Wednesday, June 6, 2012

San Jose Public Pensions

{NOTE: San Jose voters in fact overwhelmingly elected to curtail public pension costs in voting yesterday. This post is simply to help inform readers about the seriousness and even highly emotional aspects of the city's struggle to match employees benefits with taxpayer costs and city services. It's a tough issue for sure and certainly one that won't be resolved any time soon. And clearly not everyone is going to like the eventual outcome either. But it's very much a nationwide We the People issue, so please view the following article simply as background reading for lots of places in America.}

As Costs Soar, Taxpayers Target Pensions of Cops and Firefighters tells of the dilemma facing citizens of San Jose.  It's quite similar to what's happening in lots of other American cities. 

"Firefighter Brian Endicott got an early taste of the pension battle brewing here when a man at the grocery store angrily pointed to the steaks in his cart.

"Who do you think you are, wasting taxpayers' money on a meal like this?" the man yelled at 46-year-old Mr. Endicott, who was shopping for dinner with three other firefighters from San Jose Fire Station No. 1.

After the 2001 terrorist attacks, sympathetic residents of this affluent city gathered at the firehouse to offer flowers, cakes and pies. Today, public sentiment toward the men and women in uniform has widely shifted, as many locals are up in arms over escalating pension costs for public-safety workers.

In the current fiscal year ending June 30, San Jose's retirement obligations soared to $245 million, up from $73 million a decade ago, according to the city. For police officers and firefighters who have retired since 2007, the average pension is $95,336, making them among the most generously compensated in the state.

Since the recession, dozens of state legislatures and city councils across the U.S. have scaled back benefits and jobs in an attempt to plug gaping budget holes. Safety workers like police and firefighters—who generally earn more than librarians and garbage haulers—have often been spared from some of the most drastic cuts.

"There is a sense that these are people who do particularly demanding jobs," says Ron Snell, a senior fellow at the National Conference of State Legislatures, who tracks pension changes around the U.S. "There has been a real reluctance to impose harsher conditions on them." . . .

The initiative (will) force current city workers to either contribute more to keep their promised benefits or accept a more modest pension. It (will) also give the city the right to temporarily suspend cost-of-living raises that retired workers now receive.

Unlike many other public efforts to rein in costs, the San Jose measure targets the existing pool of employees and retirees, rather than taking the easier path of only cutting benefits for workers yet to be hired. Union representatives say the proposed overhaul violates the contracts the city has negotiated with its workers.

Similar pension changes in other states have sparked legal challenges by public employee unions. Last year, judges in Minnesota and Colorado upheld the states' reduction of cost-of-living raises for retirees.

If the San Jose plan passes (and it did), city workers—who now give over between 5% and 11% of their base pay toward their pensions—could be required to chip in an additional 16% to keep current benefits levels. Employees who refuse to do so would receive more modest benefits.

Firefighter Brian Endicott has noticed the public's anger.

"This is not a city where you want to be a firefighter," says Mr. Endicott, who says he has seen residents flip the middle finger at his firetruck, which never happened before in his 17-year career.
In many cities, police and firefighters are a big driver of retirement cost increases. These workers often are able to call it quits before normal retirement age, which can lengthen their stream of regular payments, municipal officials say. Public-safety workers say they need to retire earlier than others because their jobs are dangerous and physically taxing. Some take other jobs after retirement, though the San Jose mayor's office doesn't track the numbers.

The showdown in San Jose (pop. 958,789), California's third most-populous city and the 10th-biggest in the U.S., has its roots in the late 1990s when California lawmakers expanded benefits for workers in the state-run pension plan. To keep up with nearby cities during the dot-com boom, San Jose sweetened its offerings. Police and firefighters got the largest retirement benefits, which climbed to as much as 90% of a worker's highest salary, excluding overtime, before retirement, up from 75%.

But ever since the tech-stock bubble burst, San Jose has had a tough time meeting its pricey obligations. The city today has about 1,100 police officers, down 21% from 1,370 five years ago. Jobs in the parks and recreation department have been cut by 37% during that period, to 460 from 753. Four new libraries, financed in better times, are sitting empty because city officials say they have no money to operate them.

Chuck Reed, the city's Democratic mayor, elected in 2006, says stratospheric pension costs are largely to blame for the problems. "We love our cops and firefighters. They are our heroes," Mr. Reed says. But, he adds, "they've lost a lot of that support in recent years."

Wilma Hashii typifies that mood. "They don't need 90% of their salary when they retire,'' says the retired library clerk. "I understand their job is stressful. But most of us are feeling pretty stressed financially right now."

The city had a $115 million deficit in the latest fiscal year, San Jose's 10th year in a row in the red. Pensions were the biggest drain, says the mayor's office. Of the $79 million in increased costs, retirement expenditures accounted for $58 million.

