Mayor Chuck Reed’s pension reform plan went to trial Monday in a Santa Clara County court room. The outcome of the case is expected to influence other cities considering ways to cut down on the cost of retirement benefits.
The lawsuit, brought against the city by its employee unions in response to Reed’s Measure B reforms, demonstrates the challenge of reforming pension plans despite having to cut public services to pay for them.
Reed campaigned aggressively for his Measure B pension overhaul, a plan that garnered 70 percent voter approval in 2012. But city unions say the reform plan violates the rights of its members and the state constitution. As reported by the Mercury News, the plaintiffs say that government cannot take diminish employee pension benefits under what’s called a “vested rights” doctrine repeatedly affirmed in court rulings over the past 50 years.
Reed plans to divide his time this summer between court and lobbying for a state constitutional amendment that would reinforce the city’s authority to cut pension benefits by undermining the “vested rights” claim.
If the unions win, other municipalities might reconsider moving ahead with their own retirement reform. If Reed wins, the city may finally start to rein in pension costs, San Jose State University political science professor Larry Gerston told Reuters. Clearly, there’s a lot at stake.
San Jose’s 2013-14 budget already assumes a $20 million savings from Reed’s reforms and $48 million in annual savings after that.
The mayor has framed his pension reform efforts as the only way to protect San Jose from further service cuts while cities like Stockton, San Bernardino and, more recently, Detroit all cited burgeoning pension costs as a key reason for their bankruptcy filings. San Jose’s retirement costs rose to $245 million in 2012 from $73 million in 2001.
Reed’s plan, which hasn’t been completely adopted because of the legal challenges, doesn’t lessen benefits employees already earned. It requires them to pick between paying more from their own paycheck to keep the same plan or opt for lesser benefits. Employees and the city would also split pension costs evenly, unlike the current plan in which the city pays $8 for every $3 in employee contributions.
But unions argue that pensions were promised, and the property of the employees can’t be changed without negotiation.
San Jose’s pensions are higher than average in the state and national standards. San Jose police officers and firefighters who retired in the past 10 years after 26 years on the job get a yearly retirement pay of, on average, $100,000. The average civilian city worker gets $45,000 a year after two decades on the job, according to Reed’s office.
The statewide average for state and local government employees, according to data from the California Public Employees’ Retirement System, is about $29,000.