Why other cities are watching San Jose
Struggling to pay rising pension and health care costs, it has a plan to cut benefits -- which a court will have to rule on.
For many municipalities struggling with rising pension and health care costs, San Jose, Calif., is the one to watch.
That's because voters in Silicon Valley city passed a referendum last year that will offer a two-tier system of benefits, giving new city employees smaller pension and health benefits. But unions are opposing the plan in court, arguing that it's illegal, The New York Times notes.
The disputes' outcome could serve as a model for other cities. In the meantime, San Jose Mayor Chuck Reed (pictured) is considering joining together with other California mayors to create a campaign for a state ballot initiative to give city officials more control over pension and health spending, The Times notes.
Other towns would likely follow San Jose's lead, if the state court mulling the case rules in the city's favor.
Already, San Jose is suffering from financial stress, despite being the home base for tech companies ranging from eBay (EBAY) to TiVo (TIVO). The city has an unfunded pension liability of $3 billion, and its police department has seen officers quit amid cuts to pay and benefits.
Unfunded pension plans are a problem across the country, affecting cities from Omaha, Neb., to Little Rock, Ark., according to a January study from the Pew Charitable Trusts. Altogether, 61 cities have a gap of $217 billion in pension and health care guarantees.
Reforms are certainly needed, although some cities have undertaken different tactics than San Jose. Omaha, for instance, created a 2.5% restaurant tax to help cover unfunded liabilities.
Whatever the solution, chances are it won't be easy or painless.
Karol Denniston, a San Francisco-based bankruptcy attorney, told The Times: "There is growing recognition that there is not enough money to keep doing what they're doing, and something's got to change."
Follow Aimee Picchi on Twitter at @aimeepicchi.
I would think SOME pension and health care benefits after retirement is better than NONE.
Yes, the unions are mad, as it appears the city is reneging on the original contract. Guess what, the original contract was unreasonable and unsustainable. So what is being offered today is the best the city can do.
It is what it is.
"Unfunded pension plans are a across the country, affecting cities from Omaha, Neb., to Little Rock, Ark., "
If I"m trying to describe a nationwide problem, I pick different cities.
Part of government's nature is to lie.
Get used to it, don't take them seriously, and move on without them.
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