Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

Alternatives to Pension Reform

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I had some calls last week on the topic of pensions and the June ballot measure. Several people were under the impression that San Jose will eliminate pensions altogether, which is not the case. Other callers wanted toreplace the current system with a 401K-type benefit.

One person was against any change to the pension system, even for new employees. They felt that the role of government is to provide well-paying jobs. When I asked what alternative there might be to pension reform, the suggestion was to raise taxes. The caller shared that the city should lay off city employees to “force” residents to vote in favor of raising taxes. If the city were to adopt this scenario, we may choose to outsource those services that are no longer being provided by the former employees, not to mention, city employees would lose 100 percent of their income and residents would probably get less city services.

I think there are other options to pension reform that would save San Jose money. For example, getting out of the golf business, selling the Hayes Mansion—in fact, selling any city asset where there is a significant financial offer like the Convention Center, Mexican Heritage Plaza and parking garages. We could eliminate spending on all items not in the City Charter and outsource park maintenance at large parks.

Perhaps we should also consider following the lead of every other city in the county, which is switching from four to three fire fighters on a fire engine. However, I would suggest only the fire stations that have lower call volumes. An extra person on a fire engine, each shift, is equal to at least three police officers or many more code enforcement personnel.

Perhaps even consolidating city departments with the county to oversee, for example, the libraries would eliminate layers of management. It might take all of these items and more to add up to the costs savings with pension reform, but there are other options. Alas, if only labor negotiations were public rather than private. Perhaps then all of this would be on the table and a stronger voice for employees and residents could have been part of the discussion.

Incidentally, I asked the caller about several of the trade-offs listed above and they were against these as well. Que sera, sera …

Which Type of Tax Do You Like?

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Last week, the council discussed a poll of residents/likely voters regarding their views about tax increases. The majority of the Council appears to be considering a June ballot measure for a tax increase.

Since the poll respondents are anonymous and nearly everyone on this blog is anonymous, I thought I would ask the question: Which tax do you want? How much of it?

Would you like a ¼ cent or ½ cent sales tax? Would it be a general tax that could be spent on anything like golf courses, Hayes Mansion and Mexican Heritage Plaza, or would you like it allocated to only a specific department which requires a ⅔ vote in favor?

If not a sales tax, how about a tax on property owners with a parcel tax? How much? Exemptions? Would property owners pay the new tax based on square footage or assessed value? Would it be a general tax or for only one department?

How about an environmentally-friendly tax like a utility tax? A utility tax would raise the existing tax rate on water, electricity and gas. With the lack of rain and constant uncertainty in the Middle East, maybe local government can minimize consumption with an utility tax increase. Again, should it be a general tax or only one department?

How about some more bonds? Voter approved bonds seem to pass all the time as voters love to see new construction—they know for sure what they are getting. However, there is a disconnect with the voter on how to actually fund the operation of the new building, if it is a new building versus a restoration or reconstruction of an existing facility.

Perhaps voter approved bonds could be used for street repair only? The only problem for the long term is the interest. For example, San Francisco passed a $248 million bond for road repair and will pay another $189 million in interest. It seems that the more frugal route is to pay for something with tax revenue versus bond revenue. Which is similar to the lesson I learned from my parents about saving money and only spending what you can afford.

The State of the Valley 2012

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Last Friday, Joint Venture Silicon Valley (JVSV) hosted its annual State of the Valley. I was one of the 1,000 people in attendance at the convention center. JVSV started in 1993, during a recession, to promote economic growth through public-private partnerships. Several demographic statistics were pointed out during the presentation representing Silicon Valley, including Santa Clara and San Mateo counties:

— 37 percent of residents are foreign born .
— 2.53 million people live here, with 1.2 million jobs.
— 43 percent have college degrees.
— 83 percent graduated from high school.
— 17 percent are employed in science and engineering .
— 12 percent of all patents in the USA come from our region, which makes up 50 percent of the patents in California. There have been 13,000 patents in the last 12 months.

