THE BLOG
08/29/2013 11:37 am ET Updated Oct 29, 2013

The Strong Arm of California Labor Unions

If you thought California's labor unions couldn't get any stronger, you would be wrong. Of course, it doesn't hurt to have the U.S. Secretary of Labor in your corner.

In a letter to Gov. Jerry Brown, Secretary Tom Perez said that the Department of Labor can withhold up to $1.6 billion in federal mass transportation grants if the state does not come to an agreement with transit labor unions to reverse pension reforms that passed the legislature and were signed by Brown last year. Perez is pulling on strings attached to the federal money because he believes the reforms violate the collective bargaining protections in the federal law providing for mass transit grants.

The 1964 Urban Mass Transportation Act was a federal funding bill meant to support the development of public transportation in the states. At the time, Congress was also convinced, thanks to lobbying from organized labor, that employees working at private firms need job protection as the new projects received federal funding. Collective bargaining was not widely applied to public service then -- President John Kennedy, by executive order, allowed collective bargaining by federal employees in 1962.

Times have changed. The vast majority of mass transit is "public" transit, and collective bargaining is commonplace. Public sector collective bargaining is now regulated by the states, not the federal government. As is often the case with labor, the law has not kept up, and the federal government is in no rush to lose this control over states that accept transit funding.

To make matters worse, Perez and the DOL are stretching the bad law to attack much-needed pension reform.

Perez wrote in his letter to Brown that the pension reform law "diminishes both the substantive rights of transit employees under current collective bargaining agreements and narrows the future scope of collective bargaining over pensions." California's pension reforms did not diminish the rights of transit employees, nor did it even affect pension benefits of current employees. The benefit reforms apply only to future hires that have no vested rights in current collective bargaining.

The California pension reforms give retirees a chance to collect their pensions when the time comes, rather than permit the pension funds to go completely broke and leave retirees with nothing. Don't think it can happen? Just ask the public employees in Washington Park, Ill., and Pritchard, Ala., whose checks stopped coming when the fund dried up.

Meanwhile, Moody's is considering downgrading the 15 California transit agencies that would lose funding if Perez pulls the trigger. Moody's says that because the federal grants are such a large part of the agencies' operating revenue and capital funding, an average of 13 percent and 40 percent, respectively, even a small delay in funding will put incredible financial strain on the agencies.

Rather than working with states to improve public transportation, as the original law intended, the federal government is ready to obliterate California's mass transit system.

Thanks to years of pension fund mismanagement, California has backed itself into a corner. The state must now make a choice of losing federal grant money, leaving an immediate, huge funding gap, or carving out a transit worker exception to its pension reforms. If California yields to the federal government, and exempts transit workers, the transit workers will likely face more layoffs and other cuts.

The reforms in California will not solve all of the Golden State's pension problems -- there is a long way to go, but reforms are progress and the federal government should not stand in the way of the states attempting to be fiscally responsible.

Bob Williams is the President of State Budget Solutions and a former Washington state legislator, gubernatorial candidate and auditor with the Government Accountability Office.