The end is near...no, really

San Jose's City Council is so close to closing this year's budget. Why can't they just accept the unions' proposal that increases employee funding of their retirement benefits?

Let's examine the San Jose City Charter:

SECTION 1500. Duty to Provide Retirement System.

Except as hereinafter otherwise provided, the Council shall provide, by ordinance or ordinances, for the creation, establishment and maintenance of a retirement plan or plans for all officers and employees of the City. Such plan or plans need not be the same for all officers and employees. Subject to other provisions of this Article, the Council may at any time, or from time to time, amend or otherwise change any retirement plan or plans or adopt or establish a new or different plan or plans for all or any officers or employees.

Let's ignore the obvious questions: if social security is good enough for “normal” working people, why do government employees need “a retirement plan?” Can't they enjoy their golden years via the benefits of social security and their own savings, like most private sector employees?

More relevant to today's discussion is: why is the city hesitant to accept the unions' proposal of funding a larger share of their retirement plans if it accomplishes the same financial end as imposing cuts? Why do the city manager and city attorney have a problem with that? Certainly, the charter provides the council lattitude to “amend or otherwise change any retirement plan or plans.” Perhaps this is just one more example of the city, realizing that they have the backing of the electorate, playing hardball with the unions?

I have 7 words for you. “Kern versus The City of Long Beach.”

In this 1947 case, the California Supreme Court wrote:

[P]ublic employment gives rise to certain obligations which are protected by the contract clause of the Constitution, including the right to the payment of salary which has been earned. . . . Since a pension right is an “integral portion of contemplated compensation” . . . it cannot be destroyed, once it has vested, without impairing a contractual obligation.

Over the years, this language has morphed into a belief, by some, that an employee has a right to a pension that is at least as good as the one promised at the start of employment. Pensions can be improved, but never can they be reduced, as this amounts to destroying a vested contractual obligation. I suspect that the city is assuming that increasing employees' retirement contributions, even voluntarily, will subject them to lawsuits claiming an impairment of a contractual obligation.

Perhaps they are right. I am certainly no highly paid legal consultant drafting pension law analysis for the city. But Kern may not be as restrictive as people believe. An interesting analysis of the precedent can be found here.

It's time for aggressive pension reform, and that will only happen if limits are explored. Accepting the unions' proposal would be a good start, and show the kind of collaborative environment needed to bring our city's chronic budget mess to heel. Then we can start exploring viable alternatives to the existing defined benefit pensions that so many working people question.