Mayor Reed shared a candid and honest view of city revenues and expenses at the State of the City Breakfast last week. (Personally, I miss the State of the City speeches in the evening as it led to dinner after the speech and spending money Downtown.)
As we already know the City is walking the plank, with the sharks swimming below in the ocean (sharks = bankruptcy) and a sword wielding pirate (pirate = hard choices) is forcing us to walk down the plank off the ship. Walking back up the plank in not an option unless tough decisions are made now. However it seems that another alternative being heard more and more at city hall is borrowing.
This week the council will vote on an RDA budget that proposes to borrow $10 million from the Park Trust Fund, Ice Center and Water Pollution Control Plant to be repaid in approximately six years. Six years of risk. What if there is a major repair needed at the Water Pollution Control Plant or the Ice Center?
Six years of not being able to make a strategic purchase of property for a park or trail connection. The Park Trust Fund comes from fees paid by housing developers who build market rate housing (affordable housing is exempt from paying park fees). In turn, they want to see their money spent on what it was intended…parks! Actually if we do not spend Park Trust Fund money within a certain amount of time the city must return the money.
The Library Parcel Tax reserves were considered for borrowing but spared since it would kill the chance of getting the voters to continue the tax in 2012. (A point I brought up at the Neighborhood Services Committee.) The alternative to borrowing this $10 million would be to borrow this amount from the Housing Department as allowed by the State Legislature, which I support.
Borrowing of these funds today limits the city’s options tomorrow when the state will grab more money from the city. If we are forced to borrow then let’s do it to maintain core services like police and libraries, not more affordable housing, most of which does not pay property tax.
The City will also be issuing $25 million in commercial paper to pay a portion of the State’s raid of San Jose RDA. Commercial paper is the equivalent of a home equity line that must be paid back. The collateral for the $25 million in commercial paper is our beautiful California Theater, home of San Jose Opera and Symphony Silicon Valley. Again the other option would be to borrow this money from the Housing Department instead of borrowing more on our equity line. Borrowing in both cases is due to the State Legislature taking $75 million away from San Jose RDA funds.
At the budget study session last week a union lobbyist touted the idea of risky pension obligation bonds. Pension Obligation Bonds (more borrowing) are used to fund the unfunded liability of pensions, so as to lessen the large amounts coming out of the general fund in future years when there will be losses. This year $38 million is being transferred from the general fund to cover the pension investment losses which is equivalent to over 200 police officers or staffing for 17 fire stations or paving 24 miles of road. This arbitrage scheme would have the city issue taxable bonds at say 6 percent and then take that money and invest it with the city Retirement Funds. The hope is that the city Retirement Funds would have a greater rate of return than the 6 percent we would have to pay the bondholders. In the last 10 years the average rate of return for city Retirement Funds has been 4.4 percent. (While doing my taxes on Valentines Day I noticed my own mutual funds had returned 3.5% percent over 10 years.)
If the Retirement Fund investments do not perform over time then we could lose more money or possibly break even or make a higher return. Positive investment returns would be restricted to paying off future retirement liability. I think outside of the risk, Pension Obligation Bonds may give the council a reason to not seek second tier retirement benefits the taxpayer can afford for new employees.
The other idea suggested by the union lobbyist was bonding construction and conveyance tax (C&C) funds so that we could spend more now so cuts do not have to be as deep. There again you have to gamble on the future tax receipts and the total amount of C&C funds will shrink since you have to pay the costs associated with bonds. However this borrowing would allow the Council to avoid the question of outsourcing.
It is just another day in local government. Perhaps one way to raise money for the city is to sell bumper stickers that read, “Why do today what you can put off ‘till tomorrow?”
Two points upon which to reflect:
1) Borrowing funds to sustain or repair basic infrastructure – sewers, libraries, roads, etc., while undesirable, may be justifiable. But borrowing to fund non-essentials, e.g., the RDA, affordable housing, ice rinks, etc., makes absolutely no sense.
2) Any borrowing, no matter the flavor, robs from the future. Bonding future revenue streams steals money from the future, when it may be needed. As an aside, any bonds that the City might issue would have to be considered as junk status and priced accordingly.
While it is true that when you borrow, you are using future revenues now, tt only becomes “robbery” when the present generation squanders the money on things that do not have long lasting good. I don’t think we would be “stealing” from the future or our kids if we use that money to invest directly in them now by keeping open libraries, community centers and parks.
When a household losses wages, early and decisive action to cut expenses and alter lifestyle can prevent a spiral down towards personal bankruptcy.
