Biden Administration Sides With Labor, Throwing California Transit Grants (and Riders) Under the Bus

Written by David Peter Alan, Contributing Editor
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In what has become a contest between two groups who strongly back Democrats, the Biden Administration has come out for labor by refusing to certify grants that would help California’s transit providers and, eventually, the state’s riders. The decision by the U.S. Department of Labor (DOL) could eventually affect transit projects in other transit-rich states that are facing financial woes due to the pandemic.

Wes Vaneicher and David Lightman, reported on the situation in a Nov. 11 Sacramento Bee story. Their report began: “The U.S. Labor Department determined California is ineligible for federal money for public transit, putting in jeopardy about $12 billion in grants including a portion of the infrastructure spending Congress approved last week.” The amount in jeopardy includes $9.5 billion from the Infrastructure Improvement and Jobs Act, which passed Congress on Nov. 5 and which President Biden signed 10 days later. The rest would be about $2.5 billion from the American Rescue Plan Act, a COVID-19 relief bill.

According to Andrew Graham, reporting in the Santa Rosa Press-Democrat on Nov. 15: “The U.S. Department of Labor ruled Oct. 28 that California’s 2012 Public Employees’ Pension Reform Act [PERPA] was in conflict with federal labor laws that protect the bargaining rights of transit worker unions, reversing a decision by the Trump administration three years ago.” The Labor Department did not issue a press release announcing its ruling.

The issue was not only reported in popular media, but also in the business press. Keeley Webster reported in the Dec. 2 edition of Bond Buyer: “It’s déjà vu all over again for California transit agencies after the U.S. Department of Labor threatened to take away $12 billion in federal grants in a conflict over a 2013 state pension reform law approved by voters.”

The issue was whether or not the DOL would certify certain grants from the Federal Transit Administration (FTA) to transit providers in California, as required under Section 13(c) of the Urban Mass Transportation Act of 1964 (codified at 49 U.S.C. §1609(c)), which established the Urban Mass Transportation Administration (UMTA), which later became the FTA. That provision stipulates: “before federal funds may be awarded to a formerly private but presently publicly owned transit system, the Secretary of Labor must certify that the transit authority has made a ‘fair and equitable’ labor protective arrangement that includes, among other things, provisions ensuring employees of the continuation of collective bargaining rights.”

Case Background

The Labor Department made its determination based on new pension rules that were enacted by state statute, rather than through the collective bargaining process. The 15-page determination document (download below) was sent by Andrew D. Auerbach, Deputy Director of the Office of Labor-Management Standards, to Ray Tellis, Regional Administrator for FTA Region IX, headquartered in San Francisco. Dated Oct. 28, 2021, it bore the “subject” heading: “Reconsideration of June 14, 2019 Determination Responding to Objections to Employee Protection Terms for Pending FTA Grant Applications” and directly concerned eight agencies in the state. Three—the Los Angeles County Metropolitan Transportation Authority (Metro), San Francisco Bay Area Rapid Transit District (BART) and Santa Clara Valley Transportation Authority (VTA)—provide rail transit, while the Orange County Transportation Authority (OCTA) is building a streetcar line.

The case has a long back-and-forth procedural history. The key issue in the 2021 determination and its predecessors: whether PERPA reduced the unions’ collective bargaining rights sufficiently to violate federal labor standards for certification of grant proposals. The Department said in its 2013 and 2015 determinations that it did, and denied certification for the grants. Both times, the state of California and the transit providers sued in the Eastern District of California for injunctive relief to stop DOL from refusing to allow the grants be disbursed. In both instances, the court sided with the state and in favor of the providers, holding that DOL had been “arbitrary and capricious.”

When the case came back to the DOL for a determination in 2019, the Department reversed its former stand and held that whatever collective bargaining rights the unions (principally the Amalgamated Transit Union, ATU, which mainly represents bus drivers) lost concerning bargaining over pensions through PERPA did not interfere sufficiently to preclude giving grants to the transit providers.

The 2021 report set the stage for reversing the 2019 determination by saying this: “Prior to the filing of the Department’s reply, there was a change in administration that resulted in new leadership assuming responsibility for the Department. The Department sought and received stays from the court so that new leadership would have time to become familiar with the issues in this case and decide whether to reconsider the Department’s position regarding PEPRA. The Department now issues this reconsideration of its 2019 Determination.”

