Friday, December 2, 2011

Pension Armageddon on Hold in San Jose

For months now, we've been following the simmering battle between San Jose mayor Chuck Reed and the city's public employee unions. Basically, after years of budget deficits and deep cuts in staffing, California's third largest city is fast approaching a point where the cost of employee pensions and health care benefits stand to crowd out all other city services. In order to avert a nightmare scenario in which taxes are still high and public services nonexistent, Reed has offered a radical plan: declare a state of fiscal emergency, and use it to roll back the pensions of current city employees, benefits which are widely believed to be "vested." Facing a projected budget deficit of $80 million, Reed was expected to call for a City Council vote on the state of emergency next Tuesday. Now, however, the story has taken another turn.

As reported in the Contra Costa Times, the actuarial firm charged with estimating the city's liabilities for police and firefighter pensions has sharply lowered its projections for next year. In July, the actuaries at Cheiron had projected police and fire pension costs to rise from $127 million to $160 million; now, those costs are actually expected to fall to $105 million. As such, San Jose's estimated budget gap now falls to $25 million. Union leaders, of course, seized on the news to bash Reed's plan. The mayor, to his credit, is largely undeterred, and still plans to bring his pension reform plan to city voters next June, even as he acknowledges that the city may not have to implement threatened closings of libraries and community centers.

It's important to remember that the dip in pension costs doesn't reflect any change in the underlying problems facing the city. According to the actuaries, the revised cost estimate is largely the result of laying off 66 police officers and the 10% pay cut city employees absorbed last year. In other words, the pace at which these costs are growing isn't changing, and unless the unions are willing to take more cuts in pay and staffing, it's still only a matter of time before Reed's worst case scenario comes to pass. Even with the revision, the mayor still expects annual pension costs to hit $400 million in the coming years.

No comments:

Post a Comment