While its hard to explain to the kids sometimes, its better to face problems now than to lose everything a short time later. Living on as if nothing has changed, using consumer credit and equity lines is extremely dangerous. That’s living in a false reality where you pretend nothing is wrong.
Borrowing at the municipal government level reminds me of the same situation. Let’s not make the hard choices, borrow and trim a little and act like nothing is wrong.
The sad thing is, it’ll probably work for a couple of years and just buy time for incumbents to line up their next elected office and hand a bigger mess over to future elected officials and citizen-taxpayers.
Wow Blair Whitney!
You make it sound so basic. You have succinctly stated the obvious. Even the buying more time and handing over a mess to the next elected officials. I have seen this more often and too often in recent history. Mr. Oliviero is like the lone wolf who seems to get it, but seems to remain in the minority.
I agree with the bulk of this… thank you for posting Pierluigi. I feel it is worth commenting that libraries are not a “core service.” Police, Fire, water, garbage etc… yes- but not libraries.
Libraries may not be a “core” service within your personal definition of the term, but neighborhood libraries in San Jose have been the subject of voter referenda on multiple occasions over the last 15 years and the voters have always voted to tax themselves specifically for enhanced library service—including a capital campaign (Measure O) to rebuild and expand the branch libraries.
Libraries are among the last refuges for the unemployed looking for resources to find work. They provide a different paradigm for kids who might otherwise be drawn to gangs (thereby serving to decrease the need for police services). Libraries are also the repository of our civilization and attacks upon them are deeply corrosive to the commonweal. Burning books and characterizing libraries as a non-core service are simply different points on the same continuum.
The San Jose electorate values its public libraries, as evidenced by the results of multiple voting initiatives, and any efforts to close public libraries, or to reduce by half or more their hours of operation, would be a serious breach of trust with the electorate.
Right on Don!! Thank you for your eloquent and logical summary of the importance of libraries.
I will add to the mix that most amenities have the long term benefit of providing safe, proactive and healthy alternatives to people who need these resources. Amenity examples and their benefits include:
* Open and maintained pools where kids can learn how to swim, learn water safety basics, and enjoy socialization with others
* Open community centers which offer things like life skills classes
* Open and maintained parks which provide public spaces and places to bond with family and friends, learn about nature, and get some great exercise!
* Maintained trails offer a way to beat the obesity problem by exercising in the great outdoors.
I argue that all of the above are “core services” that many people consider prior to choosing a location to live and/or raise a family. I also argue that these amenities offer “public safety” because they offer something positive to do rather than have folks find trouble to get into.
If we want to make San Jose a “great place to live, work, and play/do business” we must be able to answer the question: As a taxpayer, what do I get for my money? I’m afraid a response like, “water, police, fire, and sewers” are something ALL cities offer and would do nothing in the way of offering more incentive to find their way to San Jose.
Tina
If we want to make San Jose a “great place to live, work, and play/do business” we must be able to answer the question: As a taxpayer, what do I get for my money? I’m afraid a response like, “water, police, fire, and sewers” are something ALL cities offer and would do nothing in the way of offering more incentive to find their way to San Jose.
Well Said Tina!
Do voters really vote to tax themselves?
Next time a property tax assessment is on the ballot, maybe only property owners should vote. Or maybe a tax on certain income levels should only be voted on by those targeted.
I think you’ll find that people aren’t willing to tax themselves. The reality is that a large majority of the voters want services on someone else’s dime, and politicians are always willing to help.
After all, they can look noble by framing the issue with emotional jargon and at the same time siphon off some wealth for themselves. Then they get their name on the building.
Libraries are a core service in our democracy. Public Schools, drinkable tap water and free access to knowledge for learners of all ages. That’s a basic. Some enjoy the bookstores and coffee shops, but they’re not really reading, most are just renting space for homework by buying coffee, or picking up books they want to own. Having public (free) libraries opens the door of opportunity at least a little in the face of our increasingly class conscious meritocracy (where if you have money you must be better and therefor deserve more.)
If city government provides nothing but 911 service, they are simply a payroll agency for some highly paid contractors. I believe local government can be and should be a bit more. At its best it helps manage change in intelligent directions (land use decisions where you don’t put a power plant next to a school, etc.) At its worse, we all work for them and have to constantly ask for permission to do what we want or need to do with our own property (residences or business.)
Libraries are important. And putting it all online doesn’t meet the needs of people who want safe and comfortable places to relax, read, learn or lounge.
