The federal government has withheld more than $500 million in funding to local California transportation agencies since January and could withhold $1.6 billion for the year as the result of a complaint filed by transit union members, losses that could cost the state tens of thousands of jobs.
The U.S. Labor Department has forced the state to sit down with transit unions several times since California Gov. Jerry Brown passed modest retirement reforms in October 2012 to address a dire pension shortfall.
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California has less than half the money needed to cover the $520 billion retirement costs, according to some estimates. The $290 billion pension deficit is triple the $96 billion general fund budget passed this year.
The governor’s office said that neither labor groups, nor the federal government has budged on the issue.
"Thus far, California’s efforts to resolve this issue with the federal government have proved fruitless," Brown spokesman Jim Evans said in a statement. "We are actively working on solutions to ensure the state’s economy isn’t damaged by this dispute."
Transit unions led by the Teamsters filed complaints with the Labor Department in November alleging that Brown’s pension reforms "impeded" collective bargaining rights guaranteed by the Urban Mass Transit Act, an obscure federal law passed nearly 50 years ago to maintain union agreements when private companies sold transit services to governments.
Brown wrote a letter to then-acting Labor Secretary Seth D. Harris in May asking the department to release transportation funds.
Federal funding accounts for about 15 percent of the Los Angeles Metropolitan Transportation Authority (LAMTA) operating budget. The loss of federal funding threatens "our air quality, mobility, and the economy," according to LAMTA spokesman Marc Littman.
"For now, we’ve been covering [the shortfall] internally, but we can’t keep this going," he said. "We’re generating 43,000 thousand jobs with our construction projects and operations, we use federal grants to comply with air quality standards—all of this is at stake."
The situation is even more dire in Los Angeles.
According to LAMTA, Los Angeles has lost $268 million in federal funding since January and another $3.5 billion in financial assistance is at risk over the next eight years if the state, union, and Labor Department are not able to resolve the dispute.
Controversial Labor Secretary Tom Perez responded to Brown’s letter less than two weeks after he was confirmed.
Brown’s reform "diminishes both the substantive rights of transit employees…and narrows the future scope of collective bargaining over pensions," Perez wrote in the Aug. 1 letter.
Perez reminded Brown about "the devastating impact that a loss of federal transit dollars" and later pointed out that other states exempted transit workers from pension reforms.
"There are significant negative consequences that a lack of resolution on this issue will have," Perez wrote. "Some grantees have informed [the federal government] that without federal funding they will face both service cuts and layoffs."
Such drastic measures stand in contrast to what Littman described as "modest reforms" put forward by Brown. The governor’s May letter documents even more dire consequences if California does not address its deficit.
"Pension reform will help prevent more municipal bankruptcies that are tied, at least in part, to pension obligations, as demonstrated by bankruptcy proceedings in Stockton and San Bernardino," Brown wrote. "Government bankruptcies often require public employee lay-offs. Bargaining rights are a moot point if you do not have a job."
While city agencies and riders have suffered from the loss of the promised cash, the Obama administration’s actions have benefitted the Teamsters and private sector unions that represent city workers. The Teamsters provided Obama a key endorsement during his upstart primary campaign against Hillary Clinton after he promised to ease federal regulation of the historically mafia-connected union.
The Labor Department did not return requests for comment. California officials maintained that it disagreed with Perez and the Labor Department’s interpretation.
"The [Brown] administration vigorously disagrees with the U.S. Department of Labor’s legal opinion that California’s landmark pension law impedes workers’ collective bargaining rights," Brown spokesman Evans said in a statement.
The Labor Department could issue a decision on the matter as soon as the end of the week, though multiple sources say they expect the federal government to give California until the end of legislative session to resolve the dispute.
The 2013 session wraps up in September.