Public Pensions, Overpromising, and Municipal Discipline: the Lessons of San Jose

Interestingly, when I wrote yesterday on the question of imposing discipline on public pension financing, the NY Times had not yet published – at least on the on-line version that I skim each day – this detailed, and frankly harrowing, article on the pension obligations faced by San Jose and the problems it is causing for the municipal budget. As the article notes, in an almost scare mongering opening:

San Jose now spends one-fifth of its $1.1 billion general fund on pensions and retiree health care, and the amount keeps rising. To free up the money, services have been cut, libraries and community centers closed, the number of city workers trimmed, salaries reduced, and new facilities left unused for lack of staff. From potholes to home burglaries, the city’s problems are growing.

What is more interesting, in some ways, is the discussion of what caused the problem – excessive pension promises of a kind that one would never see from an employer forced to account, in real time, for future pension promises – and the proposed solutions. The proposed solutions mirror what has occurred in the private sector, which is changing future benefits (read reducing them) beyond those already accrued for current participants, reducing the retirement benefits outright for new employees, and  changing overall to a defined contribution type system. Interestingly, the latter is what I predicted, in yesterday’s post, would almost certainly occur if municipalities, like private employers, were placed in a position that they must account, in the here and now, to at least some degree for promises to provide pensions in the future.