The report continued with an analysis, starting this way: “PEPRA substantially interferes with the scope of permissible collective bargaining by transit workers and transit agencies such that Section 13(c)(2)’s requirement regarding ‘the continuation of collective bargaining rights’ is not met. PEPRA places limits on the maximum pension benefits obtainable by transit workers, making defined benefit plan terms less favorable and shifting investment risk from employer to employee.” It continued: “After PEPRA, unions and the transit agencies can no longer bargain freely about the calculation of defined benefit pensions, the service requirements for qualification, the compensation to be used for calculating pension amounts, the percentage of costs to be paid by new employees, or the addition of a new defined benefit plan. In essence, PEPRA largely removed the subject of defined benefit pensions from collective bargaining.”

The report continued with an analysis of how the rules of the National Labor Relations Board (NLRB) have governed labor relations in the private sector since it was founded as part of President Franklin D. Roosevelt’s “New Deal” program in the 1930s. All except two of the case citations in the report originated in the private sector, and many concerned NLRB procedures.

One exception was Amalgamated Transit Union v. Donovan, 757 F.2d 939, on motion, 771 F.2d 1551 (D.C. Cir, 1985)(per curiam). The court reversed a certification by the Secretary of Labor for a grant to the Metropolitan Atlanta Rapid Transit Authority (MARTA), but the Georgia statute in effect at the time prohibited collective bargaining almost entirely. The other was Jackson Transit Authority v. Amalgamated Transit Union, 457 U.S. 15 (1982), in which the newly formed public bus authority in Jackson, Tenn., refused to honor the collective bargaining agreement between the ATU and the former private-sector bus company. The issue was whether or not §13(c) created a federal cause of action, rather than one in state courts, because of the requirement for Department of Labor certification. Writing for the majority, Justice Harry Blackmun said: “Section 13(c) evinces no congressional intent to upset the decision in the National Labor Relations Act to permit state law to govern the relationships between local governmental entities and the unions representing their employees.” He continued: “Congress intended that labor relations between transit workers and local governments would be controlled by state law.” In California, labor relations in public employment are not regulated by the NLRB, but by the state’s Public Employment Relations Board.

“In enacting PEPRA, California placed new and significant limits on the scope of permissible pension benefits for its public transit workers, affecting the collective bargaining relationships that its transit agencies had agreed to preserve and continue as a condition of continued receipt of federal transit assistance,” the report concluded. “The Department arrives at its assessment of PEPRA as an impermissible interference with collective bargaining rights even following a permissive view of the Department’s discretion under Section 13(c). As such, the Department determines, on a prospective basis, that it is not appropriate for it to certify that there are fair and equitable arrangements in place to protect the employees of California transit agencies, and it accordingly overrules the legal positions expressed in its 2019 Determination.”

Impact on Grants

Because of the complex procedural history of the dispute (three litigations at the time of the DOL 2021 determination) and reliance by the grant recipients on prior determinations, the impact on grants would be prospective only. Still, the amount at stake now and in the future is significant, and the state of California has again sued, asking for injunctive relief to prevent the DOL determination from being enforced.    

Elected officials including Gov. Gavin Newsom and Sens. Diane Feinstein and Alex Padilla (both Democrats) wrote to Secretary of Labor Marty Walsh to contest his department’s decision.

California Gov. Gavin Newsom

In his Nov. 10 letter, Newsom objected strongly to the DOL determination, writing: it “deprives financially beleaguered California public transit agencies that serve essential workers and our most vulnerable residents of critical support, including American Rescue Plan Act funds that those agencies need to survive through the pandemic. Because of a dramatic decline in ridership, public transit agencies rely more than ever on these federal grants just to keep trains and buses running and their workforces employed. The grants being withheld also help provide vital mobility to low-income seniors, individuals with disabilities, and other transit-dependent riders.”

Newsom objected to the determination on legal grounds, as well: “The Department’s approach also disregards its past assurances to California that it would abide by the federal judiciary’s resolution of the PEPRA/Section 13(c) issue and work cooperatively to avoid disrupting California’s access to federal funding during litigation. After multiple years of litigation, the reviewing federal court found in California’s favor three times, and the Department did not pursue appeals.”

Newsom also wrote: “California objects in the strongest possible terms to the premature and inappropriate effort to unilaterally implement OLMS’s deeply flawed decision pending federal judicial review,” and “Withholding billions of dollars in crucial funding on the basis of a nine-year-old state law, while California wrestles with the COVID-19 pandemic, does great harm and injustice to the people of California.” 

Sen. Alex Padilla (D-Calif.)

