Mayor Chuck Reed’s fight to cut back public pensions in San Jose faced a serious setback on Monday when a judge ruled that municipalities cannot reduce benefits for pensioners, despite the fact that voters approved a plan to allow the city to do just that last year. The measure would have given city employees the choice of either paying more toward their plans or reducing benefits, but the judge ruled that cutting pension benefits is a breach of employee’s constitutional rights. The ruling did leave open the possibility of reducing employee salaries, but given the role that pensions specifically have played in bankrupting cities, this is a significant blow to the plan and the precedent will make it more difficult for other cities in the state to get their pension costs in line.
Fortunately for San Jose, this may not be the last word on the subject: Mayor Reed and some like-minded politicians are fighting for a ballot initiative to ease constitutional restrictions on pension reforms, although this may have less support than its backers would like.
In Puerto Rico, meanwhile, things moved in the other direction, as the Senate narrowly passed a measure to reform the Teachers Pension Fund, clearing the way for passage by the governor. The new plan pushes the retirement age up to 62 and requires teachers to contribute more to their pension plans while working. These changes alone won’t be enough to save the drowning island, but at least it’s a positive step, and markets responded by lowering the yields on Puerto Rican debt. If the island can build on this success, it could finally begin climbing out of the hole its dug for itself.