With federal transit funds at risk, Moody's considers downgrading credit rating of some California transit agencies

Many of you are probably aware of this ongoing issue: Unions representing transit workers have complained to the U.S. Department of Labor that pension reform in California violates their collective bargaining rights. Thus far, President Obama’s Labor Secretary — Thomas Perez — has agreed and said that Metro and other agencies are violating federal transportation law. If the issue isn’t resolved soon, Metro is at risk of losing more than two billion dollars in federal transit grants.

Here’s the latest news from Metro’s government relations team:

Moody’s Investor Service Places Credit Ratings for Transit Agencies Under Review for Downgrade Due to PEPRA/13C Issue

Moments ago, Moody’s Investor Service issued a notice that it has placed the ratings for our agency and other transportation agencies in the State of California under review for downgrade due to the ongoing PEPRA/13C dispute. The Moody’s notice cites the U.S. Department of Labor’s potential delay in certifying federal transportation grants (capital and operations) as the rationale for placing the transportation agencies under review for downgrade. Our staff is currently assessing the additional costs that would be incurred by our agency should Moody’s downgrade our current ratings which stand at “double-A”. The Moody’s review will be conducted over the next 90 days. We are continuing our ongoing effort to favorably resolve the PERPA/13C matter with key stakeholders in Sacramento and Washington, DC. Please find here a copy of Moody’s notice.


For those who want more background on the issue, here is an item from yesterday’s transportation headlines:

Billions in federal transportation funds riding on California’s pension laws (Sacramento Bee) 

Best story yet on the conflict between the state of California and the U.S. Department of Labor that could cost Metro more than $2 billion in federal transportation funds. Excerpt:

In a copy of a recent letter to Gov. Jerry Brown and obtained by The Sacramento Bee, U.S. Labor Department Secretary Thomas E. Perez warned that California’s new pension law likely runs afoul of a federal mass transit grant rule that requires transportation agencies to preserve their employees’ collective representation rights.

The Labor Department must certify that a mass transit provider is following the rules as the final step in the federal grant process. If the department decertifies an agency, the federal money isn’t released until the agency is recertified.

A California pension law that took effect Jan. 1 is testing the federal rule. Over union objections, the law hikes state, local and regional government employees’ pension contributions and offers less generous retirement formulas for employees who join a public pension fund Jan. 1 and later.


In February, Brown’s Labor Secretary Marty Morgenstern defended the new pension law, telling federal officials that the statute doesn’t diminish mass transit workers’ collective bargaining rights.


The U.S. labor secretary plainly disagrees.

“We are concerned that (the pension law) diminishes both the substantive rights of transit employees under current collective bargaining agreements,” Perez wrote Aug. 1 to Brown, “and narrows the future scope of collective bargaining over pensions. … I write to urge California to act immediately to develop a solution to this issue.”

The letter says a formal federal decision on funding will start Friday with the Los Angeles County Metropolitan Transportation Authority, which has $268 million at risk so far. Orange County’s transit agency, which is next in the federal grant queue, would lose grant money next.

In other words, this is dispute between Gov. Jerry Brown and the Obama Administration and several large California transit agencies are stuck in the middle.

How will it be solved? The Bee says that most remedies revolve around the Legislature passing a bill that would either permanently or temporarily exempt certain transit workers from the state pension reform while the state and Department of Labor resolved the issue.

1 reply