Ruling Says San Jose Cannot Cut Employee Pensions

In a case that could have a big impact on cities throughout California, a judge has ruled that San Jose cannot implement cuts to city employee pensions to save taxpayer funds. But the city can cut salaries to realize the savings expected from pension reductions.

Santa Clara County Superior Court Judge Patricia Lucas released the ruling on Monday. It stems from a lawsuit over Measure B, which called for existing city employees, including police officers and firefighters, to pay 16 percent more into their pensions and retiree health care plans.

While the ruling is expected to be appealed, legal experts say it could set precedent for cities around the state that are considering pension cuts as a way to save taxpayer funds without having to cut services.

Measure B won nearly 70 percent voter approval in June 2012, but was challenged by employee unions. According to the San Jose Mercury News:

Municipal unions sued, saying the retirement benefits were previously approved at the bargaining table and represented a "vested right" that employees could not lose just because the city ran into hard financial times. A weeklong trial ensued in July. ...

[In her ruling last week, Lucas] said it forever became the city's responsibility to pay for employee pension costs once officials signed its labor contracts doling out the retirement benefits — and the rising costs of paying for those pensions was not a good enough excuse to wipe out that obligation.

But Lucas upheld a section of Measure B that allows city officials to cut workers' pay instead of pensions to achieve the taxpayer savings. Reed said city leaders will work out the pay cuts over the next months, before Measure B takes effect on July 1.

Both sides claimed victory.

“We won, they lost,” said Jim Unland, president of the Police Officers Association, to San Jose Inside. ... "The vested right doctrine once again held up again. [City officials] can play their cute numbers game, but the core of what measure B was was invalidated.”

Councilman Pete Constant, a former police officer and Measure B backer, told San Jose Inside about two-thirds of Measure B’s changes were upheld. “The important thing is it preserves the $21 million in savings that we’ve already put in place. That’s really important, because we now move into next year’s budget with certainty. It upheld the rule of voter authority over any future pension changes.”

In an earlier story, the Mercury News reported that Measure B put some $68 million in yearly retirement savings is at stake, and that the measure  is key to Mayor Reed's legacy as well as the political fortunes of his City Council allies.

Five of six Council members support Measure B, and are also potential mayoral candidates after Reed's final year in office. Reed, meanwhile, has supported a statewide initiative that proposes to allow all California cities to be able to cut worker pensions. He spoke about the initiative, which he hopes to get on the ballot in 2014, on KQED's Forum in October.

Reed had pointed out to KQED in May 2012 that the city’s pension costs have tripled in the last decade, forcing San Jose to cut services; if the pension plans were left unchecked, the city could face billions of dollars in unfunded liabilities.

San Jose's public workers contend it is 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 3 percent.

Statement from San Jose Mayor Chuck Reed on the ruling released today: