PUBLIC PENSION UPDATE: San Jose pension costs soar as stock market withers.

The projected increase in the city’s pension rates is substantially higher than what Santa Clara County officials expect to have to pay into the California Public Employees’ Retirement System, which covers county workers and those of most other local cities. Deputy County Executive Luke Leung said CalPERS has told local agencies to expect increases ranging from 2 to 5 percent of payroll, which would cost an additional $3.8 million to $9.5 million beginning in the county’s 2011 budget year.

San Jose’s projected new rates are much higher, in part because the city’s investment strategy offers less time in which to make up for losses. The new report suggests the city’s contribution rate for police and firefighter pensions will increase from the current 22.5 percent of payroll to as much as 57.8 percent in the 2010 budget year.

By 2013, that rate could hit 70.1 percent. And those rates do not include the additional costs of retiree health care benefits. (Projections for the city’s other pension fund, which covers civilian workers, are still pending.)

I expect some other municipalities will face similar problems.