San Jose, Other Cities Can Look Toward “Service Insolvency”
San Jose is only 117 miles from Sacramento, yet the ongoing plight of this beacon of Silicon Valley falls on deaf ears at the state Capitol. The city’s Democratic mayor certainly isn’t getting any aid from legislators. Fortunately, a recent article in the Washington Post shows that the message might be getting out any way.
“Here in the wealthy heart of Silicon Valley, the roads are pocked with potholes, the libraries are closed three days a week and a slew of city recreation centers have been handed over to nonprofit groups,” according to the Post.
“Taxes have gone up even as city services are in decline, and Mayor Chuck Reed is worried. The source of Reed’s troubles: gold-plated pensions that guarantee retired city workers as much as 90 percent of their former salaries. Retirement costs are eating up nearly a quarter of the city’s budget, forcing Reed (D) to skimp on everything else.”
Reed’s efforts to fix the city’s situation with a 2012 ballot measure passed overwhelmingly in the heavily Democratic city, but a judge invalidated the main, pension-cutting portion of the measure thanks to the so-called California Rule. Here, Chris Reed reviews how a rule forbidding the rolling back of any pension benefits for current employees, even on a go-forward basis, is leaving few options for hard-pressed city officials. Even in gilded Silicon Valley. None of this makes an impression in the state Capitol, where union priorities typically hold sway over the concerns of local officials and taxpayers.
Reed had proposed a statewide constitutional ballot measure that would fix the problem by changing that rule and allowing that reform throughout California. It is modest idea, despite the vicious rebuttals from unions. At a previous job in the private sector, my company reduced our pensions starting the next day. It didn’t slice what we already received in benefits. That would be wrong. But it announced that we would accrue retirement benefits at a lower level. There’s nothing unfair or illegal about that, but it’s not allowed for public-sector employees in California without an initiative to allow such a change.
A union consulting firm had found that if critics of the plan claimed that it would “eliminate” pensions, that their argument would resonate with the public. (No problem, apparently, that depicting the Reed plan as an elimination of benefits is dishonest.) When Attorney General Kamala Harris, a union ally with a promising statewide political future, issued a ballot summary that prominently used the word eliminate, it forced Reed and his allies to challenge it in court — something that will no doubt delay the campaign until the 2016 election. The unions won another round, even as cities such as San Jose struggle to provide adequate services.
A recent report from the liberal-leaning Brookings Institution made these suggestions for those who want to champion the kind of reforms promoted by Reed: “Avoid turning pension reform into an ideological issue; Enlist a credible and visible reform champion (having a Democrat lead the effort goes a long way towards countering the charge that reforms are merely a conservative attack on labor); Clearly communicate the reality of their state’s pension liability and demonstrate pensions’ impact on taxes and other state spending priorities, such as education; Sell the benefits of pension reform to state workers (as ultimately in the best interests of pension participants, relative to a system that can’t meet its obligations); Sell the benefits of pension reform to school reformers; Anticipate and plan for legal challenges.”
That’s good advice, which Reed and his supporters carefully followed. Yet they still have lost out because the system here is dominated by the state’s most powerful interest group, the public-sector unions. So what do pension reformers do now? Read the quotations by union officials and leading Democrats in the Post article. They say they’ve already reformed pensions (thanks to a previous but miniscule reform package) and are proud of a new plan that won’t do anything about pension debt, but will result in a state-created mini-Social-Security system. In Sacramento, the problem isn’t an overly generous public pension system, but insufficient government involvement in private pension plans.
“I got sick and tired of cutting services to my people — 10 years of services cuts — in order to balance the budget,” Reed said, in the Post article. “We got to the point where we were facing service delivery insolvency.”
That’s what residents can expect — fewer services, higher costs — unless something fundamental changes in Sacramento.
Steven Greenhut is the California columnist for U-T San Diego. This article originally appeared in Public Sector Inc.