The pension reforms that San Jose voters overwhelmingly
approved just more than a year ago come to a key test with a trial starting
Monday before a Santa Clara County Superior Court judge.
No one expects the weeklong hearing to be dramatic. There won't be celebrity defendants or star witnesses, nor the courtroom suspense of a whodunit, nor even a jury for lawyers to sway with theatrical performances. After bureaucrats and actuaries dissect fund figures and lawyers parse nuances of the city charter and case law, it could be months before the judge issues a ruling. And then there will be appeals.
But much is riding on the outcome. San Jose's current budget already relies on $20 million from parts of the Measure B pension reforms. A city win could add $48 million in yearly savings. Workers, though, want to keep the city from grabbing even more of their paychecks to pay for their pensions. More broadly, the judge's ruling will affect similar debates over government pensions throughout the state and across the country.
"There are a lot of eyes on this case," said Arthur Hartinger, the lead lawyer representing the city. "The stakes are high."
Added Gregg Adam, a lawyer representing the San Jose Police Officers' Association, one of several unions suing to block the measure: "It's the opening round, but opening rounds are important."
The core arguments remain unchanged from even before the city took its pension reforms to
City employee unions say that under a "vested rights" doctrine, established through a series of court decisions dating back more than half a century, government employers cannot cut employees' pension benefits. They insist pension rates are protected both for work already rendered and for the rest of their careers.
The city is challenging that doctrine, arguing it has been stretched to extremes that voters never intended. City lawyers point to San Jose's charter language and argue it reserves the right of voters and their elected officials to make future changes to retirement plans.
San Jose's pension troubled are rooted in benefit increases, flawed assumptions and market losses for the city's pension fund. As a result, the annual cost to the city more than tripled in a decade, consuming more than a fifth of its general operating fund. City officials cut everything from police and fire department staffing to library and community center hours to cover growing costs. And with the retirement funds still $2.9 billion short of promised benefit costs, the bill continues to rise.
"At the time these benefits were enacted, did voters think they'd face this $2 billion-plus exposure and there's nothing we can do about it?" Hartinger asked. "We don't think that's right."
The stakes are huge for Mayor Chuck Reed, who championed the measure, and the City Council members who supported him. He and many of his council allies complete their last term in office next year, and a loss in court could sap political support for the controversial reforms as well as upend the budget.
"If we lose," Reed said, "we'll have to go right back into cutting services."
The case is being argued before Superior Court Judge Patricia M. Lucas. Before former Gov. Gray Davis appointed her to the court in 2003, Lucas specialized in litigating high-stakes intellectual property cases and headed the litigation department for Fenwick & West.
Lucas already has some familiarity with the Measure B case. Before it went to a vote, she ruled that a ballot argument against the measure slightly overstated concession offers from police and firefighters. But she dismissed a host of other complaints about the opponents' argument.
Measure B reduces pensions for new hires and makes current employees contribute up to 16 percent more of their pay toward their pensions unless they switch to a lesser benefit. Retirees could see annual 3-percent "cost-of-living" raises on their pensions suspended if the city declares a "fiscal emergency."
San Jose was one of two major California cities where voters overwhelmingly approved pension reforms in June 2012. San Diego's Proposition B called for replacing pensions for all new hires except police with 401(k)-type retirement savings accounts, and a five-year freeze on current employees' pay that would count toward their pensions. San Diego has since negotiated the five-year pay freeze and put new hires on 401(k)-type plans after defeating unfair labor-practice challenges.
San Jose's legal road is longer because the city is taking direct aim at the "vested rights" doctrine. Said Jack Dean, vice president of California Pension Reform: "all of the state's pension reform activists are watching this case with great interest."
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