Our County Assessor was quoted on Friday as saying the downturn in real estate values is “worse than expected,” and that more than 90,000 residential parcels will be valued at less then their purchase price. We are living through historic times, with unprecedented negative growth in real estate. That has happened in Santa Clara County only a handful of times: in 1932,1933 and1936, and again in 1978 (after Prop 13) was passed. So what does that mean, other than many depressed homeowners? Well, it means that the City of San Jose’s deficit just catapulted to $77 million.
The City Manager announced Friday that we will have an additional shortfall of $14.3M due to lower property tax revenues on top of the sales tax decline which added another $3M to the deficit. I believe we will also see a sharp fall in our TOT (hotel tax) this quarter. This means less city services starting July 1, 2009 for you. But there is more…
You should be praying for the stock market to rise not just for your own 401K but for your city services. City pensions are self-insured, and if there is a shortfall, then money comes out of the General Fund. Today, the city matches employee contributions for retirement based on actuarial studies. For example, for Police, the city puts in 24.94 percent on top of the 11.96 percent the employee puts in. For Fire the city puts in 27.37 percent and the employee puts in 12.45 percent For the rest of city professional staff, the city puts in 22.68 percent on top of the 8.93 percent from the employee. Does your employer match your 401K to this level?
Now that the market has tanked, money must come from the General Fund to cover the loss. The good news is that we don’t need to cough up any money on July 1, 2009. The bad news is that we need to cough up money on July 1, 2010 for the next fiscal year. Of course, if the stock market completely recovers by the end of June 2009 then we are good—but that is doubtful.
Without a stock market recovery, the baseline contribution rate from the city would increase from 22.5 percent for Police & Fire to the range of 35.3-57.8 percent for July 1, 2010, and then rise again July 1, 2013 to 54.2-70.1 percent. These are projections only. Let us hope they go down. But what this means in dollars is that the city would have to reduce the General Fund that pays for all the services we have counted on by $31M July 1,2010, $24M July 1,2011, $22M July 1,2012, $24M July 1,2013 for a total cost of $101M. That’s for Police and Fire only.
If these numbers are not evidence enough that we need to have a new benefit structure for new city employees, I am not sure what is.
I am sponsoring a viewing of a documentary titled “IOUSA.” This movie is an eye-opener about the looming financial catastrophe. This is the consequence of elected officials not making tough decisions, but promising everything without thought about future implications. In addition, a speaker from the bipartisan Concord Coalition will be speaking at the event. The Concord Coalition was started by two senators—one Democrat and one Republican—back in 1992 to bring awareness to the National Debt.
When: Monday May 4 from 7-9pm.
Where: San Jose City Hall Council Chambers (200 East Santa Clara Street)
Cost: Free, but limited seating
Click this link to watch a trailer from the documentary IOUSA: http://www.youtube.com/watch?v=HBo2xQIWHiM
I look forward to you joining me and others on May 4. Please RSVP:
Pi****************@sa*******.gov
Correct link for trailer:
http://www.youtube.com/watch?v=HBo2xQIWHiM
The problem is the “normal” politicians philosophy is “I’ll gladly pay you Wednesday for a hamburger today.”
But they are never around when Wednesday arrives!
Hope this means serious conversations with unions will start about employee compensation and benefits. If not then they should be called out by our mayor and council for not recognizing the dire situation the city is in. Clearly the wage freezes and pay cuts by top management alone isn’t enough to get us out of this mess. Though a great first start and great way to lead by example. Residents alone shouldn’t continue to be the scapegoat when it comes to balancing the cities budget.
Great idea, lousy scheduling. Why not offer an evening showing for those of us who still work for a living?
Regarding benefits, I do greatly hope that the situation serves as an eye-opener for those not in the know.
On the subject of the budget deficit, not to worry. Since the beginning of the year, the city has laid off 18 employees. At that rate, the incremental bad news would warrant only another one or two layoffs! I’m thinking that our politicians must live in Bizarro World.
“City pensions are self-insured, and if there is a shortfall, then money comes out of the General Fund.” Every high-school counselor in America should recommend that kids go get jobs in the public sector. Oops, I forgot, we don’t have high-school counselors (or school nurses, or music programs, or P.E…..)
#4 – 7-9 PM is generally considered evening for most of us—even those of us who work for living.
#4
Read it again. 7-9 PM
Pierluigi thank you for peeling back the onion.
You are a anomaly in politics writing about taboo topics.
PO gave an example of “…city puts in 24.94 percent on top of the 11.96 percent the employee puts in.”.
Does that mean 25% of the 12% (total of 15%) or does it mean 25+12=27% ?
Where can I find information online that describes the San Jose 401K benefit plans ?
The pensions and benefits for city employees are out of control. There is nothing like this in the private sector.
I have not yet seen this movie, but I think Warren Buffett is right about what the upcoming crisis will be: when no one shows up to buy auctioned treasuries.
And that could be next week—not just ‘looming’.
JMO,
I suspect that the 16 Cultural Affairs employees roll up financially under the SJ Charity Fund, a sub-fund of the General Fund. I estimate that as many as 20% of the 7500 City employees charge their time to the Charity Fund.
