This decision is a major blow for Mayor Chuck Reed. For the last couple of years Reed has been really tough on employee groups trying to reign in pension costs, which have created a $230 million budget crises.
At first employees were told to take a pay cut, then they were told they had to pay into the pension plan.
On Monday, a judge ruled that parts of the pension reform plan are illegal.
Firefighters, the police union, and other employee units took the battle to court in August and Monday's 35-page decision gives them a victory on key points.
"They were wrong and we told them that two years ago. We told them that a year ago. We told them that six months ago. And we need to be doing this at the table. We need to do lawful pension reform," San Jose Police Officers Association President Jim Unland said.
The court specifically said San Jose's plan to shift 4 percent of the retirement costs to employees was illegal, so was pulling the plug on a cost of living adjustment provision for five years.
"The judge has clearly ruled that the city can't eviscerate the plan, cannot shift the cost of the pension plan on the backs of the employees and cannot eliminate the cost of living adjustment that have been promised the employees for literally decades," firefighters union attorney Christopher Platten said.
Reed and a majority of council members had the backing of citizens who approved their pension reform plan with a 70 percent vote. The city has spent an estimated $3 to $5 million on legal costs to defend the steps it took. And now, those costs could continue to rise.
"This isn't the end of Measure B. I'm confident that both sides will appeal the judge's decisions that didn't go in their favor and that we'll work out way through the appellate courts and ultimately to the Supreme Court," San Jose City Councilman Pete Constant said.
Reed is visiting family in Washington DC, but he issued a statement reaffirming his desire to give cities more control over pension benefits: "Current California law provides cities, counties and other government agencies with very little flexibility in controlling their retirement costs. That's why I believe that we need a constitutional amendment that will empower government leaders to tackle their massive pension problems."
The court did agree that San Jose can spend $20 million in projected pension savings in the next budget to restore some employee pay cuts and to restore city services, such as library hours, that were cut to save money.
