Mayor Chuck Reed mustered a one-vote City Council majority to place a referendum on the ballot earlier this year to make substantial changes to San Jose’s retirement system, which was contributing to budget deficits and was predicted to consume 50 percent of the city’s $900 million budget by 2015. The referendum won with 70 percent voter approval.  The pension problem is not unique to San Jose. In Clive, pension obligations are expected to account for 70 percent of the city’s budget deficit in the coming fiscal year. Large Iowa cities make 100 percent of the contributions to police and firefighter pensions and 60 percent to the pension system for other public workers. The Taxpayers Association of Central Iowa warns that the funding structure threatens city budgets and will lead to higher taxes and a reduction in services. Reed spoke to the group this month  in Des Moines.

You’re a Democrat who took on the public employee unions and won. That doesn’t happen very often.

“It was a huge challenge, but it was necessary,” Reed said. The city had experienced 10 consecutive years of budget cuts. It was cutting services, including police and fire services. New buildings, including libraries and a police substation, were vacant because the city lacked the funds to operate them.  “This is the first time I’ve sat down and tried to figure out the beginning and end to how this all happened,” he said. Reed noted that the pension formulas were adopted during good economic times. Sour stock markets cannot be blamed, he said. The city’s pension investments experienced consistent 8 percent returns, yet its unfunded liabilities were several billion dollars. The police and firefighter pension was the most expensive. The police and firefighters unions lost the referendum and suffered another defeat in November, when voters re-elected a council member who supported the referendum.

What are San Jose’s main sources of revenue?

“The property tax, the sales tax and a tax on utilities. If you add them all together, it’s just enough to pay for the public safety budget.” San Jose’s police and firefighting forces also have given up 10 percent of their pay to help the city meet expenses.

You’re a tax reformer. What are your other priorities?

“First and foremost is trying to keep jobs here and the economy growing. … We’re always swimming upstream trying to keep jobs here.”