by Peter Jon ShulerSan Jose voters will face Measure B (pdf) on June 5, a ballot initiative aimed at reining in the city’s pension costs. But although Measure B has become a divisive political issue, San Jose’s pension problems are not that unusual.
In December, a deeply divided City Council approved the controversial measure for the June ballot. It was a big win for Mayor Chuck Reed, who had been pushing it for months.
“This is an important step the council is taking,” Reed said after several hours of public testimony and debate. “To try to solve the cost of skyrocketing retirement benefits which have driven us to cut services year after year.”
The mayor points to the fact that the city’s pension costs have tripled in the last decade. And if left unchecked, the city’s pension plans would face billions of dollars in unfunded liabilities.
So what went wrong? Some of it can be blamed on the dot-com bust and the mortgage collapse cutting into the value of the retirement funds. The pensions were based on the assumption that funds would continue to rise, and so in hindsight they were underfunded. San Jose State political science professor Terry Christensen says it can also be traced back to attempts to compete with the private sector.
“Ten years ago, 15 years ago, public sector employers were worrying about how do we get cops and librarians? How do we hire staff?” says Christensen. “Well, one way is you offer good pay and benefits. And so we dug ourselves into this hole. It turns out to be a hole, but I guess it didn’t look like it 10 or 15 years ago. And of course San Jose is not the only city facing the problem.”
Cities from San Francisco to Los Angeles face the same quandary. San Diego has a measure before voters this election. And the state of California is in the midst of its own pension debate.
In San Jose, Measure B would require employees to make additional contributions to their plans — up to 16 percent of their pay — to help cover projected shortfalls.
The measure allows employees to avoid the extra fees by opting into a less generous plan with smaller payouts and later retirement ages.
Public workers say it’s unfair to expect them to the bear the brunt of a problem they didn’t create. And they say most retirement pensions are not luxurious. The average for San Jose is about $40,000 a year with a cost of living allowance of three percent.
Like many city employees, 48-year-old Jordan Ciprian is worried about the changes. Ciprian, a watershed protection manager, stops to talk just after work as he leaves city hall on his way to his car.
“How I planned for our retirement was based on the pension and when I first came here,” he says. “Roughly 12 years ago I moved from the biotech industry over to the city with a cut in lieu of the pension, kind of planning on that. So it would impact us pretty significantly.”
Ciprian lets out a deep sigh. Along with other city employees, he recently took a 10 percent pay cut. Measure B, he says, would just make that worse.
“I’d have to look for probably secondary employment, something like that,” he says. “As well as looking for a different job altogether, outside of the city, that would bring my income back to at least on par with what I used to have.”
Measure B would provide new employees with a stripped-down retirement plan, but leaves the details for the city council to decide later. Councilman Pete Constant, who supports the measure, notes that it would leave existing pension commitments intact.
“I think it’s very important that the employees and the residents of San Jose know one thing,” says Constant. “And that is every dollar that has been earned and accrued by our employees and our retirees is protected by Measure B. Measure B only makes changes prospectively in the future.”
Even opponents of Measure B agree the city needs to overhaul the terms of employee retirement benefits. But they say putting it on the ballot has turned the conversation over pension costs in San Jose into an ugly feud.
“We do need to work on pension reform and it has to be done now,” says Councilman Ash Kalra. “But it needs to be done in a way that is thoughtful and collaborative and that actually is legal. And instead we’re going forward in a way that’s divisive, destructive when the reality is the situation is not as dire as they’re making it out to seem.”
Kalra points to cases like San Francisco, where city officials and union leaders eventually sat down together to come up with a pension reform plan. But political scientist Christensen says that’s not likely to happen in San Jose’s current political environment.
“I think Mayor Reed and some of his allies would say San Francisco really kicked the can down the road with what they did, rather than really ultimately solving it,” says Christensen. “And Mayor Reed is pushing harder for a more substantial solution.”
The 11 San Jose public employee unions are already rallying their membership to help defeat Measure B. But union workers remain a minority in a city of a million people — many of whom saw their own retirement plans vanish years ago.