Oliverio for Supervisor 2018

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Teeter-Totter Salary vs. Pension

October 17, 2011 By Pierluigi Oliverio

I was recently approached in my district by a married couple who told me that they hold “very liberal” perspectives on political matters, with the exception of pensions. When it comes to that topic, they said, they are in line with Rush Limbaugh.

It is evident to me that whatever degree of pension reform is put on the ballot—and, yes, pension reform for current employees must go to the ballot since it would require a change to the city charter—will pass. This afternoon we are having a study session on a proposal from five out of the 11 unions that offered a concession on current employee pensions moving forward. Included in the proposal is retaining the pension system for future city employees, although at a lower rate. I signed on to a memo requesting that this discussion be conducted as a public meeting. For those keeping track, I believe all union negotiations should be public.

Whatever does go on the ballot will offer some measure of savings to seal the hole in the budget deficit. And it could possibly return diminished city services to residents over time. I say possibly because the existing unfunded pension liability could increase more than forecast due to risk and uncertainty. The unfunded pension liability does not vanish if the retirement board transfers assets into CalPERS, as the liability will always be allocated to the city of San Jose and inevitably with San Jose residents.

However, whatever savings can be achieved from pension reform will not net out as forecast. For example, we know that reducing the 3 percent compounding automatic escalators (COLA) will achieve “X” amount of savings. In my view it will be necessary to reallocate a portion of the savings to increase salaries.

The one-size-fits-all concept of compensation for job roles in government is antiquated. Not every job is equal and not every job has the same amount of qualified applicants. Moving past pension reform, I believe the city of San Jose should allocate more dollars towards higher salaries for certain positions. Compensation going forward needs to be based more on salary than a retirement benefit, because a retirement system can put shackles on the younger generation.

Some city positions have thousands of applicants while others have single digits. Therefore, after pension reform is achieved, it is imperative that salaries are priced so the city can retain and recruit key positions. Ideally, increased salaries are based on performance and not just the position, but in no way should increased salaries be given to entire bargaining units that overlap different city departments.

What are those key positions? We may not know for certain until we get there, however, here are some that I think should be considered:

Police — The only enforcement of the Social Contract, enough said.

Police Dispatcher — 911 calls require a unique person to disseminate and relay accurate data to the field.

Other key positions might be a city planner with a unique skill set, a chemist for the water pollution control plant, an attorney with litigation experience, an award-winning auditor, an information technology person who can move organizations off of legacy systems and into the cloud, so residents can access information 24/7, etc …

Regarding retention, it might require pulling back the 10 percent ongoing pay decrease, but only for certain positions where retention may become an issue. For example, I would consider rolling back half the 10 percent pay cut for police and use the other half to hire additional officers. Going forward, surplus dollar amounts above a baseline budget should go as a package to police and let the membership vote up or down whether the money should be allocated to salary increases or hiring officers.

Salaries allow for greater flexibility during revenue downturns, but ratcheting down a pension benefit is herculean and, as we have seen, can take years to consider. With a higher salary, the individual can choose to save or spend. It is his or her choice.

The city will still have to make structural changes so it can afford to allocate a portion of pension savings to salaries of key positions. We may achieve further savings through consolidation of departments and outsourcing non-key personnel while still delivering that same service to residents for less. It’s not realistic for anyone to think we can do everything after pension reform is done. However, the impending pension reform simply allows for the proper allocation of dollars to what is most important.

Filed Under: Uncategorized

San Jose’s Incubators Had Unanimous Council Support from 1994 to 2010

October 10, 2011 By Pierluigi Oliverio

At the Rules Committee last week, we voted 4-0 not to pursue an audit of the incubator program that was started in 1994. Instead, we decided to stay with the current work plan that includes an audit of the Environmental Services Department.

Incubators are located all over the country. They are backed by cities, universities, foundations and venture capitalists. Cities have been involved in incubators since residents pushed them to do so. As national and international economies ebb and flow, residents ask cities, “What are you going to do about creating high-tech jobs?”

Therefore, in wanting to try and please everyone, city government—instead of pointing out that the private sector creates high-tech jobs—funded incubators with a hope and a prayer. This same conversation could take place in any city that assists incubators. The fact is there was a shared belief by the entire San Jose City Council past and present, up until recently, that this was a worthwhile investment.

One example that I am personally familiar with is Agile Software. I worked for Agile Software, which came out of the incubator program started during Mayor Susan Hammer’s tenure. (Unfortunately for me, I joined after the company’s successful IPO.) Agile Software grew in downtown San Jose, with approximately 900 employees worldwide and 450 employees in San Jose. Many of the company’s employees lived and spent their paychecks in San Jose.  As a company, Agile also spent money in San Jose.