We should all recognize that this fund is both holy and untouchable. No amount of whining on our part will convince our politicians to run our fair city like a business… not a charity.
Those damn public servants…
how could they have gone on boom year after boom year bargaining for benefits and pretending not to know the city was squandering every surplus and leaving its coffers all but empty for the inevitable bust? Why didn’t the cops recognize what was going on? Don’t they know addictive behavior when they see it? How else to explain those millions blown on appeasing minority loudmouths, building them cathedrals to their cultures and opting to serve their endless demands rather than fund the city’s own long term obligations?
Everyone agrees that change is needed, I say let’s start right now. The council just agreed to fund yet another glorification of Cesar Chavez, so rather than wonder where that money will come from, how about we just fire enough cops right now to cover the project plus a hundred years of maintenance? We should fund every non-essential expense by firing cops and firefighters, making sure we fire enough to cover 100% of this council’s negligence so that when future councils decide to fire someone it will be fund an idiotic scheme of their own, and not that of some previous council.
Greg #14—your kidding, right?? A Charity Fund?
That Fin Fan, good for him!!
We don’t need any celebrations for Hispanic leaders, Fin Fan!!
I bet Fin tips the gardner a quarter every two months and thinks he had done enough for good ethnic relations.
Councilman,
Can San Jose strike an agreement to join to the California Public Employees Retirement System (CalPERS)? While CalPERS is enduring tough times as well, it would seem that the system, which handles the benefits of over a million active public-sector employees, is better able to manage the fluctuations of the stock market over the long term. Moreover, it seems that CalPERS is more effectively able to provide retirement benefits than San Jose’s self-funded system. My employer contributes 11-12% of my gross pay to CalPERS, while I contribute 8%. That’s certainly much less than the 22.68% San Jose contributes for its civilian employees…
JMO,
Yes, I was kidding… but it does seem that way. The city touts that it hasn’t laid off an employee in a bazillion years. You and I both know that some fair amount of charity had to be a part that equation. If city politicians want to be charitable, I suggest they do it with their own money, not tax revenue.
The very first thing that should be done is to draw a hard line on what services the local gov’t should provide.
I know it will be difficult since people have been feeding at the trough for so many years, but it’s the only way we can move in the right direction. Until that is done, adjustments to the budget will mean nothing.
we do not NEED 16 people in The Office of Cultural Affairs when we can’t even fix our third world roads. There must be other nice-to-have-if-you-can-afford-them depts. in city govt. that should be axed when we have such a huge deficit. 18 employees terminated and a grand gesture from management isn’t enough. If the unions don’t go along to save most jobs, then just fire every eighth person to cut payroll costs.
The city would have an extra billion in the bank if it hadn’t pissed it away on a new and unnecessary city hall and golf courses. The old city hall was just fine. Also, how many staff members have each council person and the mayor laid off from their own respective staffs? I bet none. Also, how many millions does the city spend each year providing non emergency services to illegal aliens? That should stop immediately also. How many hundreds of thousands of new houses and apartments has the city added over the past few years with no plans of addition revenue from growing a tax base? These new developments have completed diluted city services. I think this problem goes way deeper than just blaming employees and I don’t see Pierluigi or anyone else on the council addressing these other issues. Like JMO said we don’t need 16 people staffing a cultural affairs office. Like Fin Fan said, we really don’t need to fund yet another glorification of Cesar Chavez, costing millions more we don’t have. The other cities around us in the valley have the same employees if not more and they don’t seem to have problems to the degree San Jose does. I think this whole thing is more of how San Jose has been, and is currently managed by the city council, mayor, and city manager.
Well this should come as no surprise to a City Government that tried to be everybody’s mommy and daddy.
As Margaret Thatcher said, “The problem with socialism is that eventually you run out of other people’s money.”
Take heed America.
@#22
I wish what you said is true, or maybe I just deal with “tacky” people everyday.
Back to the topic, we know the actuarial report requires larger contribution due to market loss this year. But what’s the required contribution last year? Last 5 years. Were there years where city contributed nothing because market return was so good? Had city of San Jose forgo contribution or even return “overfunded” balance back into general fund when time is “good” like many other employers?
Averaging those out over an employees career, what’s the actual average matching contribution? I suspect it’s much less lopsided then you make it out to be by cherry picking the numbers.
FWIW, my employer currently contract with CalPERS for 2.5%@55 plan, and my agency pay about 15% of covered payroll on top of my 8% contribution. And for most of 90s and early 2000s, no contribution was required due to high market return.
http://www.calpers.ca.gov/index.jsp?bc=/employer/actuarial-gasb/contrib-rates/rates/home.xml
Looking at CalPERS for FY2008 employer contribution rate for some other local governments around here (Non-safety only):
County of Santa Clara: 13.376%
City of Palo Alto: 17.005%
City of Mountain View: 15.405%
City of Santa Clara: 16.983%
City of Saratoga: 11.757%
City of Milpitas: 15.367%
Also of note is that City of Palo Alto has superior 2.7%@55 plan and still paying less than San Jose’s inferior plan. And I do know people who jumped ship from San Jose for that reason.
