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Pension Reform Effort Pivotal for CA

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Pension Reform Effort Pivotal for CA

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CENTENNIAL, CO - DECEMBER 06: Seniors attend a 'Medicare Monday' seminar at the Holly Creek retirement community on December 6, 2010 in Centennial, Colorado. Some 80 people crowded into a conference room to learn how federal health care reform will affect Medicare and their personal health insurance plans. Many seniors nationwide have been confused by the reforms and fear they will lose coverage. (Photo by John Moore/Getty Images)

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Among the hundreds of races and issues on the June 5 ballot will be a proposal in San Jose to modify the city's pension system.

"Pension reform," as proponents call it, has taken on a life of its own in the past few years as an element of employee compensation.

In 2010 alone, eleven local governments asked voters either to reduce employee pension formulas or secure future voter approval for additional pension benefits.

The voters agreed in ten of the eleven cases; only San Franciscans refused to cut employee benefits.

Now comes the biggest test of all: a vote in San Jose on a proposal to increase employee contributions and decrease pension payouts. 

The proposal is important for two reasons:

  • First, San Jose is the third largest city in the state. The proposal would affect every city employee from public safety officers to administrative clerks. Therefore the outcome may well be a turning point for those on both sides of the issue elsewhere in the state.
     
  • Second, the vote may well forecast the shape of San Jose's divided city government. For the past few years, fiscal conservative Mayor Chuck Reed, leader of the Measure B effort, has presided over a city council often equally divided on budget issues, giving Reed an all important tie-breaking vote. Five council seats will be decided in 2012 and a strong vote one way or another could well spillover to the make-up of the next council.

The arguments have been loud on both sides, and there are endless nuances and caveats--too many to mention here. That said, the gist of the debate boils down to the use of too few public funds at a time when expenses routinely exceed income in an environment where the voters do not seem inclined to support new taxes.

Reed contends that the city's contributions now consume 20 percent of the San Jose's general fund, or $245 million in 2011-2012.

Without any changes, the city's contributions would soar, leaving a budget hole of $2 billion over the next few years which, in turn, would force deep cuts in important public safety services and other programs.

His proposal would save the city about $115 million over the next three years.

Opponents counter that they have already paid a hefty price, including pay cuts of between 10 and 12 percent.

Moreover, depending upon the options in the proposed compensation package, employees could be forced to pay triple the employee retirement healthcare contributions, from 5 percent to 15 percent. Combined, all the changes would represent pay cuts in the neighborhood of more than 30 percent, they contend.

Six weeks out, it remains unclear as to which side will prevail. A victory for Reed and the Measure Bproponents will move the issue into countless local government jurisdictions. A victory by the forces opposing Measure B may well lead local governments (including San Jose) to consider new taxes.

Either way, a lot will be on the line not only for San Jose but for the entire state on June 5.  

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