By Jim Christie
SAN FRANCISCO | Mon Jul 22, 2013 7:26pm EDT

(Reuters) – California’s third-largest city, San Jose, and its employee unions faced off in court on Monday over public pension reforms in a case that has major implications for other local governments across the state trying to rein in the costs of retirement benefits.

The lawsuit, led by San Jose’s police union, shows how difficult it is for local governments to break benefit promises to current and past employees even when other public services are being cut to pay for them.

San Jose’s pension overhaul was promoted by Democratic Mayor Chuck Reed and approved by nearly 70 percent of voters in 2012 but city unions argue the move violates the rights of its members and is in breach of the California constitution. They want the court to block the measure from going into effect and to maintain the current pension plan.

“If the unions prevail it will give local leaders elsewhere reason to pause. If Mayor Reed prevails, they may get even more ambitious in finding new ways to reduce pension outlays,” said Larry Gerston, a political science professor at San Jose State University.

In opening remarks in court on Monday, Arthur Hartinger, a lawyer for the city of San Jose, said that the pension measure was necessary given the city’s strained finances. “Retirement cost increases have gone through the roof,” he said.

But Gregg Adam, a lawyer for San Jose’s police officers, countered that employees’ vested rights are at issue, adding that they can’t be legislated away. “Decades of California law says ‘No'”.

The trial is expected to run through Friday. Santa Clara County Superior Court Judge Patricia Lucas will have up to 90 days to make a ruling on the trial’s central issue of whether the city’s pension overhaul of current employee’s benefits is at odds with state law. Analysts say her ruling will be appealed.

To read entire story, click here.