Declaring a fiscal and public safety emergency, Mayor Chuck Reed unveiled his fiscal reform proposal Friday afternoon at City Hall. The reforms will focus on pension and health care for current and future employees, and some actions will require changes to the city charter, meaning measures will need to be put on a ballot for voter approval. The proposal being put forward was co-signed by Vice Mayor Madison Nguyen and councilmembers Sam Liccardo and Rose Herrera.
“The dramatic impacts of the budget shortfall on our community demonstrate why we have to gain control over skyrocketing retirement costs,” Reed wrote in the memo. “If we act now, we can preserve the retirement benefit levels our employees and retirees have earned and accrued, and we can restore jobs and vital services. If we fail to act, jobs and services will be decimated in a fiscal disaster and retirement benefits will be cut.”
The proposal includes:
- Capping the city’s contribution to retirement benefits for new employees at 9% of base salary and 50% of the total cost.
- Raising the age at which employees can receive full retirement benefits to: 60 for sworn public safety employees and 65 for all other employees (phased-in for current employees)
- Raising the eligibility for retiree healthcare benefits to 20 years of service (phased-in for current employees).
- Limiting current employees’ pension accrual rate to 1.5% per year for any future years of service (benefits earned and accrued to-date will not be reduced).
- Limiting the cost of living adjustment to a maximum of 1% per year and restricting bonus pension payments to retirees.
San Jose is currently in the 10th straight year of having a budget deficit. The estimated shortfall for the upcoming fiscal year, beginning in July, is $115 million, and the city’s unfunded liability for soaring retirement costs could reach $650 million by 2016.
“Some people believe that the pension crisis is imaginary, that we have only to wait until the market goes back up and we’ll be fine. That’s simply wishful thinking,” Reed wrote. “The $155 million payment to the retirement funds the City made this year was not imaginary. The $250 million payment the city must make next fiscal year is not imaginary. The hundreds of jobs that were eliminated this year were not imaginary. The hundreds of employees who will lose their jobs in the next fiscal year are not imaginary.
“Such erroneous characterizations of our fiscal crisis demonstrate why it is necessary to take these measures to the voters to allow them to prevent a disaster.”