, slocity.org
April 17, 2018
The Honorable Freddie Rodriguez
Chair, Assembly Public Employees, Retirement & Social Security
State Capitol Building, Room 2188
Sacramento, CA 95
Via Fax: 916-319-2152
RE: AB 1912 (Rodriguez). Public Employees’ Retirement:
Joint Powers Agreements: Liability.
Notice of Opposition (as amended 03/19/2018)
Dear Assembly Member Rodriguez:
The City of San Luis Obispo must respectfully oppose your Assembly Bill (AB) 1912 relating
to retirement liabilities of Joint Powers Authorities (JPA).
JPAs play a vital role in addressing public needs that cannot be effectively achieved by a local
agency acting on its own. Our city, like many others, faces unique local challenges and a
limited budget, but we continue to innovate in order to obtain expertise and provide high
quality services through regional collaboration and the use of JPAs.
In order to secure General Liability and Workers' Compensation insurance coverage at a
reasonable cost, the City of San Luis Obispo joined a JPA which pooled resources with other
smaller cities. The JPA also offers training opportunities that meet OSHA, anti-harassment
and discrimination training needs and other legal requirements necessary to the safe, ethical
and effective operation of government. In addition, the JPA offers much needed risk
management resources. Saddling JPAs with the significant burdens of joint and several
liability contemplated by your bill would create potentially insurmountable burdens for small
to midsize cities to accomplish the important objectives achieved through the resource pooling
and economies of scale that JPA membership provides.
The City of San Luis Obispo is deeply concerned that JPAs will no longer be a viable tool
should AB 1912 become law.
As amended, AB 1912 places substantial burdens and new unworkable requirements on cities
by applying retroactive, as well as prospective, joint and several liability for all retirement
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related obligations to any current or former member of a JPA throughout its existence. Such
obligations include active employee normal pension costs, retiree unfunded accrued liabilities
(UAL) as well as both active and retiree healthcare and other post-employment retirement
benefits (OPEB). According to the State Controller’s Office most recently available data, the
unfunded liability of California’s 130 state and local government pension plans stand at
$241.3 billion and $125 billon for retiree healthcare costs. These costs and their impact on
local governments cannot be overstated.
Additionally, the measure would mandate that a public retirement agency file suit against all
agencies that have ever been a member of a terminated JPA for all retirement related
obligations and prohibits any retirement system from approving a new JPA without express
joint and several liability provisions. The provisions in AB 1912 create constitutional, fiscal
and operational challenges, which would effectively eliminate the ability for use to create or
maintain the use of most JPA’s.
Specifically, AB 1912:
Conflicts with Provisions of the California State Constitution:
The California constitutional debt limit prohibits an agency from incurring indebtedness
beyond the agency’s ability to pay the debt back from revenues received in the same fiscal
year without the approval of two-thirds of its voters (Cal Const. art XVI, §18). These
safeguards were placed in the State’s constitution to avoid a situation in which bond issuers
might compel an increase in taxes or foreclose on local government assets (City of Redondo
Beach v Taxpayers, Property Owners, Citizens & Electors (1960) 54 C2d 126, 131; County
of Shasta v County of Trinity (1980) 106 CA3d 30, 35).
By applying retroactive joint and several liability to existing contracts, we have strong
concerns that the City of San Luis Obispo will incur significant debts that may exceed our
annual revenue without receiving voter approval—thus violating the cited provision.
Further, it can be argued that retroactively incurring debts of another agency violates article
XVI, §6 of the California Constitution, which prohibits an agency from giving or lending
public funds for a private purpose or for a purpose that does not have public benefit for the
expending agency. A JPA is an independent governmental body whereby the City of San Luis
Obispo has no legal, statutory oversight or managing authority and would realize no City
benefit of being forced to assume the retroactive debts of another public entity. Liabilities
from such entities retroactively applied to each member agency could be argued to constitute
a gift of public funds to an individual(s) and/or public entity.
