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Q&A: San Jose Mayor Chuck Reed on Pension Reform

By Carl M. Cannon - October 23, 2013

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What is your response to that perception?

Let me be clear: Our current pension problems are not the fault of our government employees, who work hard to provide services to the community. That blame falls squarely on our elected leaders. With that said, we simply cannot continue to go down this unsustainable path. Without changes, more governments will find themselves facing service-level insolvency and our employees and retirees will risk seeing their hard-earned benefits reduced in bankruptcy.

I understand that pension reforms can be a difficult discussion for our employees and impact how they plan for retirement. But I’d much rather ask employees to adjust their future expectations, rather than have to lay them off, cut their pay or risk not being able to pay them the pensions they have earned.

Last year, you ushered a measure through your council—and it was put on the ballot for the voters—that did several things, including: limiting pensions for new employees, giving employees the choice of either contributing more to their pensions or accepting a lower-cost plan for their remaining years of service, requiring retired employees to kick in higher health care premiums, giving the council control over cost-of-living adjustments, discontinuing pension “bonuses,” and requiring voter approval for public employee contracts going forward. It passed with 70 percent of the vote—but will it solve San Jose’s problems?

San Jose’s retirement reforms (also known as Measure B) are absolutely necessary to eliminate our structural budget deficit and restore core services to minimum levels. The reforms we’ve already implemented are already saving us $20 million per year in the General Fund and we’re expecting another $48 million per year once the rest of the reforms are implemented. These numbers will increase over time as the workforce turns over and more employees are covered under the new lower-cost plans.

These savings, along with the other elements of our city’s comprehensive Fiscal Reform Plan, will go a long way towards putting us back on a sustainable path. Unfortunately, we’re still fighting numerous lawsuits seeking to block implementation of these reforms.

Are you confident it’s fair to retired municipal employees?

In crafting Measure B, we strived to craft a solution that solved our massive pension problems while being fair to all of our employees and retirees. In fact, Measure B will have a very minimal impact on retired city employees. There is only one provision that would allow the City Council to temporarily suspend retirees’ automatic 3 percent cost-of-living-adjustment—when and if the city declares a fiscal emergency. And that is not an action that the City Council is currently contemplating.

Beyond Measure B, we also adopted modest changes to the city's retiree health care plans that will help reduce the plans' huge unfunded liabilities. Specifically, these changes were crafted in a way that reduces the cost of health care for retirees under the age of 65 (whose benefit is particularly expensive since they cannot yet enroll in Medicare), while maintaining the same options for retirees who are 65 or older.

Is there anything more you would have liked in that legislative package?

Measure B was the result of more than eight months of negotiations with our city’s 11 employee unions. While we did not ultimately reach an agreement, the final ballot measure included numerous changes that addressed issues that came up during the bargaining process. Ultimately, I think we ended up with a package of reforms that was fair to our employees and retirees and will allow us to protect both public services and the long-term health of our retirement plans.

Along with the mayors of San Bernardino, Santa Ana, Anaheim, and Pacific Grove—four Democrats and a Republican—you called last week for a statewide pension reform on the 2014 November ballot. Why is that necessary?

Our proposed statewide ballot measure seeks to protect the retirement benefits that our employees earn as work is performed, while allowing for government agencies to negotiate with its employees over changes to retirement benefits that will be earned for future years of service (nothing in the measure would alter benefits that employees have already earned). The measure also specifies that any changes comply with applicable collective bargaining rules and wait until labor contracts expire.

Such a reform is necessary because of the lack of clarity in California law on when/how retirement benefits can be prospectively changed for current employees. A series of court decisions have been used to block any changes to retirement benefits for an existing employee – even if he/she has only been on the job for a single day.

This measure would ensure that cities, counties and government agencies have the explicit authority to negotiate the types of reforms for current employees that are needed to solve their pension problems, so that we can both provide essential services to the public and make sure our employees get paid the benefits they have earned.

What are its chances of passage?

I think this ballot measure has a very strong chance of success. Polling shows that the voters understand that the statewide pension legislation adopted in 2012 did not solve the problem and that additional reforms are needed. In addition, I think the voters will see that this measure is fair to employees and has support among both liberals and conservatives alike. It’s also important to note that our measure empowers local governments to solve their own problems, without dictating a one-size-fits-all solution for every government agency in the state.

If it does pass, would you consider running for governor?

I will not be running for any other office once I complete my final term as mayor of San Jose in 2014. I’m looking forward to returning to practicing law part-time, spending more time with my family and leading a quieter life. 

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Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

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