It is clear that the budget deficit this year and in future years cannot be solved only by pension reform. Even if the city stopped matching the employee contributions at the current rate of 250 percent to the average employer match on a 401K of 3-6 percent, taxpayers would still have a multi-billion dollar unfunded liability from commitments to current and future retirees already vested.
At some point, the Council will put forward to the voters a tax increase that will be labeled to pay for essential services but inevitably will be allocated to pay the annual required contribution to the pension fund laid out by the independent retirement boards. (A general tax can be allocated to anything, which is why I prefer a utility tax dedicated to police. This way the tax revenue can only be spent on police and nothing else. Why? Again, only police enforce the social contract. A utility tax increase treats property owners and renters the same and it induces consumer conservation of electricity, gas and water, which is a positive externality.)
Why beat around the bush when we know taxes will have to be raised to afford the pension obligations and maintain bare minimum services laid out in the city charter?
Some residents tell me they are willing to pay more in taxes to solve the fiscal issues the city is facing. But these residents currently must wait until there is a ballot initiative that may or may not pass, most likely in the 2012 November Presidential election. However, the city can take donations at any time from residents. So why wait? Let’s extend a formal invitation for those who are willing to pay more to do so now. In return, these people should get credit on the tax equal to how much they have donated.
For example, if Jane Smith wrote a check now for $1,000, before the council placed on the ballot and the voters approved a future $250 annual parcel tax, then Jane would be exempted from the tax for four years. Or, if it was an increase in the utility tax or sales tax, the city could rebate Jane at the end of the year with her documentation showing she had paid the increased pension tax that year.
The “PhDs” at Stanford have reviewed the San Jose pension system and found the current pension system is fixable. It is only a matter of money. So, if each house, condo and apartment would write a check in the amount of $12,500 to $16,000, the unfunded pension liability could be paid and eventually the city services that have been cut would return. The Stanford dollar figure is based on an up-front payment (the range in the amount is based on what percentage of the unfunded liability to pay off). But, if household payment was instead spread out over 10-20 years, the total amount per household to pay off unfunded liability would be much higher due to the time value of money.
This concept is simply an exemption from the future pension tax if donations are received prior to the passage of a tax increase. We should not stand in the way of those willing to contribute more.