Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

A One-in-Four Chance

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On Tuesday the Council will discuss the fiscal reform proposals that Mayor Reed has researched and constructed. It will not be not an ordinary city council meeting but instead a major discussion being held in big cities across the country.

Last week, the Council had a study session regarding the City’s retirement system.  From my view, the presentation given by staff, which included the director of retirement services, Russell Crosby, was one of the best I have seen.  A step by step explanation of the retirement system was provided.

It is clear that the retirement system itself does not scale. Through no fault of the individual retirement participant, the system itself is structured on a poor foundation that will eventually collapse .

The meeting included candid comments from Mr. Crosby.  The most notable comment was the “death spiral,” which is when you have employee-to-retiree ratio parity. For example, in the past, the City has had as many as six employees supporting each retiree. That has now dropped to approximately 1.3 employees-to-retiree and continues to fall as the baby boomers retire and live longer.

The city pension system is like a mini Social Security system that constantly requires new people paying in to keep it afloat.  Some use the “Ponzi scheme” analogy when it comes to defined benefit plans and there appear to be similarities. San Jose has funded a portion of the total amount it needs to cover all those who are eligible, which is unlike Social Security, which is not funded but rather has a file cabinet in Virginia of IOU’s passing it on to the next generation.

Some say just don’t worry and pay later. The City cannot emulate the issuing of IOU’s as the Federal government has done and raise the national debt to pay retirees. If San Jose stopped paying the minimum annual payment the pension fund would run out of money in approximately eight years. So, some might say, well let’s just pay half the payment. Well, that would allow the payments to go further past eight years but not much more as there will be additional costs to not making the full annual payment.

To some extent you may think of the pension system as something one could walk away from, like a mortgage payment on a house that is underwater. But since the taxpayers are on the hook and retirees are dependent that changes the analogy.  It would be like walking away from a house, however, the difference is you have left your friends inside the house with no food or utilities and they are bed-ridden.

One stat that basically admits the retirement system does not scale is that the fund has only a 25 percent chance of actually earning the assumed rate of return. Anytime it does not hit the assumed rate of return, it creates an unfunded liability. Personally, I would not do something so important in my own life if I only had a 25 percent chance of making the goal. If we want a higher likelihood of hitting the assumed rate of return then we must lower the rate. But that will require more revenue going into the pension system in the short term, which equates to more cuts in services, thus layoffs or raising taxes and seeing the new revenue only going to the pension system.

The Retirement Reform Budget Study Session is available here. I highly recommend downloading the presentation and reviewing it as I feel it is one of the best presentations given to the Council on the retirement system and contains much more information than I have written in this short blog post. I have already shared it with a few retirees that have emailed me on the topic. Accurate information is beneficial as demonstrated by the police union hiring an independent actuarial who confirmed that changes must happen to the pension system.

On another topic the total amount of sick-leave liability on the books today is $114,825,100. Approximately $20 million could be paid out this year based on individuals with the ability to retire.

On to happier matters: Congratulations to the Lincoln Glen Little League for hosting the 2nd Annual Challenger Game. The Challenger Game includes mentally and physically challenged 5-18 year olds who each get a buddy from the Little League to play a baseball game.  Puts life in perspective.

Self-Inflicted Wounds

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The City of San Jose did not need to go to voters before issuing a bond to purchase the Hayes Mansion, but it would need supermajority approval before issuing a road-paving bond.

Although we are entering “road paving season” we have next to nothing for the maintenance of our 2,300 miles of road. This issue was raised at the city council meeting last week.

A question was asked about issuing bonds to pay for road paving. To issue bonds you need a source of revenue, such as a tax. For example, the $300 annual parcel tax for road paving that was discussed during the Council study session last year. This parcel tax would require appproval by a two-thirds supermajority of San Jose voters; however the two-thirds requirement may drop to 55 percent if the legislature changes the law as is currently being discussed.

I asked the question at the council meeting: “Did San Jose voters approve the bonds for the Hayes Mansion and Golf courses?” (In my view these are an example of self-inflicted wounds as the City chose to purchase these facilities). The answer from the city attorney was no, since they were lease revenue bonds. Cities can issue lease revenue bonds anytime as long as there is collateral such as property for the bond.  I asked what was the collateral for Hayes Mansion and got a fuzzy answer that the City took over a lease from HRLP, which is approximately $5 million a year from the general fund.

