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San Jose Mayor Targeting Pensions in Budget

San Jose Mayor Targeting Pensions in Budget

San Jose Mercury News via YellowBrix

March 12, 2011

SAN JOSE- San Jose Mayor Chuck Reed said Friday the city cannot afford to pare its work force any further to close chronic budget deficits.

But with a 10th straight year of red ink raising the specter of massive cuts to everything from police to libraries, avoiding more layoffs will require hefty reductions to current and future employee pensions and perks, Reed said in budget recommendations released Friday.

The City Council will consider the recommendations Tuesday and vote on them the following week.

“It is a big sell,” Reed acknowledged. “The level of service we have today is the minimum. We’ve cut and cut and cut for nine years, and we have to do things to preserve services to the community, and there aren’t other ways to do it.”

The council can modify Reed’s recommendations, which provide policy guidance to the city manager. The council must adopt a final budget by June for the budget year starting July 1.

Councilwoman Rose Herrera, who represents the Evergreen District in East San Jose and is considered a moderate swing vote, said Reed’s proposal “sets the right tone in terms of our goal to right-size the organization so we can return to our focus on providing services to our community.”

Upon taking office in 2007, Reed vowed to end the city’s chronic budget deficits, driven chiefly by employee costs outpacing revenues. Since 2000, revenues grew 22 percent while employee costs rose 77 percent and staffing fell 17 percent. But employee unions have fought his calls for concessions, even after a national recession worsened the city’s financial woes.

For much of the last decade, the city patched deficits by eliminating vacant positions of employees who retired or resigned and cobbling together temporary funding in hope that an economic recovery would deliver more tax revenues. But the economic downturn that began in 2008 has eaten into revenues, and the city has fewer jobs to cut.

Last year, when a record $118.5 million deficit threatened layoffs and budget shortfalls loomed far into the future, a half-dozen city unions grudgingly accepted the city’s demand to reduce their pay and benefits 10 percent, a level matched by the council and top officials.

The city imposed 5 percent cuts on one small union, and police agreed to 4 percent reductions to save 70 officers from layoffs. Firefighters couldn’t reach agreement on concessions with the city, and 49 were laid off. Two other unions still under contract continued receiving raises. Still, the city cut 800 jobs and demoted or laid off more than 150 employees.

This year, the deficit has climbed to $105.4 million, driven chiefly by pension costs that are projected to grow from $156 million to $256 million next year and top $400 million in four years.

Next year’s deficit doesn’t include $23 million that temporarily maintained several police, fire, library and community center programs through June. It also doesn’t include a possible $10 million in additional costs from the city’s struggling redevelopment agency. The agency has seen its revenues plummet in the economic downturn, and Gov. Jerry Brown wants to end redevelopment statewide.

Several unions have stepped forward with offers to accept the 10 percent cuts city leaders had called for last year to ease the ongoing budget woes, most notably firefighters, who reached a tentative agreement with the city that will be voted on March 22.

But Reed noted that the worsening budget picture means employees will have to give up much more to avoid further layoffs. The 10 percent cuts would save only $38 million. About 480 jobs would have to be axed to cover the balance.

Reed said the city already is thinly staffed and can’t afford to lose more employees. The city, he added, can’t afford to keep “fiddling around the edges” of the pension reforms he’s sought.

Reed said employees need to reduce pensions not only for future hires but existing workers, including raising retirement ages, reducing automatic pension increases and bonus checks. Eliminating other perks like a provision that pays retiring workers for unused sick leave can also save millions of dollars, he said.

Leaders of the San Jose Police Officers’ Association and a coalition of five other city worker unions said they’re willing to talk.

“We realize that everything is on the table,” said POA President George Beattie.

Nancy Ostrowski, who heads a coalition of five city unions representing about 750 employees, said the workers understand “the dire fiscal situation the city is in.” The group last month offered 10 percent cuts and pension changes.

Firefighters also have offered to talk about pension reductions for future hires with a provision that existing workers could choose that plan, which would cost employees as well as the city less money.

Councilwoman Herrera said shrinking current workers’ pensions is the “800-pound gorilla” that the city must confront to avoid the recurring “Groundhog Day” of budget woes. She also applauded Reed for sparing programs serving kids, including children’s health care and school crossing guards.

“Our children shouldn’t have to pay the price,” she said, “for past bad decisions by previous councils.”


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