* Case watched by other U.S. cities wanting to cut pensions
* Unions say promised pension benefits can never be cut
* City, voters argue pension cuts needed to save services
By Tim Reid
Sept 10 (Reuters) - California's third largest city, San Jose, and its employee unions presented final court arguments on Tuesday in a case that has major implications for other cash-strapped local authorities wanting to cut pensions, including bankrupt Detroit.
Even though voters in San Jose overwhelmingly backed a measure last year that would cut pensions for new workers and force current employees to contribute more to their retirement benefits, the city's unions sued, claiming the reforms were unconstitutional.
Both sides, following a judge's request made at the end of a five-day trial last month, filed voluminous closing arguments and summaries late Tuesday, much of which will likely be reprised in the litigation between unions and city authorities in Detroit, which filed for the biggest municipal bankruptcy in U.S. history in July.
San Jose's pension overhaul was promoted by Democratic mayor Chuck Reed and approved by 70 percent of voters in 2012. Reed believed it was the best way to alleviate an acute budget shortfall and a rapidly growing unfunded pension liability, which sits at nearly $3 billion, and to save further cuts to essential city services.
City workers, led by San Jose's police union, sued, demonstrating how difficult it is for local governments in the United States - even with a reform measure backed by voters - to rein in soaring pension and other retirement costs.
In its legal brief on Tuesday, the San Jose Police Officers' Association argued that "Measure B", the pension reform initiative, violated the vested pension and other retirement rights of city workers.
"Those rights cannot be legislated away by defendant city of San Jose, or the voters," the union argued, "because such rights are protected by the California Constitution and the parties' collective bargaining agreement."
The city fired back in its 70-page brief, arguing that it was for the police and other unions to prove that Measure B was illegal and unconstitutional. In that regard, the city argued, the unions "failed to proffer any testimony or other evidence."
Michael Sweet, a San Francisco bankruptcy attorney and who is not involved in the case, said the San Jose litigation is being closely watched by other U.S. cities, including those already in bankruptcy such as California's Stockton and San Bernardino, and Detroit in Michigan.
"Even though San Jose isn't in bankruptcy, what they are doing is addressing the same kind of pension issues being faced in those bankrupt cities," Sweet said. "Mayor Reed's measure was an approach to addressing these pension issues, which in some instances have become unsustainable."
San Jose's pension reform has not yet been adopted because of the unions' lawsuit. The city's pension spending rose to $245 million last year from $73 million in 2001. The city has had to slash other spending and services to try and balance its budget.
The court case consolidated five lawsuits brought by two unions, individual employees and retirees. The judge overseeing the case has scheduled an October 10 hearing, ahead of a final ruling.
The case is in Santa Clara County Superior Court, No. 1-12-CV-225926
Reporting by Tim Reid; Editing by Bob Burgdorfer