I don’t know if contracting with CalPERS is the long term fix. But I do find it’s interesting that captive plan such as those in San Diego or San Jose ran into trouble more often because there are more temptations and chances to behave very badly without outside adult supervision.
If the neighboring local governments can have equal or superior defined benefit plans with lower employer contribution rate, then maybe the problem is not with defined benefit plan, but the city of San Jose.
Great topic and thoughtful discussion. Thanks for getting it started honestly rather than letting others state the obvious and trying to manage opinion and feedback to the least painful and politically expedient course that has already be decided in informal caucuses out of the public eye.
Someone commented “thanks for peeling back the onion…” which I like a lot. I believe that the benefits cost crisis is a logical place to start addressing the problem, but is really only a symptom of deeper issues.
Traditionally, public employees were not well paid considering the hours and the task of working for thousands of bosses (every taxpayer that walked in would freely comment on the quality of public service they were receiving.)
The society and culture has shifted and its considered tacky to remind civil servants that they work for the public.
Several trends benefited city and county workers including some major elections decided in part by union support. Just as promises made by a former governor locked the state into huge wage concessions in multi-year contracts to powerful unions who backed this persons candidacy with large sums, in local politics developers and labor were they major driving force in all elections from 1980 to present. And if you could cater to both constituencies while not getting arrested, you were on a fast track for election, re-election and higher office.
Real wages grew faster than inflation during the booming economy of the 1990’s. San Jose let everyone get in on the economic boom with title inflation (where you give someone a new title and large wage but they basically do the same work.) And to really seal the deal, you have to hire new workers under the newly promoted people to further justify the job and wage inflation. So in actuality the promoted worker does less work for more money and costs the city a greater liability when they retire at the higher wage.
Another classic move was to generate a stress or other disability in the last year before retirement. The individual can go on paid leave while seeking treatment and can double dip with both a retirement and disability payment timed perfectly to kick in when they planned to retire.
Government isn’t alone in this stupid conduct. Many poorly run large corporations promoted poor performers upwards to get rid of them and simply passed the costs onto the consumer. This works only so long as you have a product everyone wants or needs and no competition. I wonder what happened to the US auto industry the last 30 years?
Anyway, there’s some fundamentals in practical public administration that seemed to have been forgotten in the politicized world of modern San Jose politics. Perhaps this is an unintended consequence of the Tom McEnery era when a ballot measure was used to shift from a council-manager form of government to a strong mayor with a weakened manager and a hybrid council.
I actually believe the change was the right thing to do at the time to help take SJ to the next level, but times have changed and the obviously unintended consequences of past reforms (including going to district elections of council members) seems to indicate we need to look at some of the cause and effect in the systemic problems.
Do we want to continue towards a Chicago or NY model of large, expensive, but basically poorly run governments that are popular with an engaged electorate or maybe tinker with the system again and try for a different outcome.
I don’t know. I’ve thought about devolution, like we’ve seen with the Water District and VTA splitting from under the Board of Supervisors, but I don’t think that’s really worked consistently. In practice it simply confuses the question of who and how things are really being done or not done and allowed shadow non-governmental organizations to take over policy making (SVLG, Labor Council, etc.)
I don’t have clear insight into what to do, but here’s a list of ideas:
1) Phase out existing self-funded benefit recipients and shift to Social Security and 401K systems (Thrift Savings Plan) like the Feds and private sector did about 20 years ago. Accelerate the shift by increasing the employee contributions for those who wish to remain under the existing plan each year until they retire.
2) For highly sensitive positions, offer a CAL-PERS option that would share the costs better between employee and employeer (at most, 50% of retirement pre-pay costs would be born by the employer.)
3) Alter the political system at the city level to change the playing field with some tinkering such as going to “partisan election” or perhaps revoking term limits but going to only partial district representation and having several at-large seats.
4) Create a general service plan, just like the state mandated “general plan” used to guide development. Identify core services and tie revenue streams to performance of these core services.
5) Identify redundant services where the city competes with other public agencies or even the private sector and either get out of this business or merge with other service providers to provide a better service at reduced costs (county library system versus city library, housing department at city vs county, tourism and cultural stuff, running public facilities like private businesses run by spoiled rich kids who wouldn’t want to demean themselves with a profit.)
6) Roll back user fees and service charges and find a simple revenue mechanism that clearly funds what people want so that public services really are public again.
7) Study a payroll tax of 1% on everyone who works in the city.
8) Identify all compatible services that could be merged at the regional level and shared among multiple juristictions (could we share expertise in traffic planning, forensics, library reference, environmental protection, etc.)
Check this out—Canada’s 6th largest city has a mayor in her 80s. A city of 700,000 folks, with no debt and $700 million in reserves!!! She’s been elected mayor 11 times. Why? In her words:“you have to keep your people happy, keep taxes down, and bring in jobs”
Chuck and the council—forget your high priced consultants. Go up to Mississauga, Ontario, Canada and learn from Hazel. NOW!
For the full story, go to: http://www.youtube.com:80/watch?v=fY79KbCptTo
FYI, Mercury news article on this mess:
http://www.mercurynews.com/news/ci_12093712