SAN JOSE — The San Jose City Council voted 6-to-5 this week to place a pension reform measure on the June ballot that takes on what the Little Hoover Commission called “the elephant in the room,” a way to reduce the cost of pensions promised current workers.
As state and local governments face rising pension costs while a weak economy forces deep budget cuts, the San Jose council’s plan is the biggest and boldest proposal yet by elected officials to reduce pension costs widely believed to be legally untouchable.
Mayor Chuck Reed had talked about declaring a fiscal emergency to reduce pensions earned by current workers in the future. Now he is talking about the city charter specifying minimum benefits provided by the city’s two independent pension systems.
“We are way beyond the minimum since the charter was put in place,” Reed said before the vote Tuesday. “The benefits have been modified probably a dozen times or so. But the charter reserves the right to roll back those benefits, at least back to the charter minimum. So that’s a power that we have that many other cities don’t have. Certainly cities in CalPERS are all different than us.”
Under the plan, employees could continue to earn their current pensions if they help pay off half of the pension system’s huge debt. Their contributions could increase up to 5 percent of pay each year, capped at a total increase of 25 percent of pay.
Or current employees could choose to keep pension amounts earned so far and earn lower pensions in the future, working longer to receive the full amount. City officials predict workers in the new plan would pay less for their pensions than they do now.
The cost-of-living adjustment for retiree pensions, 3 percent, could be suspended in a fiscal emergency. New hires would receive a lower pension, pay at least half the total cost and the city contribution would be capped at 9 percent of pay.
Tuesday, the council also voted to delay the declaration of a fiscal emergency. The city’s budget gap shrank after a new actuary estimate last week said police and firefighter pension costs will drop next year not increase, mainly due to layoffs and pay cuts.
Robert Sapien, president of the San Jose firefighters union, told the council the $55 million reduction in expected pension costs undercut their “months, even years” of “preparing to create an emergency.”
Instead of delaying a declaration of emergency to an unspecified date, Sapien said the council “should be dropping this piece of your political agenda that has done nothing but terrorize workers.”
The legal views of Reed, a Stanford law school graduate and long-time attorney, were questioned by one of the five council members opposed to the plan, Ash Kalra, a Lincoln Law School professor who worked in the county public defender’s office.
“It was already a horrible case legally,” Kalra said. “We really don’t have cases to back up our legal position, and now we don’t even have the fiscal emergency argument.”
He said a memo indicates the “reservation of rights clause, which you know is legally a very weak clause and is unlikely to withstand any challenge, is being held up as how we can go forward without impairment of contract. We know that’s not true.”
Kalra said he agreed with the view of a Silicon Valley Chamber of Commerce representative who told the council that the measure, needed to end years of budget cuts and the erosion of the “quality of life,” is likely to be approved by voters.
A new statewide Field Poll issued yesterday found that two-thirds of likely voters think pension reforms should apply to current workers as well as new hires. A plurality think state and local pensions are too generous.
Kalra suggested that voter approval of the San Jose measure would result in an expensive legal battle. He said Orange County spent $2 million on its legal fees and $1.3 million on union legal fees after losing a suit to overturn a retroactive pension increase.
His motion to have the city attorney estimate the cost of legal fees and potential damages was changed before approval. The council will decide in closed session what estimates to make public, protecting legal strategy and other attorney-client matters.
Like Kalra, several council members who opposed putting the measure on the June ballot said there is a need for pension reform. But they said an agreement should be bargained with unions before taking the measure to the voters.
Councilwoman Nancy Pyle suggested that a union-backed pension reform could be paired with a sales-tax increase. Others said voter approval of a contested measure could result in a lengthy court battle delaying pension savings for years.
As she made the motion to put the measure on the June ballot, Vice Mayor Madison Nguyen said she hopes the action will prompt unions to seek mediation. The measure can be changed until a deadline in early March.
Reed said the ballot measure has several changes that emerged during bargaining with unions. A plan to declare a fiscal emergency last June was delayed until this month to allow more time for talks.
The vote Tuesday was originally scheduled to meet a deadline for placing a measure on a March special election ballot. Pension savings were sought to help close a big budget gap in the new fiscal year beginning in July.
After the actuarial estimate dropped the budget gap to $20 million, the plan for a special election was dropped, saving an estimated $3 million. The council put the measure on the June ballot Tuesday to avoid delays under legislation taking effect Jan. 1.
Gov. Brown signed a union-backed bill in October, AB 646, that allows public employee unions to request a lengthy review by a special fact-finding panel if mediation fails after 30 days.
San Jose is spending more than 20 percent of its general fund on retirement costs. In the last decade the costs tripled, going from $73 million to $245 million this year and, before the new lower estimate, were expected to reach $432 million by 2015-16.
Even after adjusting for inflation, said a city fact sheet, the average annual pension benefit has increased during the last two decades by 75 percent for police and firefighter retirees and 54 percent for other retirees.
The city’s pension contribution for police next year is expected to be about 60 percent of pay, twice as much as the current state contribution for Highway Patrol pensions.
Though located in wealthy Silicon Valley, the state’s third largest city has had budget shortfalls for 11 years in a row, cut 2,000 staff positions, laid off 66 young police officers this year and given staff a 10 percent pay cut.
“Whether or not we declare it, we are in it,” Reed said Tuesday of a fiscal emergency. “The task is to figure out how to get out of it.”
The watchdog Little Hoover Commission said in a report last February “the elephant in the room” is the legal obstacles to reducing the pensions not yet earned by current workers, a cost control available to private pensions.
The nonpartisan Legislative Analyst is among those who think a series of court rulings generally mean that a pension promised a state or local government worker on the date of hire becomes a vested right, protected by contract law.
In San Diego, Mayor Jerry Sanders, Councilman Carl DeMaio and others placed a measure on the June ballot that would switch new city hires to a 401(k)-style investment plan and put a five-year freeze on the pay of current workers that counts toward pensions.
But unable to get even a one-vote majority on the council, they had to gather the voter signatures needed to place an initiative on the ballot.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 8 Dec 11