San Jose’s decades-long pension problems level out
San Jose City Hall is pictured in this file photo.

For the first time in years, San Jose’s mayor is working with a balanced budget, which means more funding for city services.

The city’s pension and retirement costs are declining for the first time in two decades due to double-digit investment returns. The rate of return reached a record high in 2021.

“This is pretty historic,” Jim Shannon, the city’s budget director, told San José Spotlight. “The rate of return varies every year, but I don’t think it ever approached 25%. The assumed rate of return was around six and five eighths.”

In the past, pension costs constituted roughly 20% of the city’s budget. Shannon is still calculating how much pension costs will be in the upcoming fiscal year’s budget. A higher rate of return means the city not only has more money to offset the cost of employee pensions and retirement costs, but also the flexibility to make some services more permanent.

About 20 years ago, contributions made to the system were not enough to keep up with those future obligations. That, coupled with the historic downward loss of the market during the Great Recession in 2008, led to the unfunded liability, Shannon said.

City leaders said the future of San Jose is optimistic and hopeful—especially as the city is projected to have a balanced budget for the next five years with annual surpluses close to $30 million, or $150 million total.

“Having a surplus projected for five years in a row means that we can fund more of our services on an ongoing basis, rather than having the uncertainty that we’ve had for the last decade and constantly asking will we have enough next year for the programs that we’re running this year?” Councilmember Dev Davis told San José Spotlight. “It’s huge for continuity of the staff, which should help us retain staff (longer) as well.”

San Jose has struggled with worker retention because of job vacancies, low wages and unmanageable workloads.

Davis said the continuity is exemplified not only with the addition of 16 walking beat police officers proposed in the mayor’s budget, but also the continuation of smaller impactful city programs like the turf maintenance team which manages parks. Up until this year, it has been only funded on a one-time basis.

“I know it sounds insignificant, but it has a major impact on our parks,” Davis said. “Having a steady stream (of funding) and knowing that we’re going to have a team that is just going to be able to focus on turf means we can make our parks safer. It’s a huge benefit to residents.”

The mayor’s budget message also proposes adding more jobs. It will also provide funding for more quick-build apartments and expanding the impact of programs like San Jose Bridge, which employs homeless people to pick up trash. The extra dollars could enable 13 of San Jose’s libraries to open on Sundays to the public in low-resource neighborhoods.

“I’m excited about the possibilities of continuing to build on our services,” Councilmember Sergio Jimenez told San José Spotlight. “Having more money to help meet the needs and desires of our residents is always a good thing.”

Jimenez said the city is also planning to make major investments in public safety not only through the additional officers, but through red-light traffic cameras and other road safety measures. He said the budget reflects San Jose’s priorities: addressing housing and homelessness, increasing public safety, fighting blight, environmental sustainability and equitable economic recovery.

“I think it’s a well thought out budget. It incorporates much of what the councilmembers requested for their specific districts. And I think we will see unanimous support for this budget, which is a good thing,” Jimenez said.

Contact Jana Kadah at [email protected] or @Jana_Kadah on Twitter.

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