San Jose’s declaration of a fiscal and public safety emergency raises serious concerns, according to a letter released earlier this week by the office of Attorney General Kamala Harris. Harris’ letter was in response to a joint letter by Democratic state Assemblymen Paul Fong, Rich Gordon, Bob Wieckowski and Luis Alejo. The assemblymen had asked Harris to investigate the city’s declaration of a fiscal and public safety emergency as unwarranted and a misuse of state law.
The attorney general’s letter states that only a cursory review was conducted, but nevertheless, “it appears that declaring a ‘state of emergency’ based on a financial crisis in order to justify the unilateral alteration of public contracts would be an extraordinary maneuver.” The letter states, “Financial problems faced by government must be resolved lawfully. To do otherwise would be irresponsible.” Mayor Chuck Reed announced the proposal in May, saying that it would rein in retirement costs and help the city avoid further cuts to services and the loss of hundreds of jobs.
Supporting Reed were Vice Mayor Madison Nguyen and Council members Sam Liccardo and Rose Herrera. However, the proposal received vehement opposition from city employees and state representatives. Among them was Wisconsin state Sen. Spencer Coggs, one of 14 Democratic senators who left Wisconsin to protest Republican Gov. Scott Walker’s proposal to end collective bargaining for workers. Reed has said retirement costs are “skyrocketing” and contributing to the city’s deficit, forcing the city to lay off hundreds of workers, including police officers and firefighters.
Retirement costs are projected to rise to $400 million by 2016, and could be closer to $650 million after actuarial adjustments. Reed’s proposal calls for setting limits on retirement benefits for new and current employees and retirees, but because the recommendations require changes to the city charter, they would have to win approval by voters. Today he said that although there are legal risks to changing pension benefits, the Constitution allows cities to make those changes in some circumstances. “The office clearly did not consider what we are proposing to do in San Jose. They did their analysis under the Emergency Services Act, that’s not what we’re proceeding under,” Reed said. “We have powers under the Constitution and an obligation to protect the people.”
The limits in Reed’s proposal include capping the city’s contribution to retirement benefits for new employees at 9 percent of base salary and 50 percent of the total cost. Another limit would be to raise the age at which employees can receive full retirement benefits to 60 for sworn public safety employees and 65 for all other employees. Reed proposed raising the eligibility for retiree health care benefits to 20 years of service, and limiting the pension accrual rate for current employees to 1.5 percent per year for any future years of service. His plan also calls for limiting the cost of living adjustment to a maximum of 1 percent per year and restricting bonus pension payments to retirees.
The proposal does not affect retirement benefits current employees and retirees have already accrued. Additional temporary limits would be instituted on employee benefits until city services are restored to Jan. 1, levels or if the retirement plans experience new unfunded liabilities.
The City Council will meet on Friday to discuss fiscal and retirement reform. Discussion and voting on the fiscal emergency proposal and ballot language measure will take place on Aug. 2. The city is considering a possible election in March, Michelle McGurk, a spokeswoman for the mayor, said today.
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