City Hall Diary
As I have mentioned before in a few of my posts, my parents taught me the importance of saving my money and using it prudently at a very young age. I think my parents taught me well; they practiced what they preached and I learned by example.
Twenty years ago, my father was diagnosed with cancer. My parents, both teachers, with two children and a mortgage, were able to pay for my father’s healthcare bills which cost over $130,000. How? Because they saved money every day of their lives. The insurance they had twenty years ago would not cover all of the costs of cancer treatment; therefore, it was up to my parents to pay the bills. In today’s world those costs would equal $250,000-300,000.
Like my parents, I believe it is important to be conservative with my own money. As a consequence, I treat the public’s money like my own—responsibly and carefully. Catastrophes, hard times, or a national emergency may come at any time for San Jose. So, it is up to the city council to ensure that the City of San Jose has security and liquidity of its finances to take care of the tenth largest city.
San Jose has a pattern of not being as prudent and responsible as it should have been with city finances. Our city experienced a $60 million bond loss in 1984. (Not to mention all the money the city has wasted suing small business owners and other public governmental agencies, etc.) In fact, I remember attending the hearings at City Hall when I was in the 8th grade. To be honest, I would cut class to attend. I did not understand exactly what was transpiring at the age of 14, but I did know that the community was shocked that the city was not more prudent with the public’s money. (On a side note, I also remember that former Mayor Tom McEnery and Councilmember Jerry Estruth had really big hair!)
This past week, on June 5 at the city council meeting, the finance department proposed contracting out a portion of the city’s portfolio to an investment firm. This would be similar to investing in a mutual fund portfolio through Fidelity or T. Rowe Price. The firm would be paid for their services to manage a portion of our portfolio. Going forward, their evaluation would be performance-based on the return on investment they earned for San Jose. The finance department believes we could gain a higher return by doing this.
However, for us to change course, the city would need to hire additional staff and subscribe to investment technology for the first year at a cost of $470,000. This amount will be ongoing and grow over time, which then cuts into how much more the city could make. This model would be like you investing in mutual funds—doing the work by yourself without any problems and earning money—and then stopping only to hire a financial planner to oversee the portfolio that you were doing perfectly well with on your own. I am not sure why the finance department would propose a new method when the previous method was not broken.
In addition, there is an incomplete audit of the finance department that was being conducted by the city auditor’s department. This audit would have been completed by September. I would prefer to see what that audit report says before we implement changes. At the finance committee meeting, I couldn’t help but notice how adamant the finance department was against the completion of this audit and their push for the city council to move forward with their idea.
Anyway, as I said, I voted against changing a system that is not broken and that has earned a secure return on investments in commercial paper, treasuries, money markets, etc. (This information is located right on the finance department’s website.)
An argument was made that other cities like San Francisco have earned more than San Jose on their investments this past year. However, we are not San Francisco and we should be careful comparing ourselves to other cities. In my opinion, with the upside of a higher return, there is also the downside risk. Would you rather have a guaranteed safe return or a more volatile return? When it comes to the one million people who live in San Jose, earning a secure and liquid return is the most responsible way to invest money.
Let me ask you: Do you believe we should have a guaranteed secure rate of return for city investment or do you trust the City of San Jose to invest your money at a higher risk for a higher return? Of course, that is after we pay over $470,000 for additional staff and not including commissions. What do you think?
On the 60 million, it was a sad chapter in San Jose history, and rocked the city. I was Mayor – 7 people were fired; many projects delayed; the policy of the city violated. An old, new, face, Les White, was the hero who discovered the irregularities and first blew the whistle – the city owes him a lot, then —- and now. About 29 million was recovered and spent on delayed projects in 1988. As a post script, the same bond scammers who were responsible for the churning were later involved in the San Diego Co. bankruptcy. They were slower to learn than us! TMcE
Before moving forward with any changes, I would seek the advice of Bob Brownstein, Phaedra Ellis-Lamkins, Terry Christensen and The Mexican Heritage Corporation. We need expert analysis and thoughtful insight concerning this complex issue.
Tom,
you didn’t respond to the bad hair deal. Your hair looked like you played with a hair dryer in the bathtub. You have a much “dew” these days.
On a side note, what is the status of IBM buildings 1 through 24?
City staff has one goal, and one goal only….to MULTIPLY!
Sending it out to an investment firm? Do you think they’ll take a donut, ot Twinkie instead of THOUSANDS of tax payers dollars for payment instead? If their answer is NO, then I agree with you Pier, it’s a waste of money.
My God, what are these people in the City doing to get a pay check if all they want to do is hire investment firms, and private contractors to do their job for them? I think we all need a job at the City…..
Percentage of the money breakdown like this:
65% – Guaranteed secure rate.
30% – Higher risk … provided the external advisors only get a cut if money is made!
5% – Place a “Las Vegas” bet that the Sharks will win the 2008 Stanley Cup.
Good Luck ! Go Sharks !
We sent our public tax money out to a investment firm to earn a higher return and the result was $60 million loss
We need to complete the Finance Department audit It is a common sign of financial problems when the group to be audited does not want an audit since they are hiding problems. Did REP, Mexican Hertage, Northside Community Center, Grand Prix etc have or want audits?
