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San Jose mayor Chuck Reed pitches pension changes in Santa Rosa

  • San Jose Mayor Chuck Reed speaks during the 8th Annual CEO Summit at IBM offices in San Jose, Calif., Friday, April 22, 2011. (AP Photo/Paul Sakuma)

Cities and counties need to move quickly to stem rising retirement costs before they overwhelm budgets to the point where it becomes impossible to deliver routine services, San Jose Mayor Chuck Reed told the Sonoma County Taxpayers Association on Thursday.

"It has to get pretty bad to motivate people to action (but) if you wait until things are pretty bad," he said, addressing the organization's annual dinner, "then it might be so late you have no option but bankruptcy."

Reed, a Democrat wrapping up his second and final term as mayor, is pushing a statewide initiative that would allow governments, agencies and voters to make changes in the future pension and benefits packages for employees, even those who currently are employed. Courts generally have said that under current law, governments cannot make changes to the pensions of current employees.

He had hoped to have the proposal on the statewide November ballot, but Reed is locked in a legal dispute with state Attorney General Kamala Harris on the official description of the measure. That disagreement could derail efforts to gather enough signatures to put the issue before voters this year.

In 2012, voters in San Jose approved a measure cutting retirement benefits for city workers, the cost of which has soared from $72 million annually 10 years ago to more than $270 million, almost a quarter of the city budget, this year.

A county judge later blocked most of the cuts, saying the state constitution bars altering established contracts, such as pensions and other retirement benefits. Reed's proposed statewide initiative would make such cuts and changes for current employees explicitly legal.

Reed and his backers argue that state and local officials, beholden to well-funded public employee unions, made unrealistically generous promises to government workers in the first decade of the century. The soaring costs were later compounded by the historic economic downturn starting in 2008, which gutted the investment portfolios of pension funds and slashed state and local tax revenue.

Sonoma County, too, has struggled with skyrocketing retirement costs, with annual pension expenses for the county rising from about 8 percent of total payroll to 19 percent in a decade. The county's current annual salary and benefits costs top $530 million, with pension costs, including bond debt, at $98.3 million.

Efforts to reduce pension costs started with state legislation passed in 2012 that set lower benefit formulas for future state and local government workers. The county also worked out deals with its unions that raised the amount current employees pay for retirement benefits and changed some details of how pensions payments are calculated.

The deals, most of which were hashed out last year, are estimated to save about $13 million a year, or $170 million from retirement benefit costs over 10 years.

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