Background: Dane Hutchings, RPPG’s Director of Government Affairs, was at “ground zero” in Sacramento leading the SB 266 legislative efforts on behalf of local public agencies.  This was a terrible piece of legislation and we are very pleased to have been part of local government’s response.  We recently had an opportunity to speak with Dane about it and wanted to share the conversation.

RPLG:   So, explain what SB 266 was in a nutshell.

Dane: SB 266 was sponsored by the California Professional Firefighters (CPF).  It would have required CalPERS (PERS) contracted agencies to directly pay retirees, as well as their beneficiaries, disallowed retirement benefits using general fund dollars. Disallowed benefits could be in the form of special compensation such as specialty pay, education incentive pay or a uniform allowance. Thus, if CalPERS made the determination that the incentive payment in question had been miscalculated or did not meet the requirements under PEPRA, they would make the correction and reduce the retiree benefit to the lawful amount. But the local public agency would then have to make the retiree whole.  SB 266 would have covered all CalPERS contracting agencies, including the State of California, all local agencies and school employers. SB 266 would have placed 100 percent of the total liability for such overpayments on public agencies—abdicating all responsibility previously held by PERS to ensure that retirement benefits are calculated and administered correctly.

RPLG:   Can you give a concrete example of how SB 266 would have worked?

Dane: In theory, if CalPERS discovered that there was a disallowed benefit, they would have informed the retiree and the agency of the amount. CalPERS would exercise their existing authority by reducing the retiree benefit to the lawful amount. The provisions of SB 266 would kick in at that point, requiring the local agency to cover the overpayments made to the retiree. In addition, the public agency would then begin issuing direct monthly payments from its general fund to said retiree for whatever the disallowed amount was determined to be.

So, for example, if a retiree was receiving a monthly retirement check for $4,000.00 per month but the disallowed portion was $500.00 per month, the local agency would then be responsible for the retiree’s share of the back overpayments. The agency would begin issuing a monthly check directly to the retiree (and eventually their beneficiaries) for that $500.00 amount—a benefit that CalPERS is unable to pay because it violates state law to continue to pay that amount.

RPLG:   It looked like SB 266 was grooved for passage.  What happened?

Dane: Well “technically” it was passed. SB 266 was voted on by the Assembly as well as the Senate—passing both houses. The measure moved to engrossing and enrolling, a procedural intermediary location prior to moving to the governor’s desk for his sign off or veto. Think of this as the waiting room where you hang out before seeing your doctor. From a legislative process standpoint, once a measure leaves engrossing and enrolling, the author of the bill no longer has any control over the measure. But, while the bill is still in the “waiting room,” the author still has the option to pull the bill back for whatever reason — however, this is rarely done.

There was significant opposition from local government, education organizations, individual public agencies and recent news coverage highlighting the policy flaws of the bill—which include potential pension spiking and the conflict of requiring local governments to pay for benefits that have been determined to be illegal. With these issues coming to light, one may surmise that the author and sponsors feared that Governor Newsom may have vetoed the bill.

SB 266 was a retread of SB 1124, which was vetoed last year by Governor Brown.  Governor Brown’s veto message in part stated: “I’m concerned that this bill’s broad provisions could be easily abused to circumvent limitations in law intended to protect the government-and ultimately taxpayers-from pension spiking. Indeed, in the case of an error, this bill would effectively perpetuate that error for the rest of a member’s life, at substantial taxpayer expense”.

Had SB 266 also been vetoed, it would have been a clear sign that the current administration believes that this is a flawed policy approach—falling in line with the former Democratic administration. By pulling the bill back to the Senate, the measure dies this year—but it will be eligible in January to be amended and voted on.

RPLG:   Any other comments or insights?

Dane: The end of each legislative session brings its share of surprises. Things move rapidly and evolve constantly. In a post-Prop. 54 (aka the “72-hour print rule”) world, this is one of the more unique things I have seen. But make no mistake, the issues surrounding disallowed compensation are not going away. This measure, or something similar, will be back next year.

One of the major flaws in SB 266 was that there were no mandatory mechanisms in place to ensure compensation calculations were done correctly on the front end, prior to someone retiring. Instead, this bill would have perpetuated the status quo of incorrect compensation calculations—which would then be borne by a public agency (aka the taxpayer). Public agencies, organized labor and CalPERS need to find a way to address this issue and work collaboratively to require that calculations are reviewed and mistakes are corrected before a retiree receives their first pension check.  I’m hopeful we can find common ground on this issue next year.

For further information, please contact:

Jon Holtzman

Dane Hutchings, Director of Government Affairs, Renne Public Policy Group