San Jose's Long and Winding Road to Pension Reform Takes Another Turn

Pension reform's sometimes tortuous grip on San Jose loosened Tuesday when the City Council passed a new agreement with police and firefighter unions on retirement benefits and wages.

The agreement is a watered-down version of Measure B , the pension reform ballot measure that San Jose voters overwhelmingly passed in 2012. It gave less generous retirement benefits to new employees and forced existing workers to either reduce benefits or pay more to keep them.

The new plan scales back what employees must contribute for retirement, offers a cheaper health care plan for new and existing employees, gives police officers an 8 percent raise plus a one-time retention bonus, and reinstates the police and fire retirement plan's earlier definition of disability.

"We needed to find a Goldilocks solution," said Mayor Sam Liccardo, who had backed Measure B. "We needed a set of benefits that can make us a competitive employer and still insure that we had a financially sustainable system."

Now a  judge will have to invalidate parts of Measure B and insert the changes before it goes back to San Jose voters in November 2016.

Few cities in California have had more upheaval and fractures within the community over voter-approved pension reform than San Jose has. There were three years of bitter legal battles with police and firefighters, who felt Measure B was a frontal assault on the benefits they earned, and they took the measure to court.

Cities around the state have been keeping a close eye on the fallout from Measure  B.

"This was, in a sense, the experiment," said Josh Rauh, a pension reform scholar at Stanford University's Graduate School of Business. "There had been no city that had up until now in California tried to change pension benefits for existing employees."

Measure B came about as cities like Stockton and San Bernardino were on the verge of bankruptcy, partially caused by crushing retirement payments that came due as the economy was tanking.

Ex-Mayor's Bold Move

Former San Jose Mayor Chuck Reed took Measure B pension reform to the ballot in 2012, saying he couldn't cut city services and staff any further.

"Even though it's painful to take these matters on directly, the costs of doing nothing were enormous because we were cutting services to our people every year to pay for these skyrocketing costs," said Reed.

Rauh said many politicians take a piecemeal approach to pension reform or dabble around the edges of benefits for new employees, fearing blowback from public employee unions. Reed, he said, acted boldly.

"Mayor Reed was at a point in his career where his political aspirations beyond his time in office were fairly limited, and he also had a very strong view that pensions in the state of California are unsustainable they way they are budgeted and the way they are measured," said Rauh.

Reed agrees that most politicians have a lot to lose by taking on public employee unions.

"I knew in the Democratic Party -- and I'm a Democrat -- that if you crossed the public employees unions, you probably don't have a future in the party," said Reed.

Meanwhile, San Jose police officers left for jobs in surrounding cities where the pension benefits and pay were better. Tom Saggau, a spokesman for the San Jose Police Officers' Association, said the Police Department had already lost officers because of budget layoffs. Then it was hit by pension reform.

"We were already losing officers," said Saggau. "What Measure B did was accelerate it."

This year the new crop of city leaders, including Liccardo and the new POA president, were able to sit down and negotiate a revised pension reform plan. A good part of the work had already been accomplished in court in 2013, when a judge ruled the city could not require existing employees to contribute more to their pensions.

Rauh said what happened in San Jose shows that cities can't succeed in reining in pension costs by working alone.

"Cities need to band together and get behind those who are proposing statewide ballot initiatives to make this issue something that is in voters' hands," he said.

Reed and former San Diego City Councilman Carl DeMaio are now pushing a 2016 statewide pension reform ballot measure. It would require local voter approval of any future increases in public employee pensions.

Reed's signature Measure B has been weakened but he remains determined.

"When you go on the path of pension reform, you have to realize it's going to be long and difficult," said Reed.

The public employee unions are now gearing up to fight the statewide measure.