For example, Agile from time to time paid for the catering of lunches and dinners for employees. Agile also hosted events that resulted in over 1,000 downtown hotel rooms a night being used for its conference. In addition, the company had partners and customers flying into San Jose to visit corporate headquarters and booking hotel rooms. Agile also generated sales tax on the sale of their software, which was prior to the now-common customer request to download software electronically to avoid paying sales tax.

Agile stayed in downtown from 1995 to 2003. In 2003, Agile ran out of space in the downtown area. As a result, the company moved to Edenvale and stayed there from 2003 to 2008, before being moved out of San Jose by Oracle, which bought Agile in 2006.

This is an example of one company starting in a San Jose incubator and remaining in San Jose since many employees, including Agile’s CEO, lived in San Jose. Other companies, like Datasweep and Sierra Atlantic, wanted to be close to Agile so they also located Downtown.

Agile’s CEO, Bryan Stolle, was loyal to the city of San Jose and generous to local charities. However, part of the evolution of business includes growing, possibly to an IPO, being bought by another company or, as is the case with most high tech start-up companies, ceasing operations and laying off all the employees. There is no guarantee of success.

No city incubator can control:
_ the success or failure of the start-up company.
_ the relationship between the founder and venture capitalists.
_ the relationship between executive management and commercial real estate brokers.
_ the specific cost of real estate in neighboring cities or from building to building.
_ whether or not the company has new management that lives up the peninsula and wants to move offices to another city closer to their own home or employee base.
_ merger and acquisitions
_ intellectual property that is spun off and sold to someone else who carries on in another geography.

Essentially no city incubator can control free market decisions. However, we do need to credit the time a company is in San Jose, as well as other attributes the incubator program has brought to the city.

There are many decisions that the council has made without audits. For example, did we get all the jobs for the thousands of affordable housing units we built? What was the retrurn on investment from spending $835 million of RDA money on affordable housing? What are the ramifications to our city by exempting affordable housing from paying over $100 million in fees and taxes when these developments require more city services?

I have asked for an audit of the housing department and the impacts of exemptions on taxes and fees. But, I also understand that there may no longer be a Housing Department after Jan. 15, 2012. Perhaps we should do an audit often requested by city employees, which is a performance audit of management positions.

When we invest in Intellectual Property or essentially “people,” there is no guarantee that individuals/companies will stay in San Jose. The council voted in June 2011 that it no longer wants to fund the leases for incubators going forward. Moving forward, the city should focus on established companies like Polycom, Microchip and Maxim, which are all looking for larger space rather than early-stage companies.

Filed Under: Uncategorized

Turning Rails into Trails

October 3, 2011 By Pierluigi Oliverio

Rails to Trails is a term for the conversion of obsolete rail lines into recreational trails. This has been done all over the United States. Railroad lines provide unique and scenic routes through cities. These trails lend themselves to both recreation and transportation that is not dependent on gas.

Railroad lines are abandoned for a variety of reasons, like major factories closing or fixed-point railroad lines losing out to the flexible trucking industry. We may find that in the future that the closing of railroad lines is shortsighted because it may limit future industrial growth, and/or we may have reached “Peak Oil.” Peak Oil may actually force us as a society to return to the railroad. However, that is a larger discussion and only time will tell.

Last week, the Council authorized the City Manager to purchase property from Union Pacific railroad for $6 million. It was a long process in dealing with the railroad as they originally were not a willing seller. This property was historically zoned for housing and Union Pacific had the right to build housing without going to the Planning Commission or City Council for approval, according to the Planning Dept. Unfortunately, cities are not allowed to re-zone railroad property to lower the value prior to purchase and thus must pay the highest and best use for the land. The use of eminent domain is not viable since the railroads have been notorious for suing cities against having their land taken away. Railroads have protection under federal law. Inverse condemnation lawsuits end up costing cities more since the railroad usually receives the highest and best use of the land value plus penalties for the intentional action by the public agency.

The true testament in moving forward was the desire to purchase the property and a more open communication with the railroad company coming together. In addition, the housing bubble/recession thwarted housing construction on this property in the interim. The desire of the City Council was unanimous to pursue this property with approval of my memo in 2007 and the support of trail advocates, which helped garner grant money from several sources to cover the purchase price.

