PREPARED BY: MATT RODRIGUEZ DATE OF MEETING: 09/21/2026
SUBJECT:
TITLE
CONSIDER RATIFICATION OF MAYOR PABON-ALVARADO’S LETTER TO GOVERNOR NEWSOM REQUESTING A VETO OF AB 1383 (MCKINNOR) LEGISLATION - PUBLIC EMPLOYEES’ RETIREMENT BENEFITS
CEQA: This proposed action is not a project as defined by CEQA.
Label
CITY MANAGER RECOMMENDATION
Recommendation
Authorize by Minute Order
Body
Compliance Statements
FY2025-27 CITY COUNCIL PRIORITY WORKPLAN
Major Policy Area: Focus on Economic Development and Fiscal Diversification is an adopted policy contained in the adopted FY 2025-27 Council Priority Workplan, adopted on April 7, 2025.
CEQA COMPLIANCE STATEMENT
This proposed action is not a project under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378.
Background
AB 1383 (McKinnor) amends public employees’ retirement benefits in ways that re-open core provisions of the Public Employees’ Pension Reform Act of 2013 (PEPRA). Principally, the bill lowers the safety retirement age from 57 to 55 and raises the pensionable compensation cap applicable to PEPRA members, moving safety formulas toward a 3% @ 55 structure. Unfortunately, AB 1383 passed the State Legislature on August 30, 2026, and was enrolled for the Governor’s signature on September 3, 2026, with a constitutional deadline of September 30, 2026. At time of agenda preparation, the Governor has not yet signed AB 1383 into law.
This bill would establish new retirement formulas, for employees first hired on or after January 1, 2027, as 2.5% at age 55, 2.7% at age 55, or 3% at age 55, subject to certain exceptions. For new members hired on or after January 1, 2013, who are safety members, the bill would require employers to adjust the formulas for service performed on or after January 1, 2027, to offer the formula that has the same fraction at age 55 as the fraction at age 57 in the formula the employer offered pursuant to existing law. Additionally, the bill would authorize a public employer and a recognized employee organization to negotiate a prospective increase to the retirement benefit formulas for safety members and new safety members, consistent with the formulas permitted under PEPRA, including the new formulas described above.
Furthermore, the bill authorizes an employer and its employees to agree in a Memorandum of Understanding (MOU) to be subject to a higher safety plan or a lower safety plan, subject to certain requirements, including that the negotiated MOU is collectively bargained in accordance with applicable State law.
By increasing the contribution to continuously appropriated funds, and by increasing expenditures from those funds, this bill would increase unfunded liability and pension obligations for the City and is fiscally irresponsible.
The letter request for a veto on AB 1383 from Mayor Pabon-Alvarado raises four (4) principal concerns for the City:
• Permanent, compounding unfunded liability: The changes increase normal costs and unfunded actuarial liabilities for participating employers. These are not one-time costs; once granted, pension benefit enhancements are constitutionally protected and cannot be corrected by later legislation.
• The bill was not re-scored. AB 1383 was amended on August 27, 2026, three days before the concurrence vote. The Assembly floor analysis carried the pre-amendment CalPERS estimates unchanged, and no updated statewide actuarial estimate is expected before the September 30 deadline. The cost figures in general circulation - including the $282 million, $233 million and $4.8 billion figures, and the $241 million and $4.2 billion cap-provision figures in the August 10, 2026 Senate Appropriations analysis - describe a version of the bill that no longer exists.
• Intergenerational cost shift. Because PEPRA ties employee contribution rates to normal cost, expanding formulas and compensation limits raises contribution obligations for newer and generally lower-paid employees to finance benefits concentrated among higher-income, later-career employees.
• Local service impacts. Pension obligations are already among the fastest-growing General Fund expenditures which contribute to annual increased costs and structural deficit. New unfunded liabilities, with no identified funding mechanism, reduce local capacity to fund public safety staffing, homelessness response, street and infrastructure maintenance, parks and recreation, library services, and emergency preparedness.
Independent analysis is consistent with these concerns. A September 4, 2026 Reason Foundation commentary estimates employer costs of $7.6 billion to $11.8 billion over 30 years, notes CalPERS’ estimate of approximately $632 million in first-year costs and roughly $8 billion in added liabilities and finds that approximately 82% of the added cost is attributable to employees earning more than $160,000 annually. The same analysis observes that PEPRA helped move CalPERS from roughly 70% to approximately 85% funded, and that the system remains at least a decade from full funding.
Source: <https://reason.org/commentary/california-undermines-pension-reforms-with-benefit-boost-for-first-responders/>
Overview of AB 1383 Opposition for local cities
The League of CA Cities (Cal-Cities) strongly opposes AB 1383, arguing that it rolls back critical pension reforms and imposes a costly unfunded mandate on local governments. Specifically, Cal-Cities indicates AB 1383 legislation would cause:
• Fiscal Impact: CalPERS estimates AB 1383 carries an $8.2 billion price tag, adding hundreds of millions annually in long-term liabilities.
• Rollback of PEPRA: The League of California Cities states the bill undermines the Public Employees' Pension Reform Act (PEPRA), which was designed to ensure retirement system sustainability.
• Impact on Local Services: Municipal leaders warn that increased safety-member pension costs will force local cities to divert funds away from core public services, staffing, and infrastructure.
• Proponent View: Sponsored by groups like California Professional Firefighters (CPF), the AB 1383 legislation is defended as a necessary measure to ensure fair retirement security and address recruitment and retention challenges in high-risk public safety roles.
Alternatively, if a veto request is not upheld by the Governor, the Mayor’s letter asks that any successor measure:
(1) Require that the bill be re-scored on the enrolled text before enactment;
(2) Require a CalPERS contract-amendment cost estimate, disclosed to the governing body in open session, before an agency may adopt the optional formula - including the unfunded liability created and the portion that member cost-sharing can and cannot offset;
(3) Make the conversion from age 57 to age 55 permissive rather than mandatory, so that agencies in pooled plans are not billed for a benefit change no local governing body approved; and
(4) Allow any resulting accrued liability to be phased in rather than recognized in full in a single valuation.
City Manager Recommendation
Due to the City’s current fiscal condition, increasing pension obligations as a new State unfunded mandate would be fiscally irresponsible and cause financial strain to the City’s’ General Fund Budget. As a result of these fiscal concerns, the Mayor transmitted the attached veto request letter to Governor Newsom on September 10, 2026, subject to formal Council ratification via majority vote this evening (See Attachment).
FISCAL IMPACT
Ratification of the letter has no direct fiscal impact. Should AB 1383 be signed into law, the City would face increased long-term CalPERS employer contributions and unfunded liability. A City-specific cost estimate cannot be prepared until CalPERS issues an actuarial analysis of the enrolled text if enacted into State law.
ATTACHMENTS:
Att A. Letter from Mayor Elizabeth Pabon-Alvarado to Governor Gavin Newsom, dated September 10, 2026, requesting a veto of AB 1383 (McKinnor)
Att B. AB 1383 -(McKinnor) - Enrolled on 09/03/26