Sens. Feinstein and Padilla, in their Nov. 10 letter (download below), agreed with Newsom and quoted from his letter. They wrote: “To be clear, we also strongly support federal and state labor laws that protect workers’ rights, including the right to collectively bargain. As Governor Newsom wrote in his letter to you, ‘… it is undisputed that California’s public employees continue to enjoy some of the most robust collective bargaining rights in the country[.]’ While this matter remains subject to ongoing litigation, we agree with the Governor that nothing should preclude California from receiving federal transit grants while the case proceeds.”

Sen. Diane Feinstein (D-Calif.)

Feinstein’s office issued a press release the same day that said: “California could be ineligible for billions of dollars in grants because of a reversal in policy by the Labor Department, which determined that the state is not in compliance with Section 13(c) of the Urban Mass Transportation Act of 1964. This determination is at odds with multiple state and federal court decisions and past Labor Department precedent.”

The California Transit Association objected, too. The Bee report quoted the Executive Director Michael Pimentel: “This relief funding has served as a lifeline for them, and in the absence of these federal dollars flowing to California transit agencies, we will absolutely see a reduction in service and losses in our workforce, making it more difficult for agencies to rebound.”

Pimentel told Railway Age: “The most immediate impact will be $2.5 billion in relief funds. This was approved by Congress to maintain transit service. Without that money, we would have to cut back on workforce and service.” Regarding the situation since the COVID-19 virus hit, he added: “It’s been a real challenge to us as an industry, especially for commuters.” Looking back to the original dispute from 2013, he noted: “SacRT [Sacramento Regional Transit District, which has light rail] and Monterey-Salinas still have the injunction, and the Trump Administration was respecting court orders.”

The DOL determination has not stopped the state from intervening in a new litigation to stop the DOL from enforcing the 2021 determination. The state’s Attorney General filed a Notice of Motion for a stay of enforcement in the matter of Amalgamated Transit Union, International v. U.S. Dept. of Labor, Case No. 2:20-cv-00953-KJM-DB in the Eastern District of California. The state is asking for an order staying enforcement of the determination by the DOL until it is subjected to judicial review. This is the fourth litigation concerning DOL certification of grants to California transit providers in light of PERPA since 2013. The motion is returnable on Dec. 17, and a hearing will be held on that date. A Joint Report of the Parties, filed with the motion, recited the procedural history of the matter and a stipulated schedule for the case. There were no facts in dispute, so there is no need for a trial.

The motion papers included a Memorandum of Law (brief), arguing why the state believes that the DOL determination should not be enforced. The state argued that the Department’s determination was arbitrary and capricious, and that it violated the Administrative Procedure Act. In the brief, the state took note of the special circumstances in effect because of the virus, which prompted federal transit operating assistance as part of the COVID-19 relief statutes: “Absent a stay of the Department’s decision, California and its transit agencies, which are already struggling because of the COVID-19 pandemic, will suffer significant, irreparable harm pending final resolution of this case. The billions of federal dollars at stake include billions of dollars in emergency funding appropriated by Congress for the specific purpose of ensuring that transit agencies in California (and elsewhere) can survive the financial fallout caused by the COVID-19 pandemic. Even assuming the State’s mass transit systems could partially mitigate the loss of federal funding to some degree by finding other funding sources, they would still be forced to significantly curtail critical services and make other deep cuts, including laying off transit workers and delaying significant infrastructure projects. The harms to transit riders (particularly the disabled, essential workers, and other vulnerable populations who depend on public transit), transit workers, the economy, and the environment will be nothing short of devastating.”

As is standard in such cases, a party requesting an injunction must argue and prevail on four points: the moving party would suffer irreparable harm if the relief is not granted, there is a likelihood of ultimate success on the merits, the balance of equities favors granting the injunction, and doing so would serve the public interest. The state argued all four of these points in its brief in support of the motion.

What’s Next?

It appears that the Labor Department’s stand depends on which party is in office. While the determination at issue is consistent with the one issued during the Obama/Biden Administration, the Bee reported that the Department reversed that stand in 2019, during the Trump Administration, and reversed it again under President Biden. The DOL document even referred to the change in leadership.

While changing policy from one administration to another (especially when one party replaces the other) may currently be a standard practice, it weakens precedents on which individuals, corporations and public-sector agencies rely in their day-to-day operations or when setting policies for the future. Still, this might be a time for overruling precedents. There are several different outcomes that could eventually occur, which would settle the matter of the prospective transit grants for California.

