San Jose and the Elephant in the Room: Unlike California’s State Government, the City Understands the Need for Pension Reform
Jerry Brown paints a bleak picture of the future of “civilization” if Californians refuse to back his proposed tax increase, now vying for a place on the November ballot. If voters reject the initiative, warned the governor in December, it would reveal a deep “skepticism of public service” and send a message that “the common institution called government is not something we want to invest in.” The stark choice before voters, the governor says, is higher taxes or diminished public services. But in San Jose, the state’s third-largest city, a liberal Democratic mayor wants to give voters a third option: stretching taxpayers’ dollars by slashing the excessive costs of government services, especially pensions and other benefits for the people who administer those services.
In December, San Jose’s City Council voted six-to-five to place an initiative on this June’s municipal election ballot that would overhaul dramatically the city’s public-pension system. The brainchild of Mayor Chuck Reed, the measure would create a hybrid system for new hires—combining traditional defined-benefit pensions and 401(k)-style defined-contribution plans—while also significantly increasing contributions that current employees must make to their pensions. As the Reed administration’s fact sheet explains:: “New employees would pay for at least 50 percent of the total cost of the new plan and the city’s contribution would be capped at 9 percent of an employee’s salary (the city currently contributes more than 50 percent of an employee’s salary for retirement benefits).”
The council’s vote came during a raucous session filled with angry public employees unlikely to be pacified by the council’s willingness to pursue a negotiated settlement or modify ballot language in lieu of a June election fight. City Manager Debra Figone on Tuesday recommended that the council soften the measure’s language before sending it to the registrar of voters, despite the failure to reach an accord with the unions this month. The council is expected to vote on the new language on March 6, just three days before the registrar’s deadline. According to Ed Mendel of Calpensions, a website that covers the state pension crisis, Mayor Reed is relying on a city charter provision that sets down only minimum benefit levels as his authorization for cutting current-worker benefits. And the city is within its rights, Reed argues, because the charter allows changes to existing pension benefits. In fact, faced with the budget crisis, Reed initially wanted to declare a fiscal emergency, giving officials even greater cost-cutting powers, but the council rebuffed him.