It’s a sign of the times when public employees consider it a victory when their salaries can be slashed but their pensions are left intact.

“We won and they lost,” Jim Unland, president of the San Jose Police Officers Association told a San Jose Inside reporter after a Superior Court judge ruled Monday that a key section of voter-approved Measure B was illegal. Judge Patricia Lucas decided that the cash-strapped city could not reduce the pensions of city employees, but she suggested the savings could be realized by just whacking their salaries.

Measure B was overwhelmingly approved at the polls in June 2012, winning 70% of the vote. It addressed a range of issues formerly decided in collective bargaining, including pension benefits, health care, salary, disability retirement and cost-of-living increases.

Two months after the vote, the California State Auditor said they had been misled and that a $650 million taxpayer liability, estimated coming due in 2015, was “unsupported and likely overstated.” The auditor said a more reasonable number was about half that much.

The third-largest city in California is not going broke, but like many municipalities, the economic downturn in 2008 exacerbated already-stressed budgets and put the spotlight on underfunded pension obligations.

The San Jose retirement funds lost $1 billion in one year due to the downturn in the stock market, according to the judge’s ruling. Greedy, shiftless workers had nothing to do with the shortfall. San Jose voters wanted employees to pay an additional 16% into the pension just to keep their current benefits level or opt for a crummier pension.

While unions hailed the judge’s ruling as a victory because it recognized the sanctity of pension agreements, the city claimed it won because the judge said salaries and some health benefits were still fair game. The decision was certainly a better outcome for workers than a ruling in Detroit on December 3 by a federal bankruptcy judge that U.S. law trumped Michigan law and pensions could be reduced outside of a collective bargaining agreement.

Around $200 million of San Jose’s $1.1 billion budget is spent on pensions and retiree health care, a situation not dissimilar from two California cities that already declared bankruptcy, Stockton and San Bernardino. Both are locked in a struggle with the California Public Employees’ Retirement System (CalPERS) over payments.

The San Jose Mercury News called the decision a “landmark” although it sets no precedent for other jurisdictions and is likely to be appealed. Also likely to be contested is the judge’s inference that the city could achieve its budgetary savings by simply reducing wages of city employees. Unland said the police officers’ association would sue if the city tried to do that unilaterally without collective bargaining.

The pension alterations being adjudicated had only to do with current employees. New hires are already being signed up at a cheaper rate with reduced pensions. San Jose Mayor Chuck Reed wants to take his fight over pensions to the state level and has submitted an initiative proposal to give state and local governments the right to impose pension cuts for existing workers.

Pensions, already a hot issue locally and nationally, could get a lot hotter in 2014.

–Ken Broder

To Learn More:

Judge Blocks Pension Cuts in San Jose (by Dale Kasler, Sacramento Bee)

Pensions for City Workers Can't be Cut, but Pay Can, Judge Rules in Major San Jose Case (by Mike Rosenberg, San Jose Mercury News)

Cut Salaries, Not Pensions in San Jose, Judge Rules (by Norimitsu Onishi and Rick Lyman, New York Times)

California Judge Bars Voter-Approved Pension Cuts for City Workers (by Tim Reid, Reuters)

San Jose Pension Scare that Fueled Ballot Benefits Rollback Is Unsupported by Facts (by Ken Broder, AllGov California)