For both of our mayoral administrations, three objectives have guided our negotiations to settle litigation with our police and fire unions over pension reform:
First, reducing the costs of unsustainable retirement benefits; second, ensuring that the pension system does not add to the $3 billion in unfunded liabilities already thrust on future generations; and third, reaching a settlement that enables us to rebuild San Jose’s shrinking police force.
The agreement reached in July accomplishes all three.
First, it will save taxpayer dollars. The calculations of city staff and an independent actuary (whose report is linked to this column at www.mercurynews.com/opinion) show we’ll achieve $1.7 billion in cost reductions over the next three decades compared to the retirement benefits fire and police received as recently as 2012.
And that does not include additional savings that can emerge through pending negotiations with the city’s other nine unions.
How does this $ 1.7 billion compare to the savings we sought through Measure B, the pension reform measure approved by the voters and now contested in litigation?
In health benefits, this settlement offers savings of $244 million over 30 years that we did not achieve in Measure B. This was accomplished by closing the retiree medical plan — eliminating the defined retiree health care benefit for newly hired employees and providing incentives for current employees to opt into a less expensive plan.
On pensions, the settlement offers a Goldilocks solution between the fiscally soft benefit structure that existed prior to Measure B and the harder alternative in the measure that caused some police officers to leave for cities that paid better.
It creates a pension plan competitive with other police departments’ plans, but it will cost less. It will save taxpayers 80 percent of what Measure B would have saved, or about $1.15 billion over 30 years.
The settlement also eliminates the supplemental pension benefit, known as the “bonus check,” saving $270 million over 30 years, while still protecting existing lower-income retirees with a much less expensive benefit.
The agreement would not include savings contemplated by Measure B’s mandate for employees to pay up to an additional 16 percent of their salaries for pensions. We would need to chase those savings down a long and perilous road, however, spending millions in litigation over several years to appeal to the California Supreme Court. If we failed, we’d lose the $1.7 billion in savings achieved by this settlement, not to mention many more longtime employees who would be likely to resign.
Our residents and our employees deserve the certainty of resolution — and of those savings — today.
This agreement sharply reduces the likelihood of saddling future generations with additional unfunded debt. Halting any future commitment of defined retiree medical benefits forecloses the creation of new liabilities in that plan. San Jose would be one of the first major cities in the nation to do this.
The settlement also preserves modified forms of Measure B mandates for sharing future pension costs 50/50 by employees and the city, prohibiting retroactive enhancement of benefits and curbing disability abuses.
Finally, reaching an agreement goes a long way toward aligning our officers, firefighters and the city in a common imperative: rebuilding our public safety departments.
With new leadership in those unions and departments, we have a unique opportunity to do so collaboratively.
To be sure, neither side got everything it wanted in this settlement. In a serious negotiation, nobody ever does.
The important question is whether both sides accomplished their key objectives.
They did, and San Jose is better for it.
Sam Liccardo became mayor of San Jose this year, and Chuck Reed was mayor the previous eight years. They wrote this for this newspaper.
