San Jose City Council votes 6-5 to place pension reform on June ballot
Posted: 12/06/2011 06:10:30 PM PST
Over the loud objections of city workers and retirees, the San Jose City Council voted 6-5 Tuesday to approve language for a pension reform measure that could go before voters in June.
The vote was a key political victory for Mayor Chuck Reed, who since last May has been trying to sell the council on a measure that overhauls pensions to prevent the layoffs of more cops and a severe reduction in city services.
"We need to move ahead," Reed said during a spirited three-hour debate that drew an overflow crowd of mostly city workers and retirees. "We're trying to control costs."
Initially, Reed also had sought a vote declaring a fiscal emergency to bolster the legal case for his reform measure. But he was forced to slam the brakes on that idea after revised estimates last week unexpectedly shrank the city's expected retirement bill for next year.
The council voted to defer that decision to an unspecified date. But Reed argued that ballot language still was needed to get a reform measure before voters in time to secure desperately needed pension savings.
Joining Reed were Vice Mayor Madison Nguyen and council members Pete Constant, Sam Liccardo, Pierluigi Oliverio and Rose Herrera.
The city's unionized workers and many of its nearly 4,700 retirees opposed approval of the proposed ballot measure as an illegal breach of well-established legal protections for public worker pensions. They vowed a court fight if such a measure is approved -- and urged city leaders to put the ballot measure on ice until they negotiate more with the unions.
"It's unlawful and unnecessary at this time," said Jeff Welch, vice president of the San Jose firefighters' union. "The ballot measure is premature."
Council members Xavier Campos, Nancy Pyle, Don Rocha, Ash Kalra and Kansen Chu voted against the proposed ballot language, siding with the unions. They argued that the city should use the next three months for talks because a legally risky ballot measure would prove too costly to the city.
"I don't think the debate is any longer about the need for pension reform," Rocha said. "I'd like to see us slow down a bit. I don't understand why we need to make a decision today."
But Reed said delaying a vote on ballot language would jeopardize the city's ability to get a measure on the June presidential primary ballot -- savings he says still are needed to close a budget gap next year.
A newly approved state law that takes effect next year could require the city to spend additional months in fact-finding procedures after reaching an impasse with employees on ballot language and could push a vote to November or later. But some union leaders had offered to waive the law's provisions to continue talks.
New estimates last week by the pension funds' actuary dramatically lowered the city's projected retirement bill for next year, slashing what had been an $80 million operating deficit to a more manageable $25 million or so.
The city's unionized workers have accused Reed of overstating the severity of the pension problem to justify rejecting their offers to reduce retirement costs and benefits as insufficient.
But Reed said that even if the city gets a break next year, the pension bill remains unsustainably high and a ballot measure is needed to bring it under control. Costs have more than tripled from $73 million to $245 million in a decade, outpacing 20 percent revenue growth, and could potentially top $400 million in the future, the mayor said.
Reed's proposed ballot measure would not shrink pension benefits already received by retirees or earned by employees. But it would reduce pension benefits for new hires and could suspend cost-of-living raises for retirees up to five years if a fiscal emergency is declared.
Current employees could either switch to a reduced pension plan that costs less or pay more to keep the existing benefits. It also includes changes to disability retirements, which come with a significant tax break, to curb "abuses."
The measure would also require voter approval for future pension increases.
Employees argue they already have done a lot to help ease the city's financial woes, including 10 percent pay cuts, higher health care payments and bigger pension contributions. They note that they don't earn Social Security credits and have made substantial offers to reduce pension costs.
Despite the acrimony surrounding the dispute and the failure to reach an agreement on reforms, both sides have moved closer in recent months toward a consensus.
The mayor modified his proposal several times to address ideas and concerns employees had raised, such as allowing current workers to choose a reduced retirement plan and dropping language that could eliminate seniority protections and other perks for workers.
But key differences remain. Employees argue that forcing them to pay more toward existing pension benefits and suspending promised cost-of-living raises to retirees violates their legally "vested rights." Reed said such provisions are needed to ensure significant savings over the next couple of years and avoid further layoffs.
But employees had offered increasingly substantive retirement concessions. Last week, even as new figures eased the public safety pension bill, cops and firefighters offered to roll back pensions for new hires and, optionally, current workers to 1960s levels. Retired officers and firefighters had earlier offered to reduce their annual cost-of-living increases.
"I'm confident we can work out these difficult problems before us," said Jim Unland, president of the police officers' union. But, he added, the council vote to approve ballot language demonstrates "to us that talk is for naught and that it's a waste of time," a sense shared by other union leaders.
Vice Mayor Nguyen, however, argued the ballot language "gives us an opportunity to re-engage in mediation."
New employees would be placed in a lower-cost retirement plan that limits the city's cost. The maximum pension would be lowered to 60 percent of pay and cost-of-living raises capped at 1 percent a year.
Retirement age would be 65 for most workers and 60 for police and firefighters. The city and employees would split costs equally.
Current employees would keep pension benefits earned to date but would have to pay a larger share of the cost to stay in the existing pension plan, up to 25 percent of pay to cover up to half the unfunded liability.
They could also choose to earn future pension benefits in a lower-cost plan with the same maximum pension of 75 percent for most workers and 90 percent for police and firefighters -- but which gradually raises retirement ages to 62 for most workers and 57 for police and firefighters, with cost-of-living increases limited to 1.5 percent a year.
Retirees could have their current 3-percent annual cost-of-living raises suspended by the City Council during a fiscal emergency.
Disability retirement rules would change to prevent abuses.
Voters would have to approve any future enhancements to retirement benefits.
Source: Mayor's office