SAN FRANCISCO (Reuters) - Two of California’s biggest cities were on the verge of adopting sweeping pension reform plans on Tuesday, with early election results showing measures in both cities passing by 2-1 margins.
Voters in San Diego, second in population to Los Angeles, favored moving new employees to plans similar to private-sector 401(k)s, instead of pensions with guaranteed benefits.
The capital of Silicon Valley, San Jose, will force employees to choose between reduced benefits or sharply higher employee contributions to maintain current benefits, which now cost the city about a quarter of its budget.
“A big win here gives mayors across the country confidence that if they bring this to their voters, the voters will get it,” San Jose Mayor Chuck Reed said as the votes came in.
Union representatives said the cities should have worked harder at the bargaining table. “These results will mean broken promises and less retirement security for working families and seniors,” Dave Low, chairman of Californians for Retirement Security, said in a statement.
California’s budget gap, currently near $16 billion, pales in comparison to a pension shortfall estimated as high as a half trillion dollars. That bill doesn’t come due at once, but payments are approaching crisis levels for some local governments, such as San Jose.
Stanford economist Joe Nation estimates the largest state pension plan, the California Public Employees’ Retirement System, Calpers, and two plans for school and state university employees, are underfunded by a total of nearly $500 billion. Major cities such as San Jose and San Diego, which are not part of the big state plans, are billions more in the hole.
Nation said huge victory margin would catch the eyes of politicians across the country, if not necessarily in Sacramento, where Governor Jerry Brown’s pension reform efforts have stalled.
“Anyone in the political business understands what a 2-1 margin means. It means that voters get it and you better get it,” Nation said.
San Diego’s Proposition B was ahead 68 percent to 32 percent with mail-in ballots and a half of precincts reporting, and San Jose’s Measure B was ahead 70 to 30 percent with mail-in ballots and 47 percent of precincts reporting.
California dramatically raised pension promises in the aftermath of a 1990s stock market boom, predicting that stock returns would pay for increases.
A 1999 law, adopted overwhelmingly by legislators on both sides of the aisle, knocked five years off the retirement age for many workers, bumped up payments - or both. Every career government worker could quit at 50 or 55 with a solid, and sometimes lavish, pension.
Cities eager to keep workers followed suit.
But unions facing vastly higher costs are not likely to accept the changes without a fight. San Diego Municipal Employees Association General Manager Mike Zucchet said his group had already launched one court challenge and was ready with more. The pension measure was full of holes, he said.
“This was written like a full employment law for lawyers,” he said.
Reporting by Peter Henderson; Editing by Lisa Shumaker