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It’s the seed at the center of cities’ pension problems across the country: The fact that it’s difficult, if not impossible, to reduce pension benefits for current and already retired workers because of legal restrictions.
The city of San Jose is trying. And it looks like it’s making progress. In May, Mayor Chuck Reed put forward the most aggressive plan that I’m aware of for a California municipality to reduce its pension obligations. By declaring a state of emergency in the city and through a proposed ballot measure, Reed is hoping current city workers will receive less in retirement for the time they’ll work in the future.
Talks with the city’s unions since then yielded this shocker today. From the San Jose Mercury News:
Five unions representing San Jose police officers, firefighters and other workers offered pension reductions for current and future employees Wednesday, contending that they would save nearly half a billion dollars in retirement costs over five years and avoid a long, costly court fight with the city.
Retired officers and firefighters also stepped up with an offer to reduce annual cost-of-living raises on their pensions and retirement bonus checks.
That unions and retirees in San Jose are offering up some of their benefits is a dramatic change in California pension politics. These are supposed to be untouchable.
Here in San Diego, city leaders’ approach over the years has been to challenge previous benefit increases in court, and when that failed, to nibble around the edges of current pension levels. Their major reform has been to reduce pensions for new city employees, something that does little for the current problems.
You can see the result in the city’s projected pension payments. They will peak at $468 million in 2025. Then they will drop off a cliff four years later, once old debts are paid off and the new system kicks in.
The most recent idea to reduce current pensions, promoted by Mayor Jerry Sanders, mayoral candidate Carl DeMaio and others, is simply not to give city employees raises. That would drive down the estimated future costs of employee pensions. The plan is part of the pension reform initiative they’re trying to qualify for the June 2012 ballot. Of course, those savings aren’t guaranteed.
To be sure, San Jose’s plan isn’t guaranteed, either. Even state Attorney General Kamala Harris has questioned its legality.
But the city’s efforts are continuing to receive national attention.
Author Michael Lewis has an article in the new Vanity Fair that’s the latest piece of sterling journalism plumbing the depths of California’s despair. (Though some already are taking issue with Lewis’ facts.) Lewis depicts Reed as the one truth-teller who understands the severity of his city’s financial problems:
By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.
This wasn’t a hypothetical scary situation, said Reed. “It’s a mathematical inevitability.” In spirit it reminded me of Bernard Madoff’s investment business. Anyone who looked at Madoff’s returns and understood them could see he was running a Ponzi scheme; only one person who had understood them both¬ered to blow the whistle, and no one listened to him.
Liam Dillon is a news reporter for voiceofsandiego.org. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?
Please contact him directly at firstname.lastname@example.org or 619.550.5663.
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