The Association’s Appeal: End Pension Law Confusion Now

As yet another court ruling once again casts doubt on whether the federal government will certify California transit agency grant applications, the Association is rallying to protect agency projects and transit workers.

By Arianna Smith
Managing Editor
Transit California

Ask nearly any California transit agency official about their experience with the Public Employees' Pension Reform Act (PEPRA) and they'll probably tell you that it's been nothing but inconsistent federal policy, fears for funding delays, and ongoing legal confusion.

In the eleven years since the state's 2013 implementation of PEPRA, California transit agencies and their employees have been through it all: Grant applications for major public transit projects were denied federal certification, then received approval, then were denied again. Much-needed and much-relied upon federal funds were put at risk of being pulled back just when projects were ready to go - or after they had already started. Following several years of relief, a new court ruling, decided on procedural grounds, threatens to upend public transit projects and services statewide.

All this is due to a complex legal fight at the federal level erupted shortly after PEPRA's passage, and it continues to affect transit agencies' ability to access federal grant funding for infrastructure projects large and small.

Unsurprisingly, litigation has dragged on for over a decade.

"While the litigation history of this matter is complicated, understanding that California transit agencies continue to preserve and respective collective bargaining under PEPRA is not," said Michael Pimentel, Executive Director of the Association. "As California transit agencies work to recover from the pandemic and deliver on the Biden Administration's climate goals, it is time for federal officials to stop playing games with critically needed transit funding."

Here's how and why transit agencies got here, what happens next, and how the Association is engaging with the federal government and the judiciary.

A Post-Recession Pension Law

In 2012, while state revenues and budget decisions continued to reflect funding deficits caused by the Great Recession, then-Governor Jerry Brown proposed many major changes to the state pension system. During the economic downturn, the system had been widely criticized for obligating the state to fund expensive, long-term retiree benefits even as lawmakers made deep cuts to popular programs including education, healthcare, childcare, and housing. The Governor and the legislature worked to curtail some of the pension system's most costly practices, including pension "spiking," an act to inflate final pension benefit amounts right before retirement; the purchase of "air time," service credit for years that employees didn't actually work; and comparatively young retirement ages.

As the measures that would become PEPRA went through the legislative process, opponents, largely represented by California public employee unions, argued that they "unilaterally impose[d] severe cuts to public employee pensions," as well as imposing "the biggest retirement benefit rollback in California history." Supporters, including Governor Brown, the Democratic majority in the State Legislature, and the then-cash-strapped city and county governments, cheered the "cost-saving pension reforms" and "more sustainable and affordable pension plans for new employees."

Ultimately, PEPRA passed, and its reforms now apply to all state and local public retirement systems and their participating employers governed by state statute.

PEPRA reforms are largely forward-facing. Public employees hired after 2013 receive different, lower retirement benefits than those who were hired before 2013, largely due to setting a new maximum benefit, a new pension formula that cost the state less money, a requirement to work longer and to an older age to reach full retirement benefits, and a cap on the amount of money used to calculate pensions.

Grant Application Certification Denials and a Court Case

Long before the passage of PEPRA, federal law required that transit agencies applying for federal grants for transit projects get their application certified by the US Department of Labor (USDOL) to receive funds. Under the 1964 federal Urban Mass Transportation Act (UMTA), USDOL may only grant certification to the applying agency if it has arranged with its employees to preserve and continue certain employee rights, including collective bargaining for pensions known as "protective arrangements" or "Section 13(c) arrangements." This requirement was instituted at a time when the federal government stepped up to provide significant new public transit funding to address a mobility crisis precipitated by the death of private transit operators, and which led to the formation of public transit operators.

Before PEPRA became California state law, opponents claimed in position letters to legislative committees that the proposal would "circumvent the collective bargaining process." After PEPRA became law, transit labor unions, including the Amalgamated Transit Union (ATU) International, submitted objections to USDOL that if California transit agencies implemented PEPRA, they would violate UMTA's protective arrangements.

In 2013, grant application certification requests made by two Association members, Monterey Salinas Transit (MST) and Sacramento Regional Transit (SacRT), became the first test of these objections.

USDOL under the then-Obama Administration agreed with the objections filed by ATU and others. It denied requests for certification of both grant applications, determining that PEPRA did not preserve transit employees' pension rights and did not allow for a continuation of collective bargaining rights over pensions. With these denials, all California public transit agencies following state law suddenly confronted the frightening possibility of the federal government withholding billions of dollars for capital and operating grant funding.

A lawsuit followed: SacRT and the California Department of Transportation (Caltrans) sued USDOL. The state passed a time-limited law to protect transit agencies and their employees from the consequences of this decision by exempting transit employees temporarily from PEPRA until the courts ruled on the case.

In the subsequent years, a series of court rulings, USDOL actions, and federal Administration changes resulted in even more back and forth for transit agencies and their employees.

In 2014, the US District Court for the Eastern District of California ruled that USDOL's actions PEPRA-based certification denials were wrong, and it sent the case back to USDOL. Then USDOL argued that the District Court was wrong through a formal communication of findings. In 2016, the court reviewed USDOL's second decision, reaffirmed its original decision, and ultimately issued a final ruling in 2018. The ATU objected to the final ruling based on an interpretation of UMTA that the Court had already exhaustively considered and previously rejected; during the litigation, it also argued that the "wins" for MST and SacRT applied only to those two agencies, and that all other agencies would have to win their own rulings affirming eligibility for grant application certification. In 2019, USDOL, under the Trump Administration, rejected ATU's objections because of the District Court's final ruling, so later that year, ATU filed a new lawsuit in federal court against USDOL for certifying the grants. Next, the State of California requested to intervene in the lawsuit on behalf of USDOL - which California had once sued to change its original decision to deny certification - and the District Court granted the state's request.

