Cut Salaries, Not Pensions in San Jose, Judge Rules

By NORIMITSU ONISHI and RICK LYMAN

Published: December 23, 2013 - New York Times

SAN FRANCISCO — California law prohibits the City of San Jose from reducing the pensions of city employees, even though the reductions had been approved by voters, but it can cut its workers’ salaries to pay for higher retirement costs, under a judge’s ruling that was released Monday.

Judge Patricia Lucas of the Santa Clara County Superior Court ruled that San Jose, the third largest city in the state and the self-described capital of Silicon Valley, could not make its employees pay an additional 16 percent from their own pockets toward their pensions or switch to a less generous plan. But her ruling endorsed voter-approved cuts to wages and some health benefits that are expected to save the city money.

Rising pension costs have plagued many cities, some of which — most notably Detroit — have sunk into bankruptcy, partly because of those costs. About one-fifth of San Jose’s $1.1 billion general fund is now spent on pensions and retiree health care. Several cities in California, including Stockton and San Bernardino, have also gone bankrupt in recent years, with pensions playing a large role.

In California, as in Michigan, state law prohibits reductions in the pensions of state workers. But a federal judge ruled in Detroit on Dec. 3 that United States bankruptcy law trumps state law when it comes to whether pensions might be reduced during a municipal bankruptcy.

San Jose, however, is not bankrupt. Voters there passed a referendum in June of 2012 that gave city officials the power to cut workers’ pay and reduce their pensions, which officials said was needed to balance the budget.

This eagerly awaited judge’s ruling is the first indication from the courts about whether distressed cities can lower pension costs through such a referendum. Not in California, Judge Lucas ruled. Whether a California city might be able to do so if it was bankrupt, like Detroit, remains an open question.

Sgt. Jim Unland, president of the San Jose Police Officers Association, said that the union would sue if the city tried to cut police officers’ salaries outside of the collective bargaining process, but welcomed the judge’s ruling that cutting public employee pensions is illegal in California.

The police association had joined other city unions in trying to have the 2012 referendum struck down in the courts.

Chuck Reed, the Democratic mayor of San Jose, who championed the ballot referendum, declared himself satisfied after the judge’s ruling, saying it gives the city enough leeway to overcome its budget obstacles.

“Unfortunately, the judge’s decision to invalidate certain portions of Measure B” — as the 2012 referendum was known — “also highlights the fact that current California law provides cities, counties and other government agencies with very little flexibility in controlling their retirement costs,” Mr. Reed said in statement late Monday.

Norimitsu Onishi reported from San Francisco, Rick Lyman from New York