I then asked about the collateral for the golf course and was told the course itself was the collateral. This seems strange but apparently it is legal as it is called “certificates of participation.” I then asked: So, when we issue commercial paper to pay the SERAF payment to the State, does that diminish our ability to borrow? The answer was yes, since we may exceed our debt ceiling.

I then asked what city property is not collateral today, since so many city properties are being used as collateral, including the California Theater, Mexican Heritage Center, etc.. The answer was that the finance department maintains a list, however, not one property could be identified at the council meeting that was not collateral for debt. To be fair, sometimes any of us could be asked a random question and not know the answer. However it would seem like there must be one property that has not been secured as collateral for the purpose of borrowing. I suspect we may be near the end of having properties available as collateral.

As individuals we may dream of things we cannot afford and furthermore sometimes we cannot say no to someone. Same is true for government—both the elected officials and the voters who elect them.

Borrow or Pay Out of Pocket?

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The Council last week made the second SERAF payment to the state. SERAF is where the State raided all RDA coffers in California—again—in our case taking $75 million from San Jose.

The state allows payment of the SERAF to come from the housing department if a city chooses to do so.  This second payment of $13 million is due this week so Council had to decide to pay or perhaps not pay or even to cease RDA operations.  I have advocated paying the state with housing department funds.

What was decided, however, was to issue commercial paper to replenish the housing department as a way to finance the payment. Yet there is more than $13 million on hand in the housing department that would not require borrowing.

Ultimately the general fund is at stake for commercial paper, in the same way that the general fund is on the hook for the Hayes Mansion and golf courses.

I voted no, since I felt “Why borrow when you have cash in your pocket?” We do not get “miles” or some other reward for borrowing.

I understand that we would not be able to continue with two more affordable housing projects if we did not borrow, but felt that was OK since neither project will be paying property tax to pay for city services. I could contemplate borrowing if we were going to get something like road repair but in making a payment to the state I would rather just pay it and be done with it.

RDA was not meant to last forever but the recent settlement with the County of Santa Clara, which included the old city hall and was approved in closed session, makes closing the RDA even more complicated.

What Happens in Vegas…

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The saying, “What happens in Vegas stays in Vegas,” can be said for the City of San Jose’s closed session meetings. In a prior blog, I wrote about what I could of closed sessions called The Mystery of Closed Sessions.

Closed session attendees sign a paper with legal verbiage at each meeting signifying the importance of confidential information shared at the meeting.  As mentioned in my prior blog, closed session tackles topics like labor, litigation, real estate and personnel matters.

As a side note, I was able to attend several of the public labor negotiation sessions involving the city attorney union. I found the process valuable. Valuable to hear both sides discuss their viewpoints live, and it served the attorneys well from my perspective. I hope other unions take their negotiations public in future years.

Quite often in closed session the Council will take votes on important items even though the public does not have the opportunity to hear what is said or voted on. The information shared and comments made in closed session is not supposed to leave the room. These can be on important matters, however again the vote cannot be revealed.

So, what I can say, there is sometimes vigorous debate and not all votes during closed session are unanimous. I understand the need for closed session but feel that I am restricted in saying what I said or how I voted.  Videotaping closed session for me would be alright in case it was needed in the future. We do audio-record real estate discussions currently in closed session today so perhaps closed session will keep evolving. For me I would just as well have the closed session as a public session, however what I may want may interfere with the right of another.

WeePeeCeePee

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The water treatment plant in Alviso will soon be able to make wastewater potable. Robert Dawson photo.

Last week, the City Council moved forward with an Environmental Impact Report (EIR) for the water pollution control plant often referred to verbally as “weepeeceepee” (WPCP).  The plant and the land are jointly owned by San Jose and the City of Santa Clara.

There are competing interests on what to do with the area surrounding the plant. Some would like all of open space land preserved for natural habitat for the burrowing owl and other animals. Others would like to the area devoted to large parks with trail connectivity. Still others look to this as an area where San Jose could add office and retail opportunities to increase the tax base.

A permanent decision will most likely not be made until the EIR is completed in a couple years. However, what we do know now is that we must spend some money on updating the WPCP so that it continues to work and comply with federal regulations.

Perhaps with such a great land mass, there might be something for everyone?  Would it be possible to have land for jobs, open space and a park?  Do we try to please everyone or choose one option and stick with it?

