Earlier this year, I asked the San Jose City Council to declare a fiscal emergency and to consider a ballot measure to reform our retirement benefits.

Why would a mayor take on a fight over retirement benefits with all its legal and political challenges?

Because the alternatives are far worse:

• Chopping our workforce and sliding into service level insolvency as we become unable to adequately deliver basic city services.

• Cutting base pay for our dedicated employees by another 30 percent.

• Ignoring the problem until it becomes a disaster and then having a bankruptcy court slash pension payments to our retirees.

Over the past decade, vital city services have been reduced repeatedly because the average cost per employee has grown much faster than revenue.

Retirement costs – which are set by our two independent retirement boards – have been by far the largest driver of costs, skyrocketing from $73 million in 2001 to $245 million in 2011. The city's retirement contributions now cost more than 50 percent of base payroll and our two retirement plans have billions of dollars in unfunded liabilities.

As retirement costs escalated, we slashed services and reduced our workforce by 30 percent. We laid off cops and firefighters, and closed libraries and community centers. We cut total compensation by 10 percent for all employees. Next year, we are facing another huge budget shortfall that could force us to eliminate 400 more jobs.

Retirement costs continue growing at an unsustainable pace. Even using optimistic assumptions, retirement costs will increase to $400 million per year by 2016 and continue rising for many years after that. If actuarial assumptions – such as life expectancy, retirement ages or rates of investment return – are modified by our retirement boards to more accurately reflect modern conditions, the city's annual retirement costs could jump to $650 million.

Whether officially declared or not, we are in a crisis. These huge increases in retirement costs will destroy our ability to protect the public and preserve the quality of life for the people of San Jose. We have an emergency, and we must act now to save our city from a disaster.

The reforms being considered would not cut benefits that existing employees have already earned and accrued, nor would they cut current payments to retirees.

Instead, the reforms would affect expectations of increases in future benefits by slowly raising the retirement age, reducing future accrual rates and reducing (but not eliminating) future COLAs.

While some of our employees and retirees view these benefits as vested and therefore untouchable, these changes are reasonable and necessary to solve this grave fiscal crisis. They are within the constitutional power of a city in an emergency to meet its obligation to protect the vital interests of the community, even if vested contract rights may be affected. And contrary to the rhetorical hyperbole, none of the proposed reforms eliminates collective bargaining rights.

Other alternatives have been suggested, but the most common ideas offered are not feasible solutions to our problem.

• Making small adjustments around the edges, such as reducing benefits for new employees or relying solely on a voluntary opt-in program, will not save nearly enough money soon enough to avoid a disaster.

• Raising taxes enough to pay for retirement cost increases is impossible. It would take more than a 1 percent permanent sales tax increase to generate enough cash.

• Hoping that our pension funds achieve double-digit investment returns for the next decade is just wishful thinking.

A combination of these items would be helpful and are being pursued along with other fiscal reforms. But the problem is just too big to solve without making some changes to retirement benefits for existing employees and retirees.

I remain open to viable alternatives that will help us solve the problem, and five of our 11 unions have agreed to a process for negotiating over retirement reforms and a ballot measure at the same time. We have agreed to finish these negotiations by Oct. 31, which would allow sufficient time to go to the voters in March 2012 to reduce retirement costs and save services in the 2012-13 budget.

A majority of the San Jose City Council is committed to achieving reforms so that we can restore services to our community and protect the long-term solvency of our city. Placing these fiscal reforms on the ballot will allow the people of San Jose to decide critical matters that will have a dramatic impact on their quality of life.

The proposed actions have some legal risks and costs, but the risks and costs of inaction are far greater.

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Chuck Reed is mayor of San Jose.

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