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The Coming Budget Cuts

posted Mar 1, 2011, 2:55 PM by Sun Secretary   [ updated Mar 1, 2011, 4:45 PM ]
By Sam Liccardo
San Jose District 3 Councilmember
Phone: (408) 535-4903

In what has become an annual refrain, we again sit at a crossroads of bad choices about cutting services and job, far worse even than last year. In June, we will slash many crucial services and lay off hundreds of city employees—as many as one out of every five-- to resolve a budget deficit that will likely exceed $120 million. 

The Great Recession has left us increasingly deaf to the familiar drumbeat of bad news—losing a quarter of the police force, closure of nearly every community center, and the like—particularly as this scene repeats itself in large cities throughout the United States. 

Traditional employee concessions—such as cutting pay by 5% or even 10%-- could modestly mitigate the scope of the damage, but not much. Much of the conversation in the last two years has focused on pension reform to create a lower, “second tier” of benefits for newly hired employees. It has become increasingly clear, however, that even implementing a much less generous second tier will do little to curb the exploding trajectory of retiree costs. 

Here’s why: reducing benefits for new hires will do nothing to cut the City’s mammoth $3.5 billion unfunded retirement liabilities, and those obligations have increasingly started coming due. City taxpayers currently will pay over $256 million to cover retirement obligations in the coming fiscal year, a figure more than twice as great as only a couple of years ago. Already consuming one out of every four General Fund dollars, retirement costs will continue to balloon, exceeding $400 million within four years. Even the most stringent of cuts in a “second tier” will enable the City to shave no more than $30 million off of that that $400 million annual price tag. 

What to do about it? Demonizing our hard-working employees does not amount to much of an answer. After all, employees fairly bargained for these benefits. Moreover, even as many taxpayers pay more for those retiree benefits, we would do well to remember that many employees do not actually get much richer. In many cases the costs have been driven by factors having nothing to fattening any employee’s wallet, such as soaring health costs, longer life expectancies, and deep market losses. Indeed, for many of our younger employees, it appears increasingly likely that the promised-for pensions and other benefits simply will evaporate by their retirement date anyway, as it appears too much to expect future city councils to continue to stomach deep cuts in services in order to feed the insatiable retirement funds. 

Rather than dumping responsibility on employees, we should put it where it belongs: on elected officials. Politicians happily agreed to union contracts with unsustainable promises, and in many cases, those politicians benefited politically while leaving taxpayers holding the bag. 

So, in city halls and statehouses throughout the U.S.., the task remains for elected officials today to show renewed courage and fiscal sense. In San José, that requires that we begin a more difficult conversation, one about whether and how to cut retirement benefits—ranging from eliminating sick leave payouts and raising health insurance copayments and lowering the cap on pension payments--that our current employees and retirees have long relied upon. While constitutional protections make it difficult, if not impossible, to do so through traditional mechanisms of collective bargaining, we need to work with our unions to find a new bargain with our employees: one which is both fair and sustainable. 

In the coming weeks, my colleagues and I will present proposals to do just that. As we do so, it would do well for all of us to remember that our adversaries are not the labor unions, nor city management. Rather, our adversary is time. We cannot delay confronting a fiscal tsunami that threatens the solvency of the City with continued half-measures and mere platitudes about “the need for pension reform.” We will need to make tough choices, and tough choices will make people unhappy. As voters and residents, do not allow any of us to duck from that responsibility--the future of our City hangs in the balance.