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Office of Mayor Chuck Reed

200 East Santa Clara Street
18th Floor
San José, CA 95113

(408) 535-4800

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Fiscal Reforms
San Jose General Fund Deficits
San Jose General Fund Deficits
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After a decade of crippling budget deficits, the City of San José must implement meaningful reforms that address the structural causes of its fiscal problems, including unsustainable retirement costs and other employee benefits. (See graph: 10 Years of Budget Deficits, the Crushing Burden of Retirement Costs Increases)

Mayor Reed has led the drive to implement the City’s Fiscal Reform Plan, which was adopted by the City Council in May 2011 and outlines a number of strategies that will collectively generate enough ongoing savings to eliminate the city’s structural budget deficit and restore city services to January 2011 levels. The Fiscal Reform Plan had an immediate impact, virtually erasing San José’s General Fund deficit and giving the City its first surplus in over a decade. (See graph: San Jose General Fund Deficits)

As of March 2013, the elements of the Fiscal Reform Plan that have been implemented are saving the City of San José more than $80 million per year (including more than $60 million in the General Fund) and have made it possible to begin restoring services to the community.

While the City has been able to restore some services, it still has a long way to go in being fiscally balanced again. As an example, both the Police Department and Fire Department are short staffed despite receiving significant increases in funding. (See graphs: Police Department Budget and Fire Department Budget).

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Reforming the City's Retirement Benefits

Over the past decade, the City of San José has seen the cost of providing employee retirement benefits triple - from $73 million in FY 2001-02 to $245 million in FY 2011-12. Retirement contributions now take up more than 20% of the General Fund, and without significant reform, these skyrocketing costs will destroy the City's ability to provide basic services to our citizens.

Under Mayor Reed's leadership, the City Council has made significant progress in advancing retirement reforms that will help bring the City's unsustainable retirement costs under control. 

Learn more about the Retirement Reform.

Reducing Costs for Sick Leave Payouts

City employees who meet certain eligibility requirements at the time of their retirement can receive a cash payment for unused sick time. In FY 2009-2010, sick leave payouts cost $14.6 million from the General Fund. In FY 2010-11 and FY 2011-12, the City budgeted another $14.6 million and $9.5 million, respectively, based on the potential retirements and estimated payouts.

Mayor Reed and the City Council have reached agreements with 10 of its 11 employee unions to reduce the cost of sick leave payouts. These agreements have:

  • Eliminated sick leave payouts for new employees. Employees hired after September 2012 are no longer eligible to cash out unused sick leave at retirement.

  • Frozen the amount of sick leave that current employees can accrue or cash out. Employees hired before September 2012 can only cash-out sick leave accrued prior to June 2013 (subsequent sick leave accruals is NOT eligible for payout at retirement). In addition, sick leave payouts would be calculated based on the employees salary as of June 2013 (the time of the "freeze"), as opposed to their final salary at retirement.

Visit the Office of Employee Relations website for additional updates on negotiations over sick leave payouts. 

Limiting the Power of Outside Arbitrators

In November 2010, San José voters approved a measure authored by Mayor Reed (Measure V) to place some common-sense limits on outside arbitrators that prevent them from spending money that the City doesn't have.

Binding arbitration is currently used whenever the City and its police or fire union have an unresolved dispute over wages, hours or working conditions. While binding arbitration can be an equitable way to resolve contract disputes, past decisions made by outside arbitrators (or under the threat of binding arbitration) have had serious consequences on the city's long-term fiscal health. Learn how outside arbitrators have contributed to the city’s unsustainable employee costs and pension problems.

Measure V reformed the binding arbitration process to ensure that arbitrators consider the City's financial condition when issuing its rulings. In particular, outside arbitrators are now PROHIBITED from: 

  • Increasing pay and benefits by more than the rate of growth in general revenues (averaged over the previous 5 fiscal years).
  • Retroactively increasing or decreasing benefits.
  • Creating a new unfunded liability that the City is obligated to pay.
  • Interfering with the discretion of the Police or Fire Chiefs to make operational or staffing decisions.

These common-sense limits will help ensure that outside arbitrators – who are not accountable to the public – do not increase employee compensation beyond what the City can afford to pay. 

Read more about Measure V 
Read the full text of the ballot measure

Restructuring the Retirement Boards

The board of directors for the City of San José's two retirement systems are responsible for approving actuarial assumptions and investment strategies for funds totaling $3.5 billion. These decisions are critical because when the retirement funds’ investments do not meet actuarial projections, taxpayers are on the hook for covering 100% of the resulting “unfunded liability.” Read more about the city’s retirement systems and pension problems

In February 2010, the City Council adopted a proposal by Mayor Reed and Councilmembers Constant, Herrera, Kalra and Liccardo which requires that a majority of the retirement board positions are held by independent representatives that possess financial expertise. The change is designed to promote sound investment decisions and minimize investment losses that leave taxpayers on the hook. The reform also reduces the potential for conflicts of interest, allowing board members to focus freely on administering the retirement systems in the best interests of the members and beneficiaries.

Learn more about the Retirement Boards Restructuring approved by the City Council

In 2012, the Retirement Boards separately pursued an analysis to evaluate the boards’ governance models and to provide recommendations for improvement. In June 2014, the City Council adopted a proposal to seek voter approval of an amendment to the City Charter to grant the retirement boards increased autonomy with appropriate safeguards using the Council appointee model.

Learn more about the Retirement Board Governance Modification Ballot Measure approved by the City Council