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Gives Retirement Agency Authority to Increase the Amount Owed Through Assumption
Changes and/or Investment Losses:
Retirement obligations are unlike other forms of traditional debts and liabilities. Unfunded
retirement liabilities are particularly volatile and can grow to insurmountable costs based on
no fault of the agencies who contract with a retirement system for health and pension benefits.
It is estimated that in fiscal year 2008-2009 the California Public Employee Retirement
System (CalPERS) lost approximately $100 billion dollars in assets resulting in a gross loss
of 34.75 percent of the fund’s total value. According to CalPERS (CL#200-004-17), employer
contributions are projected to double by fiscal year ‘24-‘25. Additionally, those numbers are
poised to grow even more in the short term when factoring CalPERS recent decision to modify
its amortization schedule from 30 years to 20.
The measure would hold each member agency of a JPA accountable for the impacts of
investment shortfalls, future discount rate reductions, and other assumptions changes made by
the retirement agencies, even if individual member agencies are able to pay their lump sum
amount of the current unfunded liability from the JPA.
Gives Exclusive Authority to the Retirement Agency to Assign Liability:
As stated in SEC 6 subsection (d), AB 1912 would grant exclusive authority to the public
retirement agency to unilaterally assign liabilities to all current and former agencies of a JPA
“in an equitable manner”. JPA’s have been in existence in California for nearly 100 years
with state and local agencies—some estimates reflect as many as 500 - entering and exiting
these governmental bodies as service demands shift and evolve. It would be virtually
impossible for the JPA’s governmental body, let alone a retirement agency, retroactively to
assign “equitable” retirement specific liabilities to potentially hundreds of agencies. This is
especially concerning when you factor in the various assumptions changes outlined in the
section above.
For example, the City of San Luis Obispo is part of the California Joint Powers Insurance
Authority (CJPIA), which is made up of approximately 122 agencies and special districts.
The number of agencies has fluctuated over the years as new agencies joined the JPA and
other agencies left the JPA.
This vague and ambiguous direction demonstrates a fundamental misunderstanding of the
formation, management and purpose of a JPA, which will inevitability lead to a perpetual
cycle of protracted and costly litigation contesting the retirement agency’s discretionary
assignment of proportional liability.
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Creates Funding and Operational Impairments:
The Governmental Accounting Standards Board (GASB) issued regulations (GASB 68, 2012
and 76, 2015) that require each state and local agency to report all financial liabilities
associated with public pension and OPEB liabilities. These reporting standards play a vital
role in assessing the fiscal health and viability of an agency. Incurring retroactive debt would
require each originating agency of a JPA to report these liabilities as debts impacting an
agency’s net financial position. A drastic spike in liability could contribute to the downgrading
of an agency’s credit rating, which in turn would make issuing and servicing future bonds
more costly through higher interest costs and additional required insurance. This action would
significantly compound the financial burdens already being incurred by cities across the state
and, ultimately, could have the unintended consequence of actually diminishing the capacity
of fiscally responsible cities to make positive progress toward the sustainability of the PERS
system.
JPAs are tools state and local government agencies use to address service demands and
infrastructure needs in a cost-effective manner. Removing this tool makes it that much more
problematic to address statewide critical issues such as housing, transportation, ground water
management, air quality, workforce development, public safety, and much more. While the
intended goals of your measure are laudable, the potential unintended consequences could be
catastrophic for cities and counterproductive to achieving the stated goals. For the reasons
stated above the City of San Luis Obispo must oppose Assembly Bill 1912.
Sincerely,
Heidi Harmon
Mayor
City of San Luis Obispo
cc: San Luis Obispo City Council
State Senator Bill Monning, fax (916) 651 – 4917
State Assembly Member Jordan Cunningham, fax (916) 319-2135
Michael Bolden, Chief Consultant, Assembly Committee Public Employees,
Retirement, and Social Security, michael.bolden@asm.ca.gov
Joshua White, Consultant, Assembly Republican Caucus, joshua.white@asm.ca.gov
Dave Mullinax, League of California Cities, dmullinax@cacities.org
Meg Desmond, League of California Cities, CityLetters@cacities.org