As happened before, if the court grants the requested injunction again, the DOL might honor it and certify the grants at issue. Otherwise, the case could go to the Ninth Circuit Court of Appeals, which has the most liberal reputation of any of the circuits, and could reasonably be expected to reverse the District Court’s injunction if granted. California could appeal such a ruling to the Supreme Court, which has shown a strong tendency to uphold states’ rights lately. For example, the recent arguments concerning the current anti-abortion statute in Mississippi show that the Court is leaning strongly toward allowing the Mississippi statute to be enforced as written and overruling Roe v. Wade, 410 U.S. 113 (1973). 

The National Stage

The issue of pension reform and collective bargaining determining whether or not transit providers are allowed to receive federal grants may be taking on national importance, beyond the fact that Vice President Kamala Harris and House Speaker Nancy Pelosi both hail from the Bay Area. A number of transit-rich states, including Illinois, New York and New Jersey, have undergone financial difficulties in recent years. Part of the effort to deal with those financial woes faced by state governments was to curb the skyrocketing cost of pensions for public employees by reducing them, especially for new hires.

There are some issues that could arise over the question of pension rights and collective bargaining, as they might affect federal grants. States generally consider the issue of the scope of collective bargaining with public-employee unions, as well as laws and regulations concerning such bargain, to lie within the state’s purview. Former Wisconsin Gov. Scott Walker, a Republican, reduced the scope of bargaining with unions representing government workers almost to nothing when he held office. Wisconsin is not a transit-rich state, though. There are only two streetcar lines there: a full-service line in Milwaukee and a limited-service circulator in Kenosha that uses vintage PCC cars that originally ran in Toronto. In California, such matters are regulated by the Public Employment Relations Board (PERB). 

Still, the question arises over whether collective bargaining for public employees within a state is an issue of concern to the Department of Labor. For railroads that cross state lines, it is clear that federal regulators have authority under the Commerce Clause of the Constitution and statutes like the Railway Labor Act, which was originally passed in 1926. This authority is not quite as clear for public-sector railroads and transit providers like New Jersey Transit and Southeastern Pennsylvania Transportation Authority, which have some outlying terminals in a state other than the one where the principal city of its service area is located.

Politically, a majority of voters in the states with significant transit systems, including rail transit, often lean toward the Democrats. Demographically, these states have large cities and significant suburban areas around those cities, both of which are served by transit. Economically, it is expensive to provide services to these large and crowded populations, and that includes transit, especially rail transit. The rub is that it takes a lot of workers to provide those services and one item that makes it expensive to keep all of those employees on the payroll is the cost of pensions. A number of states have undertaken pension-reform initiatives recently to curb pension costs, and California has done that with PERPA.

With some exceptions, labor as a whole has usually supported Democrats. Many transit riders live in areas where transit is strong and so are Democrats. To some Democrats, the winning strategy involves making sure urban voters can get to the polls (or vote by mail), keeping labor in the fold, and attracting suburban voters to the party. Many city-dwellers and some suburbanites use transit.

Unionized Transit Workers vs. Transit Riders

In this case, at least to the current Administration, the interests of unionized transit workers conflict with those of transit riders, many of whom would want to see their transit systems well-financed, including with federal grants—an issue where their interests would be in line with management’s. The riders seem caught in the middle. One of their advocates is Dana Gabbard, a Los Angeles resident who is Treasurer of the Southern California Transit Advocates (SCTA) and a member of the Board of the Rail Users’ Network (RUN). He told Railway Age about his impression of the dispute: “It’s so removed from the lives of ordinary citizens getting around. All of us transit riders are being held hostage by this, and we’re not even at the table. We don’t even know where the table is. All these billions of dollars over some obscure point of federal law that was adjudicated several times.”

So it seems that the Administration has spoken through the Labor Department, and come down strongly on the side of labor, while potentially throwing transit riders and providers under the proverbial bus. New York advocate Joseph M. Clift told this writer that it seemed to him that the difference between the sides is that workers are organized, while transit riders are not.

It all might come down to that.

David Peter Alan is one of America’s most experienced transit users and advocates, having ridden every rail transit line in the U.S., and most Canadian systems. He has also ridden the entire Amtrak network and most of the routes on VIA Rail. His advocacy on the national scene focuses on the Rail Users’ Network (RUN), where he has been a Board member since 2005. Locally in New Jersey, he served as Chair of the Lackawanna Coalition for 21 years, and remains a member. He is also a member of NJ Transit’s Senior Citizens and Disabled Residents Transportation Advisory Committee (SCDRTAC). When not writing or traveling, he practices law in the fields of Intellectual Property (Patents, Trademarks and Copyright) and business law. The opinions expressed here are his own.

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