Will San Jose and San Diego votes spur changes in pension system?

sanjosepolice.jpgCertainly not for a while - there will be all sorts of legal challenges that could easily drag out for months or perhaps years. Furthermore, Gov. Brown faces an uphill battle to control pension costs statewide. His plan to raise the retirement age to 67 from 55 and institute a pension/401(k)-style system for new hires hasn't been well received by Democratic legislators. And keep in mind that city unions in L.A. remain very powerful - so much so that Mayor Villaraigosa (himself a strong union guy) was unable to lay off a modest 209 employees in the latest budget. And yet Tuesday's votes to curb employee pension costs in San Jose and San Diego can't be great news for city unions, which have struggled since the recession to hold onto the public's goodwill. That's especially true in San Jose, where a Democratic mayor has been leading the effort to control retirement costs. The ballot measure, which allows current employees to pay more to keep their existing retirement plan or switch to a plan with reduced benefits and a higher retirement age, won by a 71 percent to 29 percent margin. Some years ago, it's doubtful this kind of proposal would have even made it onto the ballot. From Bloomberg:

In San Diego, the eighth-largest U.S. city with 1.3 million residents, officials budgeted $233.6 million for retiree benefits this year, up from $87 million in 2004, according to budget documents. The city's share of retirement costs would have grown by $100 million over 10 years without the proposed changes in the ballot measure. In San Jose, the 10th-largest U.S. city with 946,000 residents, annual retirement costs increased to $245 million from $73 million in the past decade, according to ballot measure supporters. Pensions now account for more than 50 percent of city payroll, and more than 20 percent of the general fund, backers said.

So how did things reach this point? The WSJ has a nice summation:

The showdown in San Jose (pop. 958,789), California's third most-populous city and the 10th-biggest in the U.S., has its roots in the late 1990s when California lawmakers expanded benefits for workers in the state-run pension plan. To keep up with nearby cities during the dot-com boom, San Jose sweetened its offerings. Police and firefighters got the largest retirement benefits, which climbed to as much as 90% of a worker's highest salary, excluding overtime, before retirement, up from 75%. But ever since the tech-stock bubble burst, San Jose has had a tough time meeting its pricey obligations. The city today has about 1,100 police officers, down 21% from 1,370 five years ago. Jobs in the parks and recreation department have been cut by 37% during that period, to 460 from 753. Four new libraries, financed in better times, are sitting empty because city officials say they have no money to operate them. Chuck Reed, the city's Democratic mayor, elected in 2006, says stratospheric pension costs are largely to blame for the problems. "We love our cops and firefighters. They are our heroes," Mr. Reed says. But, he adds, "they've lost a lot of that support in recent years."

Earlier: Keep an eye on big ballot measure in San Jose

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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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