When I ran for city council ten years ago, I campaigned on providing 401K retirements programs instead of pension plans for new city employees. Coming from the private sector, where companies have largely abandoned pension plans in favor of 401K’s, this seemed fiscally pragmatic.
Then and now, public pension systems are costly and unsustainable. Costly, in that tax revenue spent on pensions inherently reduces the amount of money available to spend on day-to-day services. Unsustainable, since pension increases outpace tax revenues, even when taxes are increased. So essentially, voters raise taxes, but do not benefit from any additional services.
The largest source of revenue for the city of San Jose is property tax. All property tax collected citywide in 2016 adds up to $277 million, which is not enough to cover the annual pension payment of $330 million. This is significant. So just when you think, “wow, my property taxes are high, but at least the money is paying to turn on streetlights or pave my street”, in reality the pension bill must be paid first. I have repeatedly asked city finance staff, “will there ever be a day when property taxes cover the annual pension payment?” Unfortunately, there is never an answer, so I am left to assume this means “not in my lifetime.”
Faced with strong union opposition, I authored Measure W in 2010, which voters approved by 72%. Measure W allowed San Jose to offer what is called a 2nd Tier pension for new employees. Common in most cities, 2nd tier allows for a less costly pension plan for new employees, and has never been legally challenged. Measure W allowed the city to abandon a 250% government match of the employee contribution and 80-90% of final pay in retirement, which resulted in a 93% payroll cost for pensions.
Instead, the new and existing 2nd tier offers a 100% match, 65% of final pay retirement, which lowered payroll costs of pensions to 22%. As a 401K saver myself, I would gladly take the more generous existing city of San Jose 2nd tier pension over a private sector 401K.
Measure F not only increases the 2nd tier pension benefit substantially, but also provides an unfunded retroactive pension increase for 1,300 of the 4,600 city employees. Of those that will benefit most, only 5% are police officers. If it is the desire to assist police officers specifically, as has been widely discussed throughout the community, then Measure F is a fiscally inefficient way to do that. Keep in mind that the City Council can provide wage increases for police on any given Tuesday without voter approval.
When the last police union contract was brought forward to city council I said the compensation increase should be higher and on going thus I voted against. Had union negotiations been public instead of private I believe the police officers would have received a higher wage increase.
The voters of San Diego recently enacted pension reform as well, putting all new employees on a 401K plan but leaving police officers in the pension system. That approach, which prioritizes law enforcement, I would wholeheartedly support, but Measure F, I cannot.
Keep in mind that when retroactive pension increases are given, the taxpayer must ultimately pay the bill, however in the case of Measure F, the actuarial study showing the cost outlay was not conducted in advance of putting this measure on the ballot. Seriously. The plan was to find out the actual cost after voters passed Measure F. Did you catch that? Would you choose to take on more debt with your mortgage without actually knowing what that total cost will be? Measure F increases debt.
I am fiscal pragmatist first, and a Democrat second. The city cannot provide services to residents if the bulk of tax revenue is spent on retirement benefits that are substantially greater than those of the private sector.
Learn more at www.ProtectPensionReform.com
