San Jose Shows the Way Out of Public-Pension Sinkhole
Democratic leaders in California’s capital point to Silicon Valley’s economic rebound as proof that their ham-fisted tax policies aren’t strangling business growth. Yet San Jose, the high-tech hub and California’s third-largest city, is writing off those legislators in Sacramento as it tackles the toughest budget issues on its own.
On June 5, San Jose voters will almost certainly pass a measure that would give current city workers this choice: stay in the current pension system and increase contributions to help pay off the city’s unfunded pension liabilities, or choose a lower-benefit option. Thanks to San Jose’s charter provisions, officials say they can do what courts haven’t allowed in other locales: pare benefits for current public employees.
Most pension-reform efforts elsewhere apply only to new hires. Although those efforts are important -- San Diego, California’s second-largest city, is finally voting on a measure to fix its disastrous system -- they will not stem short-term fiscal crises. San Jose, facing pension obligations that have soared 350 percent in a decade and now consume more than 20 percent of the general fund, has decided to attack the heart of the problem. Mayor Chuck Reed, a Democrat, eked out a pension- reform majority from a 10-member City Council with only one Republican member and nine Democrats, who, Reed told me, range from liberal to liberal.
Mayor Steps Up
Californians are used to rolling their eyes at the antics of their politicians, but then along comes Reed, “the most courageous leader in California,” in the words of David Crane, a Democrat who was Republican Governor Arnold Schwarzenegger’s economic adviser. Crane was referring to the mayor’s willingness to take on a liberal sacred cow, public-sector unions.
“I’m not sure they have fought me every step of the way, but I can’t remember any step they haven’t resisted,” Reed said in an interview, referring to the unions. “There’s a difference between being liberal and progressive and being a union Democrat.” Reed the Democrat wants to stop pensions from crowding out the other programs he cares about. The public- service mentality has changed, he said. In police negotiations, for instance, union officials rarely talk about the number of officers or policing policy.
“It’s all about money, about enhancing an already generous retirement,” he said. “The mentality has changed, at least at the union level. It has eroded the public’s perception of people in government serving the public.”
Reed points to strong backing for the measure, just as statewide opinion polls show overwhelming support for pension reform, even among registered Democrats. Reed’s council foes are forced to give lip service to the idea of an overhaul, but they find technical reasons why they don’t approve of this particular approach. The unions aren’t fighting it so much as gearing up for the inevitable legal battle.
Four hundred and sixty miles south, another battle over pensions is unfolding. In San Diego -- far more conservative than San Jose, but also with a Democratic voter majority -- the unions aren’t bothering to fight the city’s ballot measure either, certain as they are that it will pass on June 5.
Instead, foes are focusing on the mayor’s race, in hopes of electing an ally who will obstruct the city from carrying out the changes, and on a legal strategy to derail the measure. They have also sought help from a state board, which tried -- but was overturned in court -- to determine whether the ballot measure was an unfair labor practice.
Councilman Carl DeMaio, a Republican, and his backers couldn’t win council support to put a measure on the ballot, so they started a signature-gathering effort. The tepid council position is disturbing, given that San Diego is the place where years of underfunding helped propel the issue into the national consciousness.
The San Diego measure doesn’t go as far as San Jose’s for current employees. Reformers there decided to base all the pension changes on clearly established law so they would be bulletproof against legal challenges.
San Diego’s measure aims specifically at pension spiking. Employees are allowed to base their lifetime pensions not just on their final year’s salary but also on add-ons such as specialty pay and bonuses. The ballot proposal institutes 401(k)-style benefits for new non-public-safety employees and for politicians. The city faces a $2.4 billion unfunded-pension liability, and analyses suggest the ballot measure would save almost $1 billion over 30 years. Union officials say this projected savings comes mostly from the initiative’s five-year cap on pensionable pay that can be overridden by a two-thirds council vote.
The real vote to watch is for mayor, which is essentially a three-way race. DeMaio faces a Democratic congressman, Bob Filner, and a Republican state assemblyman, Nathan Fletcher. David Brooks of the New York Times has depicted DeMaio as an “orthodox conservative,” but he is nothing of the sort. The city’s first openly gay councilman, DeMaio is a fiscal hawk disliked not only by unions but by the business establishment because, as he told me, “I’m not for corporate welfare.”
Filner is the full-on Democratic union guy, but the unions seem to be betting on the politically pliable Fletcher, viewed as better able to beat DeMaio once the contest is winnowed down to two candidates. Fletcher, endorsed by the police union, bolted from the Republican Party right after it endorsed DeMaio. Fletcher supports the pension measure, but this looks like political cover from an establishment candidate whose changing positions track his career ambitions.
Reformers are concerned that a Mayor Filner or Fletcher would mean the slow death of resolve on the pension mess. A new union-allied mayor, DeMaio said, can stretch the timeline for carrying out the changes, or could possibly gut the measure in the name of reaching a settlement to end the expected union lawsuits.
The good news: These two large, Democratic-oriented and economically vibrant cities are seriously tackling pension reform. Perhaps someday state leaders in Sacramento will notice, but Mayor Reed and Councilman DeMaio aren’t going to waste their time waiting for them.
(Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity. He is based in Sacramento, California. The opinions expressed are his own.)
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