San Jose, Unions Battle in Court over Measure B Pension Reform

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.

Jennifer Wadsworth is the news editor for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @jennwadsworth.

16 Comments

  1. If Measure B survives the legal challenge, SJPD officers will soon be contributing somewhere in the area of 46% of their pay checks to retirement costs. The lower cost/lower benefit option to which Measure B refers does not currently exist, as it would require IRS approval that other governmental entities have been waiting years for. So the choice for officers would be between staying and losing nearly half of their income, or leaving for much better pay and benefits elsewhere. None could afford to stay.

    What this extremely superficial article ignores are the legitimate offers which were made by the POA and other bargaining units to lower pension costs and save the city millions. No one has a greater interest in the long term solvency of the retirement system than those who will be collecting from it, and this fact was reflected in the efforts of the POA and other groups to negotiate with the city.  They weren’t token proposals.  Instead, Reed has doggedly pursued his scorched Earth policy.

    Reed justifies his efforts as necessary to “restore city services.” The most important of these services is public safety. Officers have already been fleeing SJPD in droves, but the current exodus will pale in comparison to what will happen if Measure B prevails. It will be impossible to restore public safety if officers cannot afford to stay.

    I’m sure this article will inspire many responses from those pointing out what they do not have in private industry. The fact is that there has been a certain market established to attract talented people to law enforcement. Most people couldn’t, or wouldn’t want to, do the job of a police officer. Of those who can and want to do the job, far, far fewer now want to do it in San Jose. If Reed has his way, none will be able to afford to do the job in San Jose.

  2. “Mayor Reed campaigned aggressively ” , You mean he Lied , Cheated and Stole to get what he wanted . You people are delusional if you believe that this was ever about Pension reform . it is has always been about this insanely arrogant man flexing his muscle and doing favors for his developer buddies .
    remember this ” The wisdom of a fool , will NOT set you free”

  3. there seems to be a lot of acrimony about this issue. but what are the numbers – 10 years ago pension costs to the city were $69MM/yr and now they are $250MM/yr – something like that.

    Even the unions should agree that if the system ain’t fixed pretty soon – there won’t be a system.

    I realize our PD/FD put their lives on the line for us when they go to work.  People put their lives on the line going to a downsized job payin 1/2 of what they used to make – just getting on the freeway in the A.M.

    Can public unions justify the continual COLA’s when the average smuck out here is trending downward and still is expected to chip into the community pot to keep our public brethern “whole”?

    Still we see a lot of waste in govt.  Hell a Million $ run off election just replace one jerk supervisor.

    Govt management and labor BOTH need to sharpen their pencils and be more accountable to the people they work for.

    • Hugh,
      Unions did agree and put out a multimillion dollar cost saving proposal some two years ago. If this proposal was taken seriously by the Mayor, Liccardo, Constent, Oliverio and Nguyen (all wishing to be mayor) cost savings would have already been well on it’s way.  Unfortunately, the City is spending millions on overtime and attorney fees.  A real shame. So yes Hugh, we still continue to see a lot of waste from this City Council.

      One other point.  The San Jose Police and Fire Retirement fund has a rate of return of 8.8% for the year.  Exceeding the benchmark by 1.5% and ranking 88th percentile in its peer group.  The fund gained $242.5 million in the last year.  Having said that, I have no idea how far under funded the fund remains.

      We must elect our next mayor and council with the fiscal mismanagement in mind.
       
      http://www.sjretirement.com/Uploads/PF/2013 Q1 SJP&F IPA – Pension.pdf
      http://sjff.org/index.cfm?Section=1&pagenum=271&titles=0

  4. “Reed plans to divide his time this summer between court and lobbying for a state constitutional amendment…”

    When will he have time to manage the city…the job he was hired to do. Does this mean we don’t pay him for the time he is acting as a lobbyist for his own personal agenda?

    Maybe we can all met and discuss this over a cold beer at the new “gentleman’s club” only 2 blocks from city hall.

  5. Jenn,

    Please publish the retire packages the mayor and council members make.  During and after tenure. Include, salery, pensions and all the side benefits. (car, gas, phones, vacations, sick time, funny money for pet projects, free tickets to events) get the picture! Then let us decide.

    • City Council members and the mayor get PERS retirement benefits after 4 years. WTH? Where’s the equality in that? OHHH, that’s right CSJ is going with a corporate approach. Top management (Mayor, council, etc) get top retirement and everyone else gets screwed.

  6. Did I just read this article on the Murky app or did you write it on your own? Is it just a coincidence you share the same initials with the author of the Merc’s equally lopsided example of today’s anti-employee San Jose journalism?

    “Reed’s plan, …. doesn’t lessen benefits employees already earned.” You sure about that? COLA’s for retirees aren’t being changed by measure B?