Due to fuel uses and brake pads, the land underneath the railroad tracks is typically contaminated. In this case, Union Pacific has paid to remove contaminated soil and replace it with clean soil and seed it for native grasses. I am happy that the city was able to secure the clean land. However, the city does not have the money to pave an asphalt trail at this time. The organization, Save our Trails, is in the process of signing a formal agreement to adopt the trail and will pick up litter and cut down weeds.

This parcel also includes a beautiful trestle bridge that goes over a creek. Making the bridge safe for pedestrians and bicycles is the first priority, and grant money has been obtained to start the process.

This trail connection, known as the Three Creeks Trail, has a goal of connecting the Los Gatos Creek Trail, Guadalupe Creek Trail and Coyote Creek Trail with a unique east-west alignment, as opposed to most trails in San Jose that run north-south.

Grants can be a painful process as many cities apply but only a certain percentage are actually awarded. In this case, San Jose obtained grants from the County of Santa Clara park trust fund, Santa Clara Valley Water District, Open Space Authority and a state of California grant to come soon. In the interim, some funds from the Construction and Conveyance tax are covering the purchase price and will be replenished once the state funds are received.

I am very thankful for all the people who worked on this project, including elected officials, staff and trail advocates. However, I have a question. Should cities rely on grants to fund projects?

The good news is we have no mortgage payment on this property and the maintenance will be adopted by volunteers. But it seems like local government is always begging for money from larger government, even though larger government takes money from local government frequently.

Our own city policy of exempting affordable housing developers from paying park fees created a lost opportunity of approximately $90 million dollars, which could have been used for parks and trails. That left San Jose needing to apply for state grants that if we are lucky may add up to $10 million, rather than the $90 million that was left on the table. It would seem simpler for local governments to fund their own projects rather than having to anticipate the different and changing priorities of state and federal office holders.

Filed Under: Uncategorized

A Slightly Stronger Mayor

September 26, 2011 By Pierluigi Oliverio

The current form of government in San Jose is a city manager form of government. I have encountered many residents who find this confusing. Many residents believe that the mayor is the boss, which is not the case in San Jose.

The distinction in a city manager form of government is that a career administrator implements policy from the elected body. However, the specifics on implementation and overseeing the actions of employees sits with the city manager.

Dallas, Texas, is a city that has a city manager form of government, while many other iconic cities have a strong mayor form of government, like New York, Chicago, San Diego etc….

Some have talked about changing our government structure to a strong mayor, so that the mayor would hire and fire department heads. However, for some this may seem too bold, and in San Jose it seems we are used to incremental change. Any change to the power of a mayor would require amending the city charter, which requires voter approval from San Jose residents.

I would propose an incremental step where the city manager form of government stays intact but allows the mayor to be granted new authority. The new authority should be to hire and fire the director of the planning department. This discussion/proposal has zero to do with the current mayor, city manager or planning director and everything to do with accountability.

The way it works now is that the mayor, who is the only person elected by the entire city, is only one vote out of 11 on the City Council. That seems odd, and in many cases it does not allow for the best long-term interests of the city to be implemented. If a future mayor is not meeting expectations of the electorate when it comes to economic development—that may pertain to the rapid permitting of commercial development, for example—then that mayor could be held accountable since he/she oversees the planning department.

With the way things are now, it is hard to point a finger at anyone since there is no direct line of authority. And, again, the mayor is only one vote of eleven.

For some, this may not be bold enough and for others it may be moving too fast. However, I believe residents want San to be the best it can be and part of that is building a strong economic base. Outside of a major recession, residents should be able to evaluate their mayor on the success of growing the pie among other criteria.

There is a cost to putting this on a future ballot. However, there is also a potential opportunity cost, because future development would get a direct answer instead of a splintered one. The result would be a likelihood of faster time periods to market for new commercial buildings.

Filed Under: Uncategorized

Exemption from the Pension Tax

September 19, 2011 By Pierluigi Oliverio

It is clear that the budget deficit this year and in future years cannot be solved only by pension reform. Even if the city stopped matching the employee contributions at the current rate of 250 percent to the average employer match on a 401K of 3-6 percent, taxpayers would still have a multi-billion dollar unfunded liability from commitments to current and future retirees already vested.

At some point, the Council will put forward to the voters a tax increase that will be labeled to pay for essential services but inevitably will be allocated to pay the annual required contribution to the pension fund laid out by the independent retirement boards. (A general tax can be allocated to anything, which is why I prefer a utility tax dedicated to police. This way the tax revenue can only be spent on police and nothing else. Why? Again, only police enforce the social contract. A utility tax increase treats property owners and renters the same and it induces consumer conservation of electricity, gas and water, which is a positive externality.)

