A bill that some California cities argue is unconstitutional is currently making its way through the state legislature.
Many cities, including Lodi, are concerned that AB 1912, introduced by Assemblyman Freddie Rodriguez, D-Pomona, will threaten the ability to use Joint Powers Agreements and also put hundreds of cities in JPAs over their constitutional debt limit.
A JPA is a partnership between local or state agencies that allows them to address public needs and provide services by pooling resources and reducing costs.
Under the bill, if a JPA agency participates in a public retirement system, all parties, both current and former to the agreement, would be jointly and severally liable for all obligations to the retirement system.
“The whole purpose of a joint powers authority is for local governments to join together so they can save costs to achieve a mutual goal through efficiencies of scale,” City Manager Steve Schwabauer said. “If we have joint and several liability for all associated with the operation of that enterprise that could really undo the value of JPAs in California.”
Schwabauer said the City of Lodi is currently a member of several JPAs, including the California Joint Powers Risk Management Authority, the North California Power Authority, the San Joaquin County Dispatch Authority, the San Joaquin Council of Governments and the Local Area Formation Commission, along with many others.
Schwabauer said that while CalPERS, an agency that manages pension and retirement benefits for millions of public employees, has been very active in trying to be responsible with its investments, he feels this bill is an overreach.
“If the CalPERS board wants to say that entities that join a JPA are liable for their proportionate share, I don’t have a significant objection to that — but to say that they are jointly and severally liable to every agency that’s in the group that might default, that means that the taxpayers of the City of Lodi might be responsible for the obligations incurred for the taxpayers of the City of Stockton, and I don’t believe that is appropriate,” Schwabauer said.
According to Sean Connelly, a communications director for Rodriguez, the bill was introduced in response to an incident that occurred with the former JPA known as the East San Gabriel Human Services Consortium. According to Connelly, the consortium, a JPA that employed 200 people, was funded by a single federal grant. After the money ran out, the cities involved in the JPA decided to terminate the agency, wiping out the pension and benefits promised to the employees. The cities involved had no legal obligation to continue funding the JPA and abandoned the agency, resulting in CalPERS reducing employee pensions by 63 percent, Conelly said.
“This bill is seeking to correct that. We definitely do not ever want this to happen again,” Conelly said. “If a JPA needs to close down then there is absolutely other ways that is done. Just defuncting and not taking care of business that you have agreed to is not a solution, and that’s what these cities were guilty of doing. Basically, this law says ‘hey if you have a JPA and you close that JPA then you will share proportionally the promises and responsibilities that you have to the employees who were working for that JPA.”
After looking at funding models of other JPAs, Conelly said there may be others that are funded by single sources, so while highly unlikely it is plausible that a situation like the East San Gabriel Human Services Consortium incident could happen again.
“We are saying do the right thing here and own that obligation, that promise that you have made to these people that are doing work for you and honor that,” Conelly said.
Conelly said governments in a JPA will only be held liable for a portion of the pension debt based on the amount of service they receive from the JPA.
“All these JPAs come with massive contracts,” Conelly said. “Just a tiny bit of what we’re changing is inside of those contracts saying you’re going to need to have joint accountability when you’re looking at creating one of these agencies. You cannot just go in and create the agency, let them do the work and if something goes wrong bail on them. That’s unacceptable.”
The League of California Cities, which opposes the bill, said in a press release that by applying joint several liability, cities’ debts would rise dramatically and in many cases will exceed cities’ annual revenue without being approved by local voters, which is unconstitutional.
The League is also concerned that the bill could have dire financial consequences for cities that are already struggling to meet spiraling pension obligations. The League has also joined forces with the California State Association of Counties and the California Special Districts Association to oppose the bill.
“The league is working with Assembly Member Rodriguez trying to figure out some way that this is not going to hurt cities, which is always our goal,” said Lodi City Councilwoman JoAnne Mounce, the immediate past president of the League of California Cities. “It’s deeply concerning that JPAs will no longer be a viable tool should this pass. That’s really our biggest concern, and we’re actively going after it.”