    As for your assessment of FD & PD pension compensation vs Civilian employees, let me break down some facts for you and the less informed who are being duped into “Reed’s office’s” figures…

    There’s a huge difference between the city’s pension payout of an employee at 20 years vs 26 years with the current payout structure. At 20 years an employee would receive 40% of (roughly) their highest yearly compensation. The last 10 years of service accrue at 5% each year. So let’s venture to guess the numbers model you were provided by Reed’s office is factual.. That same civilian worker who received 45k for their annual pension @20 years of service (which would be based upon a 112.5k annual earner) if they were to retire at 26 years they would receive an annual pension of 78.5k. Big difference Jenn..

    Plus.. Let’s not even delve into the fact we’ve had how many Chiefs and high ranking Captains leave from both the FD and the PD? You’d think that might spike that average pension quite a bit huh?

  7. We all know the adage that you can not change the rule in mid-game. If I worked for SJ 17 years and now you are changing the rules seems unfair, I could have picked somewhere else to go. You don’t need $2million trial to tell you that.

  8. Putting aside the fact that Mayor Reed knew damn well the problem with the police/fire pension—which in 2006* he reported on this site was 100% funded, is the direct result of the housing crisis (a curse upon us by both political parties), please take note of how this story has been dishonestly covered by the media. Ms. Wadsworth’s posting here makes for a good example. Consider this bit of “factual” information:

    “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.”

    Now, if this journalist’s intent was to provide the readers with a deceptive statistic (so they might be misled in their thinking) she succeeded. But if her goal was to provide readers with meaningful information, then I can only conclude she was duped, because the data presented here was manufactured—cut and pasted like a ransom note from a kidnapper. Let’s take a look at a few of the pieces.

    “… officers and firefighters”—Without alerting readers, this description includes police and fire employees of all ranks—including chiefs.

    “… who retired in the past 10 years…”—The ten year time frame includes five pre-crisis years, when retirees typically had maxed their pensions with 30 years of service, plus the mass exodus of the last five years.

    “… after 26 years on the job…”—You should ask yourself, why was 26 years of service chosen, and why was the term “after” used instead of the more term-specific “with?” Let me tell you: the exodus of the last five years includes virtually every eligible employee of command rank (getting out before Mayor Reed could gut their salaries and pensions)—an unprecedented loss of the highest paid members of both departments (and a major drain on the pension fund). The large pensions earned by these people (including a number of $200k+ chiefs) are what has made it possible for the plumbers to skew the data. As for “after,” it is vague enough so that lumping in the pension amounts of those who retired with 27, 28, 29, and 30 years of service can be justified, no matter that readers/the voting public will see only the “26 years of service.”

    “… a yearly retirement pay of, on average, $100,000.”—The majority of retirees never attained rank, and not a single one of these employees has ever retired with a $100,000 pension after 26 years of service.” Not even close. Ten years ago the majority of those retiring weren’t even making a hundred grand. Under the rules governing police officers, to earn $100,000 after 26 years of service would indicate a salary of $135,000. Not even Chuck “Exaggerating” Reed would ever dare claim that.

    So, at the end of the day it is all BS. Oh, it’s not that you can’t tell an accurate and riveting story with the data, it’s just that that story—of a once great police department put to ruin by a destructive fool of a mayor, does not fit in with the agenda of City Hall, the Mercury News, or, apparently SJI.

    *http://www.sanjoseinside.com/news/entries/the_reed_reforms/

  9. Yes, what were the wonderful alternatives that the selfish unions turned down? 

    Was it the Union’s offer to go to PER’s? Cost saving to the city.
    Is it that PD & Fire DO NOT get social security.  Another cost saving for the city.
    Is it that for the past 5 years the PD Union agreed to an “additional” contribution towards their medical retirement to help recover the City’s investment losses.  It’s called GASBY!
    Or that the Mayor and City Manger just want to arbitrarily change a contract mid-stream and use all the deficit BS to hide behind. 
    The Mayor has spent and wasted millions of dollars in hopes of getting the A’s in town.  The Mayor sold prime land to Wolfe at a fraction of it’s value. 
    Let’s not forget that every officer at SJPD already contributes 22% of their paycheck towards their medical/retirement.  It’s not free and you “only” get 90% if you work 30 years!!!!!!!!

    Ya, let’s just blame the greedy Police Officer’s and Firefighter’s pension’s.  When are you lazy, complacent citizen’s of San Jose going to wake up?

  10. Our city management is out of control, and the people of San Jose are watching it happen without saying a word.  The mayor and council need to wake up before we turn into Detroit or Oakland.  I have seen the changes happening and if nothing is done it will be impossible to turn it around.  We need change that’s why we cannot vote any of these incompetent city council persons as mayor.

  11. I see the county is making plans about county ambulance service if the company they contracted with folds…Is the county also making plans for San Jose if Measure B is deemed legal?  I believe the force of 800 would start heading for the exits, putting the safety of citizens in harms way…will other cities along with the sheriff dept be performing police duties for San Jose?

  12. The San Jose Police Department, which only a few years ago had 1,450 officers, officially now has 883 street ready officer. The SJPD is bleeding officers everyday to other departments under this mayor and city council.

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