Why beat around the bush when we know taxes will have to be raised to afford the pension obligations and maintain bare minimum services laid out in the city charter?

Some residents tell me they are willing to pay more in taxes to solve the fiscal issues the city is facing. But these residents currently must wait until there is a ballot initiative that may or may not pass, most likely in the 2012 November Presidential election. However, the city can take donations at any time from residents. So why wait? Let’s extend a formal invitation for those who are willing to pay more to do so now. In return, these people should get credit on the tax equal to how much they have donated.

For example, if Jane Smith wrote a check now for $1,000, before the council placed on the ballot and the voters approved a future $250 annual parcel tax, then Jane would be exempted from the tax for four years. Or, if it was an increase in the utility tax or sales tax, the city could rebate Jane at the end of the year with her documentation showing she had paid the increased pension tax that year.

The “PhDs” at Stanford have reviewed the San Jose pension system and found the current pension system is fixable. It is only a matter of money. So, if each house, condo and apartment would write a check in the amount of $12,500 to $16,000, the unfunded pension liability could be paid and eventually the city services that have been cut would return. The Stanford dollar figure is based on an up-front payment (the range in the amount is based on what percentage of the unfunded liability to pay off). But, if household payment was instead spread out over 10-20 years, the total amount per household to pay off unfunded liability would be much higher due to the time value of money.

This concept is simply an exemption from the future pension tax if donations are received prior to the passage of a tax increase. We should not stand in the way of those willing to contribute more.

Filed Under: Uncategorized

More than Just a Sign

September 12, 2011 By Pierluigi Oliverio

A small ceremony was held on Saturday with little fanfare, but it was big on Americana style. An eagle scout was honored for his project that constructed a new sign at the Willow Glen Community Center. A new sign had been planned for awhile, but it was put on the back burner to instead paint over the prior decade-old paint job. The scout and Leigh High school student, Daniel Swanson, chose the project, did the fundraising and built the sign with assistance from other volunteers. There is now a new, large and elegant sign to mark this public facility. The scene on Saturday seemed like a truly American event.

This particular facility is the former Lincoln Glen Elementary School. As the school age population ebbed, many schools in San Jose were closed and the land was put on the market. However, state law allows other government entities to have the first opportunity to buy the property. Fortunately for us, in the 80s, San Jose had put money aside and was able to purchase this property as well as the former Kirk Elementary School on Foxworthy Avenue.

If this same situation happened today, the city of San Jose would be unable to buy a former public school site. Instead, we would have some other type of private development.

This consolidation of schools has meant that the remaining open schools take in a larger number of students. Elementary schools that were built for a few hundred students now are approaching 1,000 students, which creates a larger impact to residential neighborhoods. This is just one reason why lowering speed limits around schools in residential areas is a good idea. It would provide some calm to the residents who live adjacent to schools and have witnessed student population growth.

But back to my main point, which is a big thank you to the many volunteers that produce tangible results. For example: Terry Reilly, Beverly Hopper and Myles Tobin, from the Friends of the San Jose Rose Garden; Mike Cimoli, who organizes the annual Rompacoglioni car show held yesterday to benefit Second Harvest Food Bank; or the many other projects that have been done by service clubs and PTAs. Volunteerism and philanthropy augment a community. They do not replace the basic infrastructure that government provides like sewers and streets, but augments.

And on a final note, the sign donated by the scout, Daniel Swanson, came in under budget, so he donated the balance of $980 to the teen program at the community center.

MEDICAL MARIJUANA

On Tuesday, the council is poised to get past the first chapter (23 months) of medical cannabis. Inevitably, whatever is passed will be subject to change based on new law or lawsuits. There are many underlying issues and topics in regulating medical cannabis. I hope whatever passes on Tuesday has two minor but significant regulations:

First, each collective should have a licensed physician or registered nurse on their board, as this is medical cannabis and not recreational cannabis. It doesn’t matter that many San Jose council districts, including my own, voted yes to legalizing cannabis for recreational use (Prop 19)  in November 2010.

Second, each collective should give the city of San Jose finance department view-only access to their accounting system—not the personal/confidential medical records but the general ledger. The easiest way to do this is for collectives to adopt a cloud-computing accounting system. There are many providers of this service locally, such as Intuit, Intacct and NetSuite.

This would be similar to the suggestion that I made from the dais for Team San Jose, which was implemented last year and is still in place. This method keeps all things honest and does not require time consuming audits.

Filed Under: Uncategorized

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Mayor Reed Supports Pierluigi

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