For a little while, the state, transit agencies, and USDOL were all on the same side: they wanted to get transit agencies' grant applications certified without ongoing uncertainty so that new clean vehicles could be purchased, so that operators could be trained on new technologies, and so that communities could get new rail lines, among other things.

However, following the change in Administrations, in 2021 USDOL, under the Biden Administration, signaled yet another change in its position about grant certification: it withdrew its 2019 rejection of ATU's objections and essentially returned to its 2013 position that PEPRA violates UMTA's protective agreement provisions. The State of California requested a stay on this determination, which the court granted in late 2021, and called for a summary judgment.

Throughout the long legal fight, transit agencies have continued to request grant application certifications: they need federal funds to provide safe, clean public transit to their communities. Certifications were often delayed by months, resulting in transit agencies having to plan for possible service cuts and operator layoffs, and they also delayed purchases of clean-fuel buses, extending rail transit lines, and improving their services. The neighborhoods that these agencies serve have lost out on early opportunities for cleaner air and more accessible transportation.

In early 2023, the District Court issued its final judgment, and it seemed as though California transit agencies finally got the relief and go-ahead that they'd sought for so long. The judgment permanently enjoined, or prohibited, USDOL from failing to process grant applications by California transit agencies or relying on PEPRA as a basis to "deny, withhold, delay, or otherwise limit" the certification of grants under UMTA's protective arrangements.

But elation amongst transit agencies proved premature.

The Appeal with Which Transit Agencies are now Contending

In March 2023, USDOL and ATU filed appeals of the ruling with the US Court of Appeals for the 9th Circuit. After oral arguments, in July 2024, the Appellate Court issued a memorandum that stated, "We conclude that we lack jurisdiction over the matter because the case is not prudentially ripe." In other words, the Appellate Court invalidated the District Court's decision on procedural grounds.

Specifically, the Appellate Court found that although USDOL had announced in 2021 that it would go back to denying certifications of California transit agencies' grant applications, because USDOL had not yet denied a certification, the Appellate Court did not yet have a right to intervene. The Appellate Court vacated the District Court's decision that enjoined USDOL from denying grant application certifications based on its 2013 PEPRA position. Further, the Appellate Court found that litigation was preemptive because no harm had yet been experienced due to a denial of certification - that is, the policy that USDOL announced in 2021 that it would enforce had not yet been tested by an actual transit agency applying for a grant application certification, receiving a denial of certification, and experiencing harm.

The Appellate Court remanded the case back to the District Court with instructions to dismiss the case for lack of jurisdiction. Once the District Court dismisses the case, the injunction on USDOL will be lifted, and at that point, USDOL will be allowed to deny grant application certifications if it chooses to follow its stated 2021 plans.

Notably, the Appellate Court did not rule on whether the District Court had gotten its original ruling correct. After "harm is experienced" by a transit agency, another round of litigation must occur for the Appellate Court to have jurisdiction to make a ruling on the District Court's ruling.

The Association's Next Steps

As with its successful efforts to help Association member agencies and the State of California secure the desired rulings from the District Court, the Association will continue to engage in the next round of litigation.

This time, the Chair of the Executive Committee has convened a new Association Task Force to guide the Association's engagement with the Biden Administration, the State of California, and likely, the federal courts. The members, pulled from the Association's Executive Committee and/or Federal Legislative Committee, are:

• Georgia Gann Dohrmann, Metropolitan Transportation Commission (Chair) (Federal Legislative Committee Chair)
• Amanda Cruz, San Francisco Bay Area Rapid Transit District (Federal Legislative Committee Member)
• Rachel Ede, City of Santa Rosa (Executive Committee Member)
• Jessica Epstein, San Mateo County Transit District (Federal Legislative Committee Member)
• Chris Flores, Sacramento Regional Transit District (Federal Legislative Committee Member)
• Sharon Greene, InfraStrategies (Federal Legislative Committee Member)
• Judy Fry, Antelope Valley Transit Authority (Federal Legislative Committee Member)
• Beverly Greene, Santa Clara Valley Transportation Authority (State Legislative Committee Chair, Federal Legislative Committee Member)
• Kristin Jacinto, Orange County Transportation Authority (Executive Committee Member, Federal Legislative Committee Member)
• Michael Turner, Los Angeles County Metropolitan Transportation Authority (Executive Committee Member)
• Leslie Rogers, LTR Advisory Services, LLC (Federal Legislative Committee Member)
• Carl Sedoryk, Monterey-Salinas Transit District (Executive Committee Member, Federal Legislative Committee Member)

Currently, the Association anticipates that USDOL will enforce its stated 2021 policy, and may begin doing so as soon as September 20, after the District Court dismisses the case and the injunction is lifted; therefore, the Association has recommended that agencies submit any outstanding grant applications by the end of August to better ensure USDOL's certification and the receipt of grant funding. It's also possible that the policy may change with the incoming new, unknown Administration in 2025. The Task Force has begun to collect information and concerns from Association members and will advise members on advocacy efforts and legal strategies to ensure the continued release of federal funds for their projects, particularly those pending certification.

Additionally, the Association's top priority for its adopted 2024 Federal Legislative Program - as well as for several previous years - is ensuring that transit funds from federal sources remain unimpeded regardless of the ongoing litigation over California transit agencies complying with PEPRA. The Association will continue to work to ensure that Congressmembers are aware that major federal transit grants that they helped win for their own districts may not flow in Fall 2024, and individual transit agencies may be called on to engage with their representatives.

"Association members just want to keep providing all the benefits of public transit to their communities," concluded Pimentel. "It's time for the courts and the federal government to allow us to do that without these ongoing uncertainties."

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