San Jose pension reform: new players, new ruling

November 17, 2014

In what looked like a referendum on a voter-approved pension reform, a supporter, Councilman Sam Liccardo, was narrowly elected mayor of San Jose. He defeated a union-backed reform opponent, Supervisor Dave Cortese, who conceded last week.

Local, state and national public employee unions reportedly spent more than $800,000 to defeat Liccardo with a campaign warning that pension cuts were causing the city to lose police officers, endangering public safety.

“Voters don’t scare easily,” a San Jose Mercury-News editorial said the morning after the election in Silicon Valley. But warnings about endangering public safety helped defeat well-publicized measures in two other cities this month.

Voters in bankrupt San Bernardino rejected a measure (55 to 45 percent) that would have ended automatic pay raises for police and firefighters, which are linked to the average pay in 10 other cities.

Voters in Phoenix rejected a measure (56.5 to 43.5 percent) giving new hires of the Arizona city a 401(k)-style individual investment plan rather than a pension, similar to a measure approved by San Diego voters two years ago that exempted police.

The widely watched San Jose reform, approved by 69 percent of voters in June 2012, could lead to a state Supreme Court review of “vested rights” and whether pensions current workers earn in the future can be cut, while benefits already earned are protected.

“Public unions assert that pensions are inviolable, but California’s high court has never decided whether future benefits are protected under the state constitution,” a Wall Street Journal editorial about Liccardo’s victory said last week.

Liccardo

Liccardo

A series of state court decisions, a key one in 1955, are generally believed to mean the pension offered public employees when hired becomes a “vested right,” protected by contract law, that can only be cut if offset by a new benefit of comparable value.

Pension reform advocates, such as the watchdog Little Hoover Commission, say state and local governments need to be allowed, like private-sector employers, to control unaffordable costs by cutting pensions current workers earn in the future.

Cortese advocated a settlement of union lawsuits to overturn the San Jose pension reform. Measure B gives current workers an option: Pay more (an estimated 16 percent of pay) to continue earning the same pension in the future, or earn a smaller pension.

Liccardo said in a 140-page campaign book, an analysis of many local issues with proposed solutions, that San Jose retirement costs quadrupled in the last decade, undermining basic services and shifting debt for current services to future generations.

“How we get past our budgetary burdens will depend on whether we have a mayor who will fully litigate — and implement — Measure B reforms, and ensure that we’re paying our long-term obligations,” Liccardo said in the book.

“Within my first year in office as mayor, I’ll push for full funding of our annual retiree heath care obligations, to finally halt the growth of unfunded liabilities in that account,” he said.

Retiree health care debt, often overlooked, is in some cases larger than pension debt. The state worker retiree health care unfunded liability last year, $64.6 billion, was larger than the state worker unfunded liability for CalPERS pensions, $49.9 billion.

A benchmark state Supreme Court ruling in 2011 said retiree health care can be an “implied contract” with vested rights. A broad state Supreme Court ruling on vested rights in the San Jose pension reform might also apply to retiree health care.

When Liccardo takes office Jan. 1, he will be working in a weak mayor system with a slim majority of council members supporting pension reform, much like the current mayor, Chuck Reed, the main architect of the reforms.

The police union is expected to have a new president replacing Jim Unland, who predicted before the election that 200 officers would leave San Jose if Liccardo became the new mayor.

On the Friday after the election Liccardo led a unanimous city council vote not to investigate an allegation that Unland urged a class of San Jose police recruits to quit to aid the campaign against Measure B, the San Jose Mercury-News reported.

“We have new opportunities going forward, and I’ll be talking with the heads of our police union and certainly with the rank and file about how we can find common ground,” Liccardo told KQED last week. “I think there’s plenty of common ground.”

A day after the election a state Public Employment Relations Board administrative law judge, Eric Cu, issued two proposed rulings that San Jose failed to bargain in good faith with unions before placing Measure B on the ballot.

But the judge said the labor board lacks the authority to overturn a local ballot measure, pointing to a precedent set earlier this year in a ruling on a Palo Alto ballot measure repealing binding arbitration in labor negotiations.

“In other words, the board has the authority to order a city to rescind its approval of a ballot resolution, but lacks the authority to rescind the results of the election that followed the resolution,” Judge Cu wrote.

If the proposed ruling takes effect, with or without an appeal to the board, a court ruling would be needed to overturn the ballot measure. One of two unions that filed an unfair labor practices complaint said the ruling is an “opportunity” to negotiate a solution.

“This ruling, if upheld, will continue the process to invalidate Measure B and force the City of San Jose to return to the bargaining table and negotiate legal pension cost savings with its workers,” IFPTB, Local 21, said on its website.

Mayor Reed expects the proposed ruling to add to the list of union complaints and possibly bring another lawsuit. In a ruling on a half dozen union lawsuits last December, a superior court judge upheld 12 of the 15 provisions in Measure B, but not the option.

A record of the trial has not yet been completed for transfer to an appeals court. Reed estimated, based on previous cases, that the appeals court might rule within a year, which could be followed by an appeal to the state Supreme Court.

A superior court ruling last March that county workers have no vested right to “spiking” prohibited by a new state pension reform is being appealed. An administrative law judge has ruled that the San Diego pension reform was not properly bargained.

“You could have multiple cases headed toward the Supreme Court in the same time period,” Reed said. In the past, he said, the high court has on occasion collected several cases before ruling on the basic issue, such as marijuana.

Reed and four other mayors dropped an initiative for a constitutional amendment giving state and local governments the authority to reduce pensions current workers earn in the future, while protecting pension amounts already earned.

The mayors said Attorney General Kamala Harris gave the initiative an “inaccurate and misleading” title and summary. Reed said a new version of the initiative will allow a choice at the bargaining table, which is impossible to negotiate now.

He said a report last week that he needs $25 million for the initiative campaign is “a ballpark estimate of what it’s going to take to do it statewide. I don’t think you could do it for $10 million.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 17 Nov 14


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