Gonzo did not disclose billions in future city obligations which Reed disclosed SaN Jose owes
City Council don’t want to discuss hundred million in wasted city spending ( the list is very long), corporate / developer tax subsidies, doesn’t want real cost / benefit analysis of tax subsidies like Soccer Stadium, Grand Prix or millions taxes given to mismanaged non profits
It would Not be a surprise to find more creative accounting, more scandals and fiscal irresponsibility in Finance Department
Strong Insider Hint Look very closely at San Jose Finance Authority – what San Jose owes and where money want
Mr. Oliverio, you promised to build more highrise housing downtown without hassles, but the planning commision is your worst nightmare. They are your enemy, and not very many highrises will get underway in the next few years since the planning commission impose so many guidelines to impede projects from going forward. You need to have the council to override this nutty commission. The neighborhood design guideline is a b.s. to stop the Barry Swenson’s Parkview tower from moving forward. The airlines height restriction proposal is another b.s. to prevent a nice project such as Urban West’s Citisquare on First and San Carlos from moving forward or forward fast enough. The planning commision is a disaster for downtown San Jose; therefore, no retailers will be coming downtown because of not alot of people living in downtown. The planning commission is the blame for downtown shortfalls. You and Sam Licardo need to override their concerns on August council meeting. Sorry for the detour of the today’s invesment policy subject. Downtown SJ comes first!
If the finance department proposes that we contract some of the city’s portfolio to an outside investment firm, then we should. Citizens should respect the experience and wisdom of the finance department. The finance department is in a better position to make this judgement than anyone else.
Item 10 above says, “Look very closely at San Jose Finance Authority – what San Jose owes and where money (went).”
The financing authority is one of the most powerful agencies in City Hall. Its board members are the city council members as are the board members of the Redevelopment Agency.
Back in 2004 I did an analysis of the financing authority as it related to the design and construction of the new City Hall, and it still holds up pretty well. To see this small window on the financing authority, go to:
http://www.dalewarner.com/sub/enron.htm
As you can guess from the link, I compared the financing authority and city finances in general to the bookkeeping practices of Enron Corporation.
I am so glad that you brought up the
$ 60,000,000 bond loss. I remember it and that the city recovered 6 or was it 11 million from someone? The city council promptly had a discussion about how to spend the recovered money. I have a degree in business but something I never learned in college was how to spend a “loss”. I don’t know how that turned out, maybe someone
knows and can tell us.
4
Pierluigi,
I’m with you on that… there’s no need for the City to spend a half-mil on financial management. A public entity should take the safe course and adopt a long-haul view. That sort of objective can easily be met by investing in an S&P 500 index fund – no muss, no fuss, and miniscule management fees.
By the way, where has Gerald Silva, our City Auditor, been lately? I trust that he’ll return soon, as he’s one of the most compentent City employees we’ve ever had.
I have away for the city to make and save 1 billion today. lay off half of the idiots working in city hall. they are a bunch of “Tools”
7 – If you have to ask you obviously haven’t been by the site recently. There’s not much left standing.
PO: I’m lost. If CSJ is hiring an investment firm to manage a portfolio, why do we have to hire $470k worth of city staff? More union featherbedding?
And staff doesn’t want to see the audit completed. Hhhmmm, wonder why?
CH #10—my recollection differs from yours. We didn’t lose the $60 mil. because we hired an outside person. We lost the $60 mil. because a staffer engaged in unauthorized speculative trading.
#11 said: “Downtown SJ comes first! ” Says who? Not the vast majority of the people who live in SJ. Who are you shilling for?
There is an old axiom, ‘what goes up must come down.’ Another one… ‘buy low – sell high’. The market has had a long upward run over the last fdew years and now the finance dept want’s to jump in? Sounds like boredom, anxiety and greed at work. Not a good idea. Wait for the completion of the audit and listen to Les White.
Downtown neighborhood design guidelines and Planning Commission are not problem it is developers greed
The facts are downtown Developers do cheap boxy design and want maximum square footage to increase profits so Planning Commission and neighbors object
FAA airlines height restriction proposal is so air planes don’t crash into residential towers and kill people
Few retailers will be coming downtown until the club, gang and public safety problems are solved. It will take years for good retailers to move downtown since they avoid any place with history of retail failure since there are dozens of places where they can be successful with little risk which is not downtown
Ronald (#12),
You can’t serious about the Finance Dept. being best suited for making such a determination. If we had intelligent, experienced employees in that department, we might expect them to effectively manage the funds. I guess that isn’t the case, however. Therefore, I’d go one step further and outsource the entire useless department.
This just appears to be one more case where City employees lack the necessary qualifications to perform their jobs. Lately, every time one reads the news, the City is hiring a team of consultants for one job or another. At what point do we, the taxpayers, demand that City employees do the jobs for which they were hired?!
Johnmichael, it’s all for San Jose dignity. It’s the living of the city, and it has to be the best! I’m shilling for the soul and blood of San Jose.
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