Same goes for tap water and public schools. Non-negotiable. If we let them go to hell and just buy bottled water and send our kids to private schools we’ve just joined the European aristocracy where democracy is a pleasant little diversion but not for serious people.
With 16% (and rising) adult illiteracy in this area,
I would say libraries and schools are definitely core services, and not just possibly worthy of support—-they are a necessity! Thanks, Pierluigi.
Why do you consider the most coercive parts of the government “core”, but think its most benign aspects a luxury? I would think it was the other way around. I want to pay for a democracy and not a police state. To create a healthy civil society is more important to educate and inform citizenry, then to police it. People who are part of the solution are not part of the problem.
Practically speaking, it also makes more sense to fund schools and libraries, then police and prisons. It cheaper and more humane make sure kids fulfill their potential, then to jail them once they’ve fallen through the cracks that we’ve created.
If you and the Council were really serious about fixing this mess you would put arbitration on the ballot. The city will soon lose millions more due to arbitration with SJFD. The trickle down will cause other city employees to balk at salary reductions when they see police and fire getting large raises. Are you going to fix this?
Exactly how does a ZERO percent pay raise cost millions of dollars toward the city. That my friend was the last offer from the firefighters union….. Arbitration is not the big bad pink elephant in the room here, poor management and poor decisions from council are the problem….. Facts are that arbitration has only been used 3 times for wages by fire since Measure M was voted on in 1980. 3 times in 30 years……
Maybe if the city negotiated in good faith as required my City Charter 1111, we wouldn’t have these problems……
Have a nice day.
Local government is following the example of the Federal and State elected officials who are unable to say no and try to be everything to everyone. Move away from current pension system and do not borrow money to keep it alive.
Reed needs to make the big cuts now… cause next year he’ll have to cut too…
Thanks for your post Pierluigi.
I thought there was also another option the Mayor/Council may have: Something called “implementation.” From what I understand, it is an action taken when the City and bargaining units cannot come to a final decision so the City enacts “unilateral implementation” of their last and final offers—and the bargaining units make take them.
It seems to me that this might be a good balance between the City who knows the importance of keeping City workers employed (and is willing to agree to some or part of the conditions being requested), while at the same time not trying to balance a deficit on the backs of neighborhoods/taxpayers.
Is “implentation” an option that has been discussed Pierluigi?
Thanks,
Tina
The city can ask its local representatives in the state assembly and state senate to consider revising the law to remove binding arbitration for public safety. The deck is rigged so that anytime the contract comes up they always get a big raise, and if it goes to arbitration it still happens every time.
We can afford a little attrition if we freeze or roll back wages a little. If people really think they are under-paid and over-worked, let them find a better job and sell their house and move the family.
As far as the other city unions, AFSCME, Operating Engineers, etc, I think if one did honest desk audits of what people did and compared that to comparable private industry jobs, we’d find quite a few positions that have been inflated during the good years. Hire a couple of assistants and change the title, then raise the salary but basically your doing the same thing, or worse, supervising a couple of interns of entry level works who are actually doing the work while you attend meetings and send email.
Last hired, first fired works for making unions strong. It doesn’t work for failing businesses who need to trim the fat and hold onto the lean muscle doing the work. Functions and service areas need to be put on the chopping block, not just positions. How that works in the collective bargaining framework is not clear to me, but that’s the real job that council members are elected to do. Could we do RFP’s on service areas that seem important and see if the department can underbid another provider (public or private)? Then select the best option and if it means outsourcing, eliminate all the relevant positions with generous severance pay and retraining incentives?
How much does it cost to irrigate, mow, empty trash and clean restrooms at a park? Could it be done better? How much does it cost to fix a pothole? Could it be done better? How much does it cost to paint a curb, stripe a street, etc.?
Unfortunately, the hard decisions usually don’t make your friends that want to help you in the next election. Usually people want it all and lower taxes. And at the national level, we’re getting it, which raises expectations for local leaders to deliver the same magic.
I think I should head to Europe to check out some post-industrial enlightened socialist utopias to see how they do it.
Yes Blair, please head to Europe and report back.
I submit that the Cultural Affairs Dept., staffed with 18 employees, be the “canary in the mine” test for whatever progress might be made in the City’s quest for a balanced budget. As long as we have funding enough for such a frill, we can’t take our politicians seriously.
RIGHT ON!!!!!
Is it essential right now to implement a grocery store plastic bag ban which is going to cost upwards of a million dollars to put in place and will cause some consumers to shop and spend money in neighboring cities? Is the city going to finance part of the Mariachi festival again this year? Are the golf courses shut down yet? Has the city done away with the Cultural Affairs Dept?