JVSV also shared statistics on employment. There were 42,000 new jobs created in Silicon Valley in the last 12 months. Job growth was primarily in technology and unemployment was at 8 percent in the region, while it stands at 11 percent across the state.

While there is job growth in technology, the region is still losing public sector jobs in defense, construction, arts and entertainment and administrative. Job growth has brought less commercial vacancy, which is good. There has also been a 17 percent increase in venture capitalist (VC) spending on cloud computing, medical devices and clean technology.

Initial public offerings continue to be well below the bubble, with only 12 in 2011. Per capita income peaked in 2000 at just short of $80K; it now sits at $66K. Median income is $86K.  Revenues for local government continue to be squeezed with a reliance on property tax.
Change in assessed value dropped from $20B in 2006 to $5B in 2011.

There was also a discussion on Prop 13. The speaker felt that Prop13 was not working and that the topic was complicated.

For a background of Prop 13, in the years 1971-1978 there was a 164 percent increase in median home value, and with that came increased property taxes. Property tax revenues grew at 9 percent for decades and so did spending. Prop 13 passed with 65 percent of the vote, and it did five things:

1. Capped annual assessment of 1 percent.

2. Capped increases of 2 percent assessed value.

3. Prohibited tax increases by schools and local government.

4. Required a 2/3 majority vote for special taxes.

5. Gave the state the power to allocate property tax revenue.

Two ramifications resulting from Prop 13 are funding for education shifted to the state, and cities with less revenue had to introduce new fees and taxes.  Between 1980-2008, property tax revenues remained strong because of rising prices. With the turnover on residential properties increasing, we now have a 70-30 housing to commercial split on property tax revenues.

The “new normal” is that home prices dropped, as did new construction, which locked in low property values that can only rise at 2 percent. The question discussed at JVSV was: How can Prop 13 be modified to bring in more revenue for government? And would you support modifying Prop 13? How? Why?

Police Budget: We Get, You Get

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For this weeks blog, I am continuing the discussion about providing a fixed percentage of the budget towards police. A nickname for this might be, “We Get, You Get.” The name refers to when the aggregate budget grows, then funding for the most critical service a city can provide—police—would grow. (Providing a sewer system is a close second for the most critical service).

Some may say, “What happens if the total budget doubles? Then we would be spending too much on police?” My first thought to this question is, “So what?” So what if the budget grows and additional police officers and other related expenses of police force could be added.

But let’s start with reality. The reality is local government will not have a windfall or increased tax revenues. Property values are not going to catapult and consumer spending is finicky, as it has recently stalled. We may indeed see the growth of tax revenues outpace expenses after pension reform, but it will certainly not be double. So, if tax revenues for the general fund do grow 10 percent, then police would get an additional 10 percent. If we have a severe recession and revenues fall, then the police department would have to choose how best to handle it by possibly postponing purchases of equipment or not filling positions left vacant by retirement.

Back to my main point: There is insatiable demand for police services; from stopping the most egregious violent crime to issuing speeding citations. If we value the ability to walk down the street and know that criminals’ fear of police will stop an assault on an innocent person, then that is a good problem to have.

Too often elected officials are asked to choose between one program and another. Rather than eliminating discretionary spending across the board, more often cuts are implemented. However, at some point a city’s core competency suffers. A fixed percentage of the budget would allow for funding to be on autopilot.

Some may say, “Why not carve out other city departments at a fixed percentage?” Nonsense. At some point we have to choose one over another, and police provide the most value. That value translates to safety and, if marketed well, economic development. Coming up with a formula for more than one department would never happen and I do not believe residents would support it.

Change the Charter for Police Budget?

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Elected officials come and go, and with that so do certain priorities. It seems that with every budget cycle, certain departments have to prove their worth and their existence. For example, San Jose spends less than half (as a percentage of budget) on information technology (IT) than other cities its size. Strategic investments in IT have the potential to improve efficiencies and save money.

