SAN JOSE -- In a landmark ruling that could help shape city budgets around the state, a judge invalidated key parts of San Jose's voter-approved pension cuts but upheld other elements that could still save huge taxpayer costs.

Santa Clara County Superior Court Judge Patricia Lucas' tentative decision released Monday prohibits the city from forcing current employees to contribute significantly more toward their pensions, as called for in last year's Measure B. But the ruling allows the city to cut employees' salaries to offset its increasing pension costs.

That left each side claiming victory, even as both expected to appeal.

"It guts Measure B," said Ben Field, executive officer for the South Bay Labor Council. "Her decision affirms what we've been saying all along: The city cannot break its promises to its employees and its retirees."

But Mayor Chuck Reed, who championed the measure, argued the city got much of what it wanted, saying officials will be able to implement the pay cuts to get the savings they expect, roughly $68 million a year, or 7 percent of the city's annual budget.

"I think we'll get very close to what we had hoped for," Reed said.

The case stemmed from the unions' lawsuit filed a day after 70 percent of San Jose voters approved Measure B in June 2012.


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The measure comes at a time when cities throughout California and around the country are grappling with soaring costs for guaranteed pensions that have been disappearing in private employment. Several cities, such as Stockton, San Bernardino and Detroit, have filed for bankruptcy in part because of growing pension costs and have been unable to legally roll back pension promises they can no longer afford.

Reed is now working on an initiative that he argues would allow California governments to negotiate changes in their employees' future pension earnings.

The fate of pension reform is likely to factor in next year's races to replace the termed-out Reed, as five of his council allies running for the post seek to defend the reform while a union-backed challenger, Santa Clara County Supervisor Dave Cortese, is against it.

San Jose, like many cities, in recent years saw its bills for employee retirement costs balloon after it handed out enhanced retirement plans in the past 15 years, allowing police officers to retire at age 50 with six-figure pensions, for instance.

Measure B called for existing employees, from cops to firefighters to bureaucrats, to pay 16 percent more toward their pensions to help cover some $3 billion in debt accumulated in the underfunded plans. Lucas ruled that invalid, arguing the city had long held itself solely responsible for such "unfunded liabilities" in the plan, creating a "vested right" for employees to have the city cover those debts.

But the judge also upheld a section of Measure B that allows city officials to obtain the savings by cutting workers' pay if the extra pension contributions were invalidated. Reed said city leaders will spend the next few months working out how to make the pay cuts before July 1 when they were to go into effect, saying the voters passed a measure to reduce employee costs and would want those changes carried out.

"It would be much better if we could deal directly with the skyrocketing (pension) costs, but there are limited things that we can do," Reed said. "The judge said all you can do is cut their pay."

City leaders may find it difficult to go through with the pay cuts, however. The City Council earlier this month approved 10 percent pay raises for cops, after police officers began fleeing the department for better-paying cities. The cop exodus has coincided with a huge increase in crime, above the California and national averages, while arrests have dropped in half in recent years.

Sgt. Jim Unland, president of the Police Officers Association, vowed to take the city to court if officials try to slash employee pay, saying the cuts need to be approved by the unions at the bargaining table.

Overall, the city won the right to enforce 10 of the 15 disputed elements of its pension reform plan. Those include allowing only medical experts to determine which employees are granted disability retirement, changing the definition of disabled employees to only those who cannot work and granting the right to stop bonus pension checks to retired workers when the retirement fund does better than expected.

But in the unions' favor, the judge also ruled San Jose can't suspend annual 3 percent "cost-of-living" pension raises for retirees even if city leaders declare a "fiscal emergency."

The rulings only impact the contracts for current workers. Measure B changes that forced new hires to pay more for their pension and other benefits were not challenged in court and are already taking place.

After the appeal, Reed expects the issue to ultimately be decided in the California Supreme Court.

Contact Mike Rosenberg at 408-920-5705. Follow him at twitter.com/RosenbergMerc.