San Jose scraps pension reform measure

20 Aug, 2015 by James Poulos

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In a remarkable move, the city of San Jose walked back its high-profile Measure B scheme to reform its costly public pensions commitments.

Striking a deal

Losing police to other jurisdictions, Mayor Sam Liccardo faced “enormous pressure to reach a settlement,” according to Scott Herald at the San Jose Mercury News. In fact, wrote Herald, Liccardo “could legitimately argue that the city had achieved concessions in negotiations, obtaining savings he estimated at $1.7 billion over 30 years. San Jose was able to save millions by foregoing the so-called ‘bonus checks’ to employees. And the city and its public safety unions agreed on a cheaper health plan.”

In an unusual move, the City Council successfully petitioned the courts to invalidate the measure, paving the way for a renegotiated deal with law enforcement. Under the terms of the new wage agreement, the Mercury News reported, police officers will receive “8 percent in ongoing raises and 5 percent one-time bonuses.” But the fate of the deal remained in the hands of voters, who would have to approve the Measure B replacement at the ballot box in 2016.

For now, however, the city has at least managed to settle its three-year court battle with police and firefighter unions, as San Jose Inside observed. And it stanches its law enforcement losses, which were approaching crisis proportions. “Since 2012, SJPD has had 265 officers resign and 167 retire,” according to San Jose Inside. “This year alone, the department has seen 41 resignations and 54 retirements, leaving the agency with 943 sworn officers out of a budgeted 1,109 positions.”

Taking it statewide

But former Democratic Mayor Chuck Reed, along with former Republican San Diego City Councilman Carl DeMaio, continue to back a controversial ballot initiative that threatens to complicate the issue of pension costs by offering California voters a new statewide approach.

According to its authors, the matter is cut and dry: “This simple initiative gives voters the ability to stop sweetheart and unsustainable pension deals that politicians concoct behind closed doors with government union bosses,” the two said in a joint statement, according to the Sacramento Bee. “That’s why the politicians and union bosses oppose this initiative – and why they continue to try to mislead the public on what the initiative does.”

But Attorney General Kamala Harris, one of the targets of their criticism, emphasized its potentially destabilizing consequences in her office’s title and description of the initiative. According to that language, the initiative “eliminates constitutional protections” for collective bargaining, bringing “significant” savings, but also costs, for state and local government.

“In addition to allowing voters to weigh in on public employee compensation,” the Bee summarized, “the initiative would mandate that voters approve any increases in pension benefits, sign off on new state and local employees being enrolled in the ‘defined-benefit’ plans that are now commonplace, and OK governments covering more than half of retirement costs.”

Trusting the voters

For activist opponents of the Reed-DeMaio plan, however, Harris should have portrayed the measure in an even less flattering light. By any measure, the scheme raises the prospect of fewer pension programs. “Requiring a vote by each government body to continue letting new employees into pension programs could very likely fail,” Reason noted, “requiring the state and municipalities to switch to 401(k)-style defined contribution retirement funds instead (which don’t require a vote).”

“This switch is important for spending reform because it takes governments (and taxpayers) off the hook for a guaranteed return. Governments would be providing all their contributions at the front end and would not be obligated to make up for any below-expected returns from these funds like they would with a pension.”

Analysts have not yet determined how great a departure from the status quo future votes might entail. “The effects on collective bargaining could be dramatic,” wrote Orange County columnist Teri Sforza. “And due to the less-generous retirement benefits that would likely emerge, governments would face pressure to increase other elements of compensation to attract and retain workers.” Like other measures that have passed through California’s initiative process, this one would put Golden Staters’ appreciation for direct democracy to the test.