I saw Mayor Reed said the state has taken over 500 million dollars from the city in the last 12 years. That, combined with how much our new city hall cost because the last regime just had to have it, adds up to over a BILLION dollars that should be in our city right now.
Thank you councilman Olivero for a very thought provoking blog about the City of San Jose Budget and finances.
I agree with you that we should not borrow money.
As a citizen of San Jose and California, these are tough times and they call for tough choices to be made. One thing I was happy to not read in your blog was that you did not advocate imposing any additional or new taxes. Frankly as a taxpayer I am tired of always having to pay for increasing salaries and benefits to the public service employees when those of us who are either small business owners or private sector employees do not have any pension plans or benefits as rich as the Public Service and SEIU have negotiated for their members.
Our problems are systemic and fundamental. Unless we address these fundamental problems and reduce our out year liabilities on these rich pension plans, we will not have solved our budget deficit problems. City of San Francisco has more than 10,000 employees earning more than $100,000 in annual pension! How can any society afford to guarantee to pay such large sums of pension benefits when the private sector employees do not have any pensions plans and their Retirement 401K plans have become 201K or less?
But coming back to the service side of the ledger, Public Libraries are just as essential as Public safety and Fire Dept. Public Libraries- and San Jose Public Libraries are one of the best in the nation- provide so much of value to our citizens that I can not think of cutting these services even by 1 more hour a week. I hope the city council will find the necessary resources to keep them open for the current schedule and not make any further cuts in the services.
Profligate borrowing in the public and private sectors has put us in the credit crunch in which we find ourselves. More borrowing is not the answer. Actually making the hard choices by government that we individuals must make daily is the only answer.
Don’t just eliminate “positions” that haven’t been filled by a warm body in years and call it a balanced budget. For me and others, The Office of Cultural Affairs is the poster child for what we might LIKE to have, but must DO WITHOUT in these hard times. Start there. I’m sure there are other departments that we could also do without.
Are any of you on the council considering what the results of P.O.‘s survey revealed as OUR priorities?
And the unions just don’t get it. They seem to think that just because another year has passed that their workers are somehow ENTITLED to earn more. Is it just those with seniority who realize that if there are layoffs it will be the junior members in the seniority queue that get the axe who are driving this refusal to face the reality that either you accept cuts, or some of your “brothers and sisters” will be unemployed, while you senior employees just keep on keepin’ on??
There must be a way to stop the dysfunctional idiots in Sacramento from stealing from cities, counties & RDA’s to fund the numerous feel-good programs that they initiated in good times when the $$ was there. And the programs they mandated for counties without a funding source have to stop.
The disconnect between Sacto. politicians and their constituents seems huge…until you realize that the idiot voters keep re-electing these career incumbents who have gotten us in such a mess.
Throw them all out at the next election. A band of monkeys could do better that our so-called representatives in Sacto.
Pier,
Here is a win-win for jobs and the environment. The greenest technology we have is nuclear. Why not be a real innovator, not just for cannibus clubs, but for bringing a nuclear power plant to San Jose. It would generate thousands and thousands of jobs, provide green almost unlimited energy, and bring millions of dollars into San Jose through the sale of electricity. Every other major country on earth is racing ahead with nuclear, and 75% of those surveryed in this country now support nuclear. Nuclear is coming one way or the other, just like medical pot, might as well do it on our terms where it can benefit San Jose.
Good one. Satire day used to be Friday. Thanks for bringing to mid-week.
It is satire only in that our politicians don’t have the balls to do something this daring, especially here in California. We will keep hoping a floundering company like Tesla locates here, mindless of the fact an electrical car needs a power source which at the present is generated by fossil fuels or coal, both infinitely more dirty that clean nuclear. Anyone who is still scared of nuclear should read “Physics for Future Presidents” by Richard Muller, a professor at Berkeley who debunks all the fear mongers. We need to get off of fossil fuels which would put billions back into our economy here and San Jose should lead the way and build a nuclear plant, employing thousands of people.
http://books.google.com/books?id=Ogs_4gPqvv4C&printsec=frontcover&dq=physics+for+future+presidents&source=bl&ots=KFEV_lPzoD&sig=LdaW3sq4IfK9r-8B6kpIAyJXyLQ&hl=en&ei=Ja6FS9q7MIqotgPV4KH6CA&sa=X&oi=book_result&ct=result&resnum=12&ved=0CD8Q6AEwCw#v=onepage&q=&f=false
Interesting. What does the professor say about the waste that is generated by these plants? Do we put in landfills, in neighborhoods?
