Keep an eye on big ballot measure in San Jose*

san jose.jpgHowever it goes, tonight's vote on changing the city pension system is likely to end up in the courts. But as with the recall election in Wisconsin, the San Jose ballot measure could offer some insight into public attitudes about publicly financed retirement and health plans. The problem in San Jose, as in L.A. and many other cities, is that retiree costs eat up an increasing portion of the budget, forcing city services to be slashed. Cities are generally obligated to cover funding shortfalls from the pension systems, and given the sour economy there have been lots of shortfalls. For the current fiscal year, San Jose is responsible for $245 million, up from $73 million a decade ago. From the WSJ:

The ballot measure makes San Jose one of only a few places in the U.S. where voters have unilateral power to restructure pensions. The initiative would force current city workers to either contribute more to keep their promised benefits or accept a more modest pension. It would also give the city the right to temporarily suspend cost-of-living raises that retired workers now receive. Unlike many other public efforts to rein in costs, the San Jose measure targets the existing pool of employees and retirees, rather than taking the easier path of only cutting benefits for workers yet to be hired. Union representatives say the proposed overhaul violates the contracts the city has negotiated with its workers.

If the San Jose plan passes, city workers could be required to contribute more to keep current benefit levels. Those who refuse would receive reduced benefits. Another big ballot measure is San Diego's Proposition B, which would impose a six-year freeze on pay levels used to determine pension benefits unless a two-thirds majority of the City Council votes to override it. From AP:

Under San Jose's Measure B, current workers would have to pay up to 16 percent of their salaries to keep their retirement plan or accept more modest benefits. New hires would get less generous benefits. Mayor Chuck Reed, a Democrat, joined an 8-3 City Council majority to put the measure on the ballot. "It's my No. 1 priority because it's the biggest problem we face," he said. "It's a problem that threatens to our ability to remain a city and provide services to our people."

The city of L.A. has focused its pension changes on future hires, which does nothing to relieve the obligations involving current workers and retirees.

*Update: Voters in San Jose and San Diego overwhelmingly approved both ballot measures. Don't be surprised, though if these measures are challenged by the unions. (NYT)

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
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