Last year, I proposed in a budget memo to allocate $400,000 in one-time monies to replace the legacy Centrex ATT phone system with a VOIP system, which would save approximately $1 million each year going forward. I hope we can implement this in the coming year.

Financial support for other departments ebbs and flows as well. For example, after 9/11 no city in the USA could spend enough on fire departments. However, looking at data and day-to-day concerns from residents, we know that the fire department cannot be the number one priority when its function is narrow and limited.

Funding for police can change based on crime rates, a tragic single incident covered by the media, an incident of alleged police brutality or rising pension costs. We know police are a major factor in maintaining peace and tranquility within city jurisdictions among other factors, like the local economy, education and race relations. But why should support seesaw when something is so important as the Social Contract?

I recommend that the city should commit to a specific police budget each fiscal year. San Jose should allocate a fixed percentage of the budget to the police department that is higher than the 34.7% today of an $885.8 million general fund budget. If the budget grows then more money will flow to the police department. If the budget declines then the department has to live within its means. In a growing budget, opportunities may arise for increased staffing, increased salaries and technology purchases for officer efficiency. With a budget that declines, choices become narrower but police would always be the top priority.

An increase in police staffing could mean less individual hardship, like an officer having flexibility to take a vacation—which would not only reduce overtime but also angst. A larger police force may also lead to the potential of creating more flexibility on shifts.

As a result, no longer would a core service be reduced, as it would be locked in. The only thing asked in return is that the police force work hard and do their best each shift. An increased police force may mean not only suppressing major crimes but also returning to managing quality of life crimes and doing more investigations on child pornography, as I wrote about two weeks ago.

The city should explore and gather data from other comparable cities to determine what that fixed percentage could be. Ultimately, a fixed percentage of the police budget will require changing the city charter and the only way to do this is with an election. A fixed percentage for police would also give San Jose voters reassurance that future tax increases will make sure a certain portion of their tax dollars are spent on police.

The choice is ours if we are willing to ask the question and deal with the trade-offs. I am willing. Are you?

RDA Coffin Not Yet Closed

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With the passage of Senate Bill 654 (SB654), authored by Senate President Pro tem Darrell Steinberg, cities in California would retain Redevelopment Agency’s (RDA) tax increment financing to build more affordable housing. The entire Legislature is set to vote on the bill.

As we know, the Supreme Court terminated the RDA tax increment statewide. One major reason behind Gov. Jerry Brown’s action is to use the tax increment monies to pay down the state’s deficit and to help avoid further cuts to public schools. If SB654 passes, the state would have less money for education and less funding to curtail the deficit. Further, not only would the state have less money for the governor’s goals, but, in some cases, California would also add in a new level of bureaucracy, because cities would form a new Housing Authority or an expansion of an existing Housing Authority with roles being filled by city councils.

From my perspective, the highest court in the state ruled RDA can be terminated and allowed for a one-time exemption, which done the San Jose way does not pay property tax, road paving fees and up until recently no park fees. If anything, we should make an exemption for transportation projects that have more economic impact. For example, RDA funded the completion of Highway 87.

The other can of worms this opens is it attempts at re-prioritizing the enforceable obligations. Enforceable obligations is a list of who gets paid back first. My priority is to first pay back anything borrowed from a general fund that was borrowed to pay off the state grab, because that has an impact on services that are in the city charter. Housing is not in the charter, but police and libraries are and they should have a higher priority.

If SB654 passes through the Legislature, I hope Gov. Brown vetoes it. Then, moving forward when providing incentives/funding for affordable housing, the goal should be quality not quantity. This way we can build a community with a tax base to pay for city services and open space for residents to enjoy.

And on an unrelated note, thank you to Innovation Games, whose two dozen facilitators volunteered their time to the city of San Jose on Saturday allowing residents to discuss and select priorities under a budget simulation. The output from the 100 San Jose residents will be discussed at the Feb. 13 City Council meeting.