How about politicians having the balls to do something about unsustainable pensions?
The nuclear “waste” can by recylced to the point where the amount of waste for a family of 4 for 20 years would fit into a thimble.
“The spent rods are considered “waste” only in the U.S. where anti-nuclear forces have long prevented us from reprocessing the spent fuel rods. Ironically, other countries such as Britain, France, and Japan use the reprocessing technology that was invented in the U.S. They understand that the spent fuel rods from their nuclear power plants are not “waste.” ”
Pierluigi,
Why are you the only council person willing to communicate with San Jose residents in such an open and consistent manner on the serious issues facing the city? I cannot imagine any other council person willing to shine a light on the dubious financial schemes proposed by the union lobbyist. Sadly, I bet some on the council would even be willing go along with such schemes to mortgage San Jose’s future in order to keep their political careers alive.
I’m tired of all the blame being put on pensions. I’m tired of ALL the blame being put on the working stiffs of this city. No one seemed to care how the city was dishing out money to every Tom, Dick and Harry during the boom years. And the complainers we hear now were too busy counting their stock options and seeing their retirement (401k) rise and rise. Now that it is in the toilet they feel the need to attack the pensions of others. The well maintained pension plans of others.
I pulled the following from the comment section of the Murky news:
“contribution holiday”. Yes, you will never read it in the press but many years that the fund has exceeded the assumed rate of return the city has chosen not to make their contribution to the fund and has used that money to pave streets, paint graffiti, keep libraries open and for anything else they wanted. The employees during the good years keep paying every two weeks into the fund. If the city would have not taken their contribution holidays the funds would be over funded today.
It is something to think about.
And something else you never hear about is that the SJPD took a 5% pay cut a year ago to fund their own retirement medical costs or that they pay a large amount twice a month into their own retirement, or that since they have their own pension they are not eligible for Social Security. Also, all the many years when the pension fund has been wisely invested and made more than the assumed rate, the city was allowed to take the excess to be used however the politicians saw fit. Not only that, the city did not have to contribute a dime into the fund during these times. That is never mentioned by the likes of Pierluigi. This excess money was SQUANDERED by the city, and now folks like Pierluigi are deflecting that responsibility by blaming someone else.
Frank,
Are you OK with lower pension benefits for new employees?
As long as we have elected officials who have cut out all the other bullshit pet projects we don’t need and quit kissing the asses of developers to build “affordable” housing rather than use that land for business to produce income. Otherwise you have not cured the drug addict (city council) of his addiction, but just temporarily reduced his supply of drugs. Drug addicts always find a way to get more drugs (ie lets increase the sales tax in San Jose, lets build Cannibas clubs so we can get sales tax, lets expand gambling in San Jose for more taxes).
Longtermdebt, I would like to respond to your question. I am not inclined to be in favor of a two-tier system at this time. For one, I don’t believe the employees of this city should have to pay for the mismanagement of past or present officials. As Frank mentioned, employees have given back. They have done their part. As mentioned, I believe that the pension fund is (or could have been) sustainable if the city would have properly paid into it during the boom years. To have that burden fall on the shoulders of the employees is irresponsible. Especially when the city isn’t willing to partake in an intervention process from the addictions to big developers like Steve mentioned. Catering to the theory of affordable housing is unsustainable.
A two-tier system creates a divide between employees. It also diminishes the city’s ability to hire qualified employees without lowering their standards because they can’t adequately compete with other nearby city’s that pay better.
Lastly, I think it is time that politicians do the right thing and not the political thing.
No, I am not. Every time we send a job overseas or arbitrarily cut pensions, as United Airlines did to thousands of dedicated workers, we are just further eroding what is left of our own middle class, while at the same time weakening each of our own jobs whether in public or private sector. As workers, at anything but the highest positions, we have become like crabs in a barrel, trying to pull each other to the bottom the quickest. Right now, public employees have become the scapegoats, which the politicians are all too happy about as it has taken the heat off of them. Frank, would you be ok with a cut in your Social Security or Medicare?
San Jose spends $80-150 million of our taxes on non essential non government groups or corporations – developers, corporate tax giveaways, mismanaged non profits, entertainment event subsidies, affordable housing and wasteful economic development projects that do not return taxes spent or produce decent jobs
Almost none would be spend or wasted if taxpayers could vote no
City hides wasteful spending from city labor unions who they ask for givebacks and taxpayers who year after year pay higher taxes and fees for millions in wasted tax spending since they would be upset