California’s leaders wisely challenge the federal government’s attack on state’s pension reform

A recent U.S. Department of Labor determination is jeopardizing federal funding for the Orange County Streetcar and other mass transit projects across Southern California. Although the Labor Department may be motivated by a desire to help public employees, its decision may prove to be a setback for mass transit agencies and the people who work for them. The Labor Department decided to withhold future funding from California’s transit agencies because of limitations on retirement benefits imposed by California’s 2013 Public Employee Pension Reform Act (PEPRA). But a federal judge has issued an order to pause the Department of Labor’s determination while California appeals.

The federal government is looking to return to an Obama-era position that California’s Public Employee Pension Reform Act violates the Urban Mass Transportation Act of 1964 because it “substantially diminished the affected unions’ ability to bargain over future pension benefits…and reduced benefits provided under the agreements for employees.” PEPRA reduced retirement benefit formulas for new public employees while increasing the proportion of pension contributions they’re required to make while employed.

Last month, the Southern California Association of Governments sent a letter to Transportation Secretary Pete Buttigieg opposing the determination and listing transit projects across Southern California that will be jeopardized by the decision. Among these projects are Los Angeles Metro’s proposed East Fernando Valley and West Santa Ana Valley light rail lines, the West Valley Connector in Ontario, and the Orange County Streetcar in Santa Ana and Garden Grove.

If California’s appeal fails and they can’t win a permanent injunction against the Labor Department, state and local leaders should scale back new mass transit infrastructure projects to focus on those that can reasonably be expected to be financed from passenger revenues and the Orange County Streetcar could be a target for cuts. It is an economic development project that the Orange County Register editorial board characterized as “an old-school system that is unlikely to make a dent in traffic,” questioning the 4.15-mile street car’s cost-benefit ratio at a time when its budget was $408 million, or almost $100 million per mile.

And its costs have escalated since then. The cost estimate presented to the Orange County Transportation Authority’s (OCTA) Board this month was $510 million, a 25% increase. Further, the start date for revenue service has been postponed from 2021 to 2024. OCTA hopes to cover most of the incremental cost with federal grant funds, which is now blocked by the federal government’s decision.

Streetcars are supposed to run every 10 to 15 minutes and operate at an average speed of 11 miles per hour. In many cities walking is faster than taking the streetcar. Given its marginal benefits, one has to wonder whether the OC streetcar could attract the 7,300 daily riders projected by OCTA. Pre-pandemic transit ridership estimates like this one are unlikely to hold up in the wake of the collapse in transit utilization triggered by COVID-19. Average weekday ridership on the Metrolink Orange County Line fell from 9,615 riders prior to the pandemic to a projected 5,349 riders a week this fiscal year.

Lower-than-expected ridership means reduced farebox revenue and greater dependency on taxpayer subsidies. This is already a problem at OCTA, whose local bus service had a farebox recovery ratio of only 15% in 2020. This operating shortfall could easily worsen if transit employees hired since 2013 were transferred into legacy Orange County Employees Retirement System plans. The impact on CalPERS would be even greater, which is why state leaders adopted the pension reforms in PEPRA and have consistently defended the law.

California’s leaders are wise to challenge the federal government’s attack on pension reforms. Scaling back the state’s important bipartisan pension reform law would be expensive and doing so to try to secure federal funding for low-utilization mass transit projects like the Orange County Streetcar would be especially unwise.

A version of this column first appeared in the Riverside Press-Enterprise.