Scott Castruita, a 50-year-old retired patrol sergeant, says he earned what he collects. During his career, he broke several bones in his right hand fighting a suspect and dislocated his left knee knocking down a door. A frantic mother once pleaded for him to perform mouth-to-mouth resuscitation on a 9-month-old boy. He complied, he says, even though he knew the baby was dead.

"I did this because it was an honorable job," says Mr. Castruita. But tensions eventually flared to the point "where you walked out and felt dirty," he says.

Anxiety among U.S. voters over unemployment, lower housing values and investment losses have emboldened government leaders to roll back pensions of even the most popular government workers, says Tracy Gordon, a fellow at the Brookings Institution. Some officials have also sought to restrict public-safety workers' contract-negotiating powers—in some places for the first time.

In September, voters in Hollywood, Fla., approved large cuts in pensions for police, firefighters and other city workers.

Farther north, Rhode Island Governor Lincoln Chafee has proposed bills that would allow certain financially troubled cities to reduce disability pensions that firefighters and police officers can collect if they are injured on the job.

"I have been at this for 40 years and I have never seen an assault on our fundamental rights as I have seen in the last 14 months,'' says Harold Schaitberger, general president of the International Association of Fire Fighters.

U.S. public-safety workers were among the first civil servants to receive pensions, and they often collect larger benefits than many other public employees, municipal officials say. In San Jose, for instance, recently retired municipal workers collected an average of $42,460—far less than the average of $95,336 for safety workers. Workers who retired earlier get less. Public-safety workers point out they contribute about twice as much to their pensions as other workers, and they have to work 30 years to collect a pension worth 90% of their pay. Like other workers, they have also agreed to large pay cuts in recent years.

Many city employees can cash out unused sick and vacation days when they leave the job. But while the payouts have been capped or eliminated for most, they are unlimited for longtime cops and firefighters. One police official in San Jose who retired last year, collected $264,000 for unused sick and vacation time, according to city records.
Police and firefighters say they have been willing to negotiate changes to their pensions to help ease the city's budget crunch, but they have also claimed that the mayor has exaggerated the problem....

Mr. Reed has said he expects retirement costs coming from the general fund to increase by $29 million in the fiscal year starting July 2013, contributing to another budget deficit. He maintains that cutting pension costs is the only feasible way to restore additional city services.

In late March, the city got a jolt when Moody's Investors Service cut its ratings on San Jose's general obligation bonds to Aa1 from Aaa, citing the "multiyear erosion of the city's general fund reserves."

The city's management is "being significantly challenged to manage retirement costs and faces arduous barriers to reduce the impact of those obligations," Moody's said in its report.
"It was a reality check,'' says city council member Pierluigi Oliverio, who supports the pension ballot measure."


San Jose is home to a mix of ethnic and income groups, including tech executives from Silicon Valley and a fast-growing Vietnamese population. Roughly one in three households earns more than $100,000. Many people say they moved here because of the low crime rate and inexpensive homes. When the housing market was thriving in the middle of the last decade, city property values soared. Prices have dropped 40% since their peak in 2007, or slightly more than the national median.
Against this demographic backdrop, the current pension battle has divided San Jose into two philosophical camps.

Charles Jones Jr., a 52-year-old business manager ..., supports an overhaul of the pension system partly because of safety concerns in the area. Across the city, in the first three months of the year, burglaries and break-in attempts increased 37% from the same period in 2011, according to local officials. Like many other residents, Mr. Jones would rather return more police to the street than maintain the retirement status quo.

"People recognize the importance" of police, he says. "But how much are we willing to pay for public safety and at what cost—at the expense of community centers, parks and potholes?"

Others, meanwhile, worry that police officers and firefighters are being turned into scapegoats because they are the city's most visible employees earning the largest pensions. Some residents question whether pensions are really the biggest cause of the city's financial problems. . . .

In a city where public-safety workers earn an average of $109,000, and other workers collect an average of $69,000, police and firefighters are having a tough time winning over voters. They are also up against a detective who supports the pension rollback and is running for another city council seat.

"Some people believe I am betraying the police," says Tam Truong, a 30-year-old mayoral candidate. He says he finds such charges hurtful. He decided to enter the race partly because he's upset about the reduction in police staffing, which he believes has emboldened criminals. He says his own home was burglarized recently.

"I am a cop. I am pro-police. I want more officers on the street, and I want them compensated," says Mr. Truong. "But the question is, 'What is reasonable?' I'd rather have a job than a pension."
Mayor Reed hosted a campaign fundraiser for Mr. Truong in February. . . ."

Summing Up

As indicated at the beginning of this post, the citizens of San Jose decisively elected to curtail public pensions costs yesterday.

We'll cover that in another post, but I wanted to share the sometimes raw emotionalism that this issue is stirring in cities and states nationwide.

To call public pension promises and funding a hot button issue is perhaps to understate its significance.

Thanks. Bob.

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