If someone told you that they were going to invest their money, but if that money didn’t earn enough interest, they were going to take your money to make up the difference, would you think that was fair?
When it comes to pensions for local government workers, that’s what’s happening all over California. San Jose’s story provides a particularly lurid example. Back in 2007 the San Jose Police and Fire Department Retirement plan was 97.8% funded (SJPF CAFR 2006-07, page 37). Back then, the annual contribution to the pension fund was $62.7 million, with the employees themselves contributing $16.1 million through payroll withholding, and the city contributing not quite three times as much, $46.6 million (SJPF CAFR 2006-07, page 40).
Last year, the San Jose Police and Fire Department Retirement plan was 79.3% funded (SJPF CAFR 2014-15, page 119). The annual contribution to the pension fund had ballooned up to $150.0 million, with the employees themselves contributing $20.7 million through payroll withholding, and the city contributing over six times as much, $129.3 million (SJPF CAFR 2014-15, page 73).
No wonder the City of San Jose put Measure B on the ballot in 2012, and no wonder voters passed it by a margin of 69% to 31%. But that wasn’t the end of it.
The unions embarked on a multi-year campaign in court. As reported here in August 2015 in the post “San Jose City Council Capitulates to Police Union Power,” the relentless union counter-attack eventually exhausted the will of the City Council. Facing an uphill battle against judges who themselves receive government pensions, they decided not to appeal the court’s overturning of a key part of the voter approved reform – one that would have allowed reductions to pension benefit accruals for future work.
Never forget that these are the same pensions that the unions lobbied politicians to enhance retroactively back in the late 1990’s and early 2000’s.
Earlier this month, in a final ruling that is almost anti-climactic, Santa Clara County Superior Court Judge Beth McGowen denied a legal attempt to stop the city from completely repealing the pension reform initiative voters approved in 2012.
Politicians come and go. Government unions, by contrast, have continuity of leadership, a massive and uninterrupted source of cash from taxpayer funded government worker paychecks, and unwavering resolve. This not only allows them to negotiate from a position of almost unassailable strength, and fight an endless war of attrition in the courts, but it also allows them to control the narrative. The narrative that the public safety unions used in their fight with pension reformers in San Jose was aggressive, to say the least.
From the start they demonized San Jose mayor Chuck Reed, who spearheaded reform efforts, accusing him of being more interested in his political future than the safety of the citizens. It wasn’t unusual back then, or in the years thereafter, to see bumper stickers with a simple message, “Chuck Reed is a bad person.”
The union also claimed they were unable to recruit because San Jose’s pay and benefit package was not competitive with other cities. But according to a report by NBC’s Bay Area affiliate, police union representatives told recruits to “take advantage of the academy, then find jobs elsewhere.”
But how underpaid and uncompetitive is San Jose’s pay and benefit package for their public safety employees? If you view the 2014 pay and benefits for San Jose’s city employees on Transparent California, you will see that 76 of the top 100 paid positions are either police or fire; they are 160 of the top 200 paid positions. What about averages and medians?
Using State Controller data, and not even screening out positions such as “accountant II,” or “Analyst II,” within the police and fire departments, the median total pay and benefits in 2014 for San Jose’s full-time firefighters was $214,669, and for full-time police it was $233,070. Properly fund their pensions and their retirement health benefits, and their median pay is easily over a quarter-million per year. And what about those pensions? How much are they?
Once again, Transparent California data for the San Jose Police and Fire Retirement Plan shows just how high these pensions can get. They estimate the full-career pension (30 years service or more) at $112,425 per year – NOT including health insurance benefits. That is corroborated by the “Average Benefit Payment Amounts” from the retirement plan’s CAFR (SJPF CAFR 2006-07, page 152) which shows the average 2014 pension benefit for retirees with 26-30 years service at $107,280, and for 30+ years at $115,884. If you review the Transparent California pension data for San Jose’s public safety retirees by name, you will find 758 of them are collecting pensions – not including retirement health insurance benefits – in excess of $100,000 per year.
Which brings up another noteworthy topic – disability pensions. Of the 2,215 San Jose public safety retirees and beneficiaries as of June 30, 2015, 894 of them have retired under a “Service Connected Disability” (SJPF CAFR 2006-07, page 150). Once you adjust for beneficiaries (codes 5, 6, and 8 on table), this represents 49.8% of the retirees. Is it actually possible that half of all police and fire retirees are disabled from on the job injuries? How is this being verified? What are the criteria? The IRS grants significant tax benefits to public safety retirees with service disability pensions.
The financial condition of San Jose’s police and fire retirement system is dramatically worse today than it was ten years ago. The combined assets of their pension fund and their retirement health (OPEB) fund are now $3.1 billion, against liabilities of $4.6 billion – a funded ratio of 67%. And the unions who call the shots are making it abundantly clear that when the money runs short, you’re going to pay.
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Ed Ring is the president of the California Policy Center.