Speakers from Alviso spoke about their concerns regarding added traffic to their area and shared concerns that any new retail would take away from the limited existing retail that is currently in Alviso.

This area is also where the advanced water treatment plant is being built that will take waste water and turn into clean potable water. Actually, this water will be cleaner than current tap water and certainly bottled water. This simple fact is important in the education process of consumers in water consumption. It is expected to open in June 2012.

Staff shared an extensive power point at the council meeting that I have placed on my council website as I have done with other staff presentations for you to view. The presentation is more visual and perhaps easier to understand than a long report so I encourage you to click on this link: City of San Jose District 6 Staff Presentations. From there, click on Water Pollution Control Plant Master Plan: April 19, 2011 to view and learn more.  This power point is the bulk of this weeks blog. Appreciate any comments you can provide from what you discern on the power point presentation.

On another topic, the District 1 and 3 budget meetings had comments from actual residents this week. To summarize, people wanted the council to fix the structural budget problem so we can restore services in the future. A woman at the District 3 meeting, who is a volunteer at a community center, said she and her neighbors understand that the City has no money and to “Just do your best and God bless.”

Paint Over Walls Or Paradigms?

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Graffiti abatement in San Jose costs the Parks & Rec department $1.7 million per year. Local residents occasionally chip in to help.

I attended the District 5 (D5) community budget meeting last week—it was the third D5 community budget meeting I’ve attended. Approximately 50 people were there, with the majority being city employees.  Many of the speakers shared emotional testimonials.

One speaker stood out to me. She shared how cutting of library hours from 4.5 days to three days a week would cause a large burden to her neighborhood. She teaches music at the Hillview Library and is close to the youth who rely on the existing library. She said keeping library hours open in her neighborhood was important since she feels her neighborhood has a higher need than other areas.

This theme was prevalent. Another woman brought up that since D5 has a higher crime rate, then why not keep D5 libraries open and close District 10 (D10) libraries since crime is low there? I have asked the same question before. Should library hours be based on need? How do we determine the need? Crime stats? Census date by race and income?

Another person was concerned about the police layoffs and how they need more police in D5. Truth is we do allocate more police to D5 than D10, for example.  Since there are more calls for service in D5 than D10 our police force plans accordingly.

Another felt D5 had not gotten its fair share of capital projects compared to other districts. This one would take some research but I think it is fair to say between the Redevelopment Agency spending through the Strong Neighborhoods Initiative ($105 million for a third of San Jose), Fire Station 2, Mayfair Community Center, Alum Rock Library, Hillview Library, Mexican Heritage Plaza, to name some projects, the last 10-15 years was better for D5 than the previous period of historical neglect.

The other major issue of the night was the option of outsourcing to save money and retain a city service. The one that got the most discussion was outsourcing the anti-graffiti painting currently performed by city employees.  It was felt that the painting of walls was too important to outsource and instead should only be done city employees. Currently it costs $1.7 million to do this service and the Parks Recreation Neighborhood Services (PRNS) Department (which runs this program) estimates it could be done for $1.1 million which equates to $600,000 in savings by keeping the service but providing it a different way.

The employees who perform this work have shown up at each budget meeting to speak against the outsourcing. This service is really needed in D5; I witnessed to and from the meeting that there was substantial tagging. The sheer amount of tagging I witnessed gave the appearance that the City does not offer this service today. Speakers at the meeting felt that city staff would work harder than a private contractor. One option might be to outsource half of the city to a private contractor and the other half to city employees and judge it in a year. However, this would not generate the total savings needed to balance the department budget and thus provide this service.

The savings in outsourcing park maintenance looks even higher. The current cost for only maintaining small parks under two acres and park bathrooms is $4.1 million where if it was outsourced it is estimated to be only $1.3 million for a savings of $2.8 million.

I understand that some people will lose their current job through outsourcing and may go to work for the private contractor earning less, but the City’s responsibility is to provide services for 950,000 residents. The employees who may lose their job did nothing wrong, it’s just a sign of the times that the City needs to re-look how it can continue services and save money. The City saved $4 million last year outsourcing janitorial at the Airport and City Hall and everything is just as clean.

Last week, at the District 7 (D7) budget meeting, a career Navy veteran advocated for opening the Seven Trees library, which is completed but not yet open. However he went on to say that there should be immediate changes to the pension system. He mentioned how he receives a 30 percent pension for 25 years serving our country in the military.