The effort to rein in city-crushing pension costs suffered a setback in the courts last week when a judge dismantled key parts of San Jose’s Measure B.
“Measure B called for existing employees, from cops to firefighters to bureaucrats, to pay 16 percent more toward their pensions to help cover some $3 billion in debt accumulated in the underfunded plans,” the San Jose Mercury-News reported. “(Judge) Lucas ruled that invalid, arguing the city had long held itself solely responsible for such “unfunded liabilities” in the plan, creating a “vested right” for employees to have the city cover those debts.”
In other words, pensions are untouchable.
But the judge also ruled that city officials can cut workers’ pay by the amount the city wanted to make them contribute to their pensions. That will save the city around $68 million a year.
Pensions are untouchable; pay is not.
… At the state level, that is. Both Stockton’s BK judge and Detroit’s said Uncle Sam can cut pension contracts in federal bankruptcy court. Stockton chose not to go that way, so it’s looking at a $172 million unfunded pension obligation.
So what’s the future?
San Jose’s mayor is pushing an initiative to allow California municipalities to negotiate changes in their employees’ future pension earnings. Expect labor-friendly Attorney General Kamala Harris, who is writing the ballot language, to do her best to subvert the reform.
In fighting necessary reforms, labor may be bringing more drastic changes upon itself. If you read this piece to the end, you can see the alternate future of pensions if reform to the current system is thwarted. Cities will have to do what San Diego did and replace pensions with 401ks.