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* San Jose City Councilman Ash Kalra’s Thoughts on Fiscal Emergency Plan

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My Thoughts on the Fiscal Emergency Plan

At last Tuesday’s council meeting, I voted against the proposal recently submitted by the Mayor and three other councilmembers that recommended declaring a fiscal emergency in San Jose. I did so because I feel that the proposal is rash, unnecessary, costly, and almost certainly illegal.  Make no mistake: in no way does my vote mean that I do not support significant fiscal and retirement reforms. However, it is my strong belief that the fiscal emergency proposal will not accomplish these reforms, primarily because the measures suggested in the proposal are most likely illegal, and will certainly cost millions of dollars.The proposal seeks to declare a “fiscal and public safety emergency” for the purpose of drastically changing the pension and retirement systems for city workers by amending the City Charter (basically San Jose’s Constitution) in two key ways: first, reducing retirement benefits for current employees, future employees, future retirees, and current retirees; second, requiring voter approval before certain future benefits are increased.

The proposal would also raise the retirement age for all workers, including police and firefighters, by a decade. I don’t know about you, but I don’t think having 60-year-old cops chasing criminals or 60-year-old firefighters pulling people out of burning buildings is a good idea, especially when studies clearly show that any savings will be outweighed by increased disability and workers compensation claims.
Significantly, the proposal concedes that many of its provisions may not be legal, and it deals with this possibility by stating “if any of the above provisions are or become illegal, invalid or unenforceable” the City will force current employees to pay half of the unfunded liability (the retirement benefits the City owes or will owe to its retirees) unless they have already chosen to switch to a new, significantly reduced retirement plan. The City will also force current retirees to lose any benefit increases that were previously-agreed upon dating back to the date of retirement. These provisions alone are likely illegal as well, and they may lead to a completely separate set of lawsuits.
Let me say this: I know, just as everyone on the Council knows, that we have significant fiscal issues which require difficult decisions and significant retirement reform. But many people are telling you that there is only one way to accomplish these goals. This is simply untrue, and in the coming weeks you will see other, more reasonable proposals that are fiscally responsible, allow for less services to be cut, and, most importantly, are legal. The bottom line is that the fiscal emergency proposal will not accomplish these goals, and the methods being used to try to accomplish these goals are distasteful and are made in bad faith. Here’s why.
First, the plan proposes significant reductions to the benefit plans of employees and retirees. This cannot be done without amending our City Charter, which cannot be done without putting these issues on the ballot. These ballot measures will end up costing the City millions of dollars, and everyone on the Council knows this.
Secondly, and significantly, the majority of the proposed changes to the benefit plans of current employees and retirees cannot be changed under long-standing Federal and state labor laws. These changes are required, by law, to be agreed upon by way of the collective bargaining process. This is especially true for retirees. California courts have consistently and recently upheld these basic principles of labor law.  Ask anyone familiar with labor law—they will tell you the same thing.
Last, the authors of this memorandum should know that because these proposed changes to retirement benefits have consistently be held to be illegal unless they are collectively bargained and agreed to, these proposals will undoubtedly lead to extensive and costly lawsuits that could last for years. By the time these legal issues are decided, and recent case law shows that it is extremely likely that they won’t be decided in the City’s favor, millions of dollars will have been spent on attorney fees, and many of us who are currently on the Council, including the Mayor, won’t be around to see the wreckage left behind.
Furthermore, by requiring voter approval before any increase to future benefits, the proposal basically puts a potentially multi-million dollar price tag on any future attempts to make any beneficial changes to benefit plans. So if it turns out that this plan ends up putting a good number of retirees in the poor house, it will cost millions to rectify that mistake.
There is one other significant problem that I have with this proposal, and that is the fact that its timing and intent reek of bad faith. Here’s why:
The figures regarding the current unfunded liability that is driving the need for retirement reform were released in February. Shortly thereafter, the City stated that it needed to get 10% reductions in salary from its workers and also needed to make significant retirement and pension reform.
Since then, we have reached agreements with several of our unions that have contained the reductions we sought, and retirement reform has been put squarely on the table. In fact, the firefighters union was ready to discuss retirement reform with the City, and the City asked to address these reforms at a later time.
Here’s my point: since February, we have made significant progress towards our stated goals.  Furthermore, there have been no changes to the predicted unfunded liability or the amount of the budget deficit. In other words, since February, things have not gotten any worse—in fact, we have gotten several of the agreements we asked for. Just today, we agreed to reduced contracts with two more unions. So if the current fiscal picture was clear in February, why was the fiscal emergency issue first raised in May? Why wasn’t this issue raised months ago, which would have given us time to study the legal pitfalls contained in the proposal? It doesn’t make sense, unless the goal all along was to spring this proposal at the 11th hour. Similar tactics were used last year, when significant ballot measures were proposed just before the deadline for adding issues to the ballot.
I am also very concerned about how this proposal will impact our retirees, many of whom are in no position to return to the workforce. Whether we like it or not, the City agreed to fund these retirement plans, and our former city workers (who do not receive Social Security) retired in reliance upon this promise. The fact that we are facing a significant budget deficit does not give us the right, legally or morally, to just walk away from the agreements that the City voluntarily agreed to years ago, and to leave our retirees in a financially precarious position.
I also disagree with the proposal’s attempt to strong-arm current employees into “opting-in” to a new retirement plan. Don’t get me wrong: I agree with the concept of a new, opt-in benefits plan, and several such plans have already been suggested by both the City and the unions. But it cannot really be called an “option” when your only other alternative is to risk being put on the hook for half of the unfunded liability that the City is legally responsible for. We shouldn’t be forcing our workers to pay off half of the debt that previous city councils agreed to pay. We should work with them, as we have already successfully done.
Like I said earlier, everyone agrees on the need to achieve fiscal and retirement reform so that important city services can be provided to San Jose’s residents. However, while the budget situation we are currently facing is significant, it is hardly unique. Every major city in California is dealing with a similar problem, and in some cities it is worse than it is here in San Jose.  And yet you haven’t heard of other cities resorting to declaring a fiscal emergency, most likely because those cities know that measures like the one being proposed here are not legal.  Instead, these cities are doing what we should be doing: making difficult yet financially responsible decisions that address the structural deficit and reform the retirement system while still providing critical services by working with their employees.  Fiscal reform cannot be attained if the measures being used are illegal. That is why I will continue to push for fiscal and retirement reform measures that achieve real savings, saves crucial city services, and, most importantly, are legal.

 

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