LOS ANGELES — California Gov. Jerry Brown signed a bill temporarily exempting the state's transit workers from pension reform as he authorized a lawsuit against the U.S. Department of Labor for forcing him to do so.

The federal government threatened to deny California transit agencies billions of dollars in grants, saying the California Public Employee Pension Reform Act of 2013 violates a 1964 federal law that protects the collective bargaining rights of public transportation employees.

The lawsuit filed Friday in the U.S. District Court, Eastern District in Sacramento contends Department of Labor officials erroneously concluded that the state's pension reforms diminish transit worker's collective bargaining rights. It names Secretary of Labor Thomas Perez as defendant.

"Bringing this lawsuit is just another step to ensure that our pension system is viable long into the future," Brown said in a statement.

On the same day he filed the suit, Brown signed a bill to temporarily exempt transit agency workers from the provisions of the pension act, provisions most observers see as fairly modest.

A federal Labor spokesman told The Bond Buyer last month that Assembly Bill 1222, the legislation proposed and ultimately signed by the governor, would eliminate the conflict between the California pension legislation and the federal law.

Despite the proposed legislation, the Labor Department failed to certify a Sacramento Regional Transit District grant, a Caltrans grant and several others to transit agencies in the state. The Sacramento agency is a co-plaintiff.

Labor Department officials were not available for comment on the lawsuit, because they have been furloughed due to the federal government shutdown.

AB 1222 temporarily exempts local transit agencies' workers from the pension bill to allow the state to pursue its case in court, and creates a state loan program to assist transit operators that have lost federal transit grants.

Transit employees are exempt from the state pension legislation until a federal district court judge makes a ruling on the issue or until Jan. 1, 2015, whichever is sooner.

The bill also provides that if a federal district court upholds the determination of the Labor secretary, transit employees will remain exempt. The bill also authorizes a state loan of up to $26 million to local mass transit providers in amounts equal to federal transportation grants not received due to non-certification from the Labor Department.

The pension legislation, which applies only to people hired in 2013 and later, includes a new maximum benefit, a lower-cost pension formula for safety and non-safety employees with requirements to work longer in order to reach full retirement age, and a cap on the amount used to calculate a pension.

The lawsuit argues that the Labor Department "takes the position that any change in state law affecting a mandatory subject of collective bargaining precludes grant certification, notwithstanding the continued ability of the transit agencies to bargain over pension and retirement issues."

If the Labor Department's conclusion that PEPRA abridges collective bargaining rights, and that the only valid pension changes are those made at the bargaining table, is allowed to stand, it would prevent state legislatures from amending any law that affects the employment terms of transit workers, the state's lawsuit says.

The attorneys' charge is significant as many states are drafting laws to deal with pension liabilities.

The Labor Department's decision represents "an unconstitutional effort to coerce California to alter a pension reform law adopted for the benefit of California's citizens and public employees," argue Mitchell Reinis and Rowena Santos, with Los Angeles-based law firm Thompson Coburn LLP, who represent the state in the lawsuit.

If the state had not passed AB 1222, the Labor Department would have issued certification denials affecting billions of dollars of federal funding for California's transit agencies.

Denials of certification for Sacramento Regional Transit District and the state transportation department prior to the passage of AB 1222 resulted in the loss of federal funding for the South Sacramento Corridor Phase 2 Light Rail Extension Project. Some of those funds lapsed permanently on Oct. 1, 2013 at the beginning of the federal fiscal year 2014, and the Sacramento district is unable to obtain that funding from the FTA, according to the lawsuit.

Caltrans likewise will not receive federal funding for Monterey-Salinas Transit's mobility management project, which would have been used to add a new elderly and disabled mobility program.

The Department of Labor also denied certifications on Sept. 30 for pending FTA grants to the Santa Clara Valley Transportation Authority, the Alameda-Contra Costa Transit District, and the Golden Gate Bridge, Highway and Transportation District. The denials were also related to the department's issues with PEPRA.

"The Labor Department acted in an arbitrary and capricious manner, exceeding its statutory authority, and ignored procedural and substantive requirements established by the law," according to the lawsuit.

The state's attorneys also said in the lawsuit that the labor department "unconstitutionally impaired the fiscal and legislative sovereignty of California."

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