Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

Defer and Drop Nets $1 Million

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Last year, I wrote about a parcel of land that was converted from commercial zoning to residential by my council colleagues … some of whom are “friendly” with a certain lobbyist. Many believe this parcel was converted as a “quid pro quo” so AT&T would sell their land for a potential baseball stadium. I opposed this rezoning since I wanted to retain all of the land for jobs, thus a better tax base to pay for city services.

There was a promise from the lobbyist that “a someday office building,” on a postage stamp portion of the parcel, would be built. However, no progress had been made. On the other hand, the larger portion of the parcel for the housing portion (as usual) has been moving along rather quickly.

The housing developer needed to buy some of the road from the city to make the project work. I noticed this item on the council agenda and asked my council colleagues for a deferral, so we could make some progress on the promised office building. The next day at the Rules Committee, I asked for this time to be dropped entirely from future council agendas.

As expected, calls came quickly from the housing developer and lobbyist. I asked for some tangible progress on the office building prior to the council meeting, when this item would be back on the Council agenda. A meeting was held and an office development proposal now has the opportunity to come forward this summer. But there’s no guarantee, as greed might foil the day.

The housing developer on this parcel had an outstanding debt to the city of San Jose of $1 million for a light rail station. These fees were owed for nearly five years from a prior housing development. I asked that the housing developer pay this past due money before the council vote. The housing developer has agreed to cut a check for $1 million dollars on June 1, and if they do not the city will hold up escrow.

Sometimes delay can be a good thing.

Your Cholesterol Rate is $1.5 Billion

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As we know, health care costs are escalating at double-digit rates. The continuous high costs are a burden to the self-insured, businesses and government. In San Jose, we have an unfunded health care liability of approximately $1.5 billion. The City of Stockton has been in the news for starting the process of bankruptcy under AB506, and much of their plight is due to the cost of health care benefits.

San Jose should implement a incentive/mandatory wellness program in 2012 to reduce the cost of health care. Any mandatory wellness program would require negotiations with the unions. Since many of the unions have shared their support of wellness programs at public meetings, I am hopeful they will be open to this idea. While voluntary wellness programs may slow the rate of grow, they do not decrease the cost of the plan. On the other hand, raising deductibles does reduce the cost of the plan. Mandatory wellness is somewhere in the middle on cost savings to the plan.

In 1984, the city of San Jose decided that employees and the taxpayers should share 50 percent of the unfunded health care liability costs. The employees’ share (pre-tax) is expected to double next year since there are more retirees than current employees. Current employees partially fund the health care of existing retirees. As soon as one person retires from the city, the retiree no longer pays for anything towards health care. However, the retiree will receive free health care until he/she turns 65 and is eligible for Medicare. At that time, the city will fund the retirees’ monthly Medicare supplement. Incidentally, the Medicare eligibility age may rise to 67 under a proposal floated last year by President Obama, which would further increase the cost to the city. The most expensive part of retiree health care is the 50-65 age range or pre-Medicare eligible.

Doing nothing will increase the cost to employees substantially and would eventually drain the health care reserve to pay for retirees health care, leaving nothing. San Jose is taking steps to make payments on the unfunded liability over a 30-year period. Some unions like the police union, for example, understand we must fund some portion of the benefit now for people to receive it in the future.

Health care tied to jobs costs any organization that employs people. Unless there is dramatic change, costs will continue to rise, which presents a dilemma on whether or not to: hire the next employee; stay with the current organization; or find a health care plan on the open market that may be less expensive to the individual.

An incentivized health care system may be an appropriate cost savings alternative.

For example, in Chicago, Mayor Rahm Emanuel, who served under President Obama, has decided to add teeth to the city’s wellness plan. If a Chicago city employee does not participate in health screenings, then they pay more for health care. Those who participate in the wellness program pay a reduced rate. Health screenings are like a physical, measuring cholesterol, blood pressure, weight, etc.

After these screenings, individuals are given advice on how to reduce their chance of illness and/or change unhealthy habits. It is not used to discriminate against those with pre-existing conditions, however, health screenings may prevent individuals from becoming a diabetic, for example.

We should examine Chicago’s mandatory wellness program and see how we can use preventative measures to ensure better health and lower costs.

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.

A Conversation about Public Negotiations

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During my tenure on the City Council, I have viewed the labor negotiation process between city staff and labor representatives, who meet behind closed doors, as simply maddening. Due to the closed door nature of the meetings, it is clear that not enough information is shared with the public, employees, retirees and council members.

Although the City does a good job posting documents on its website regarding proposals and correspondence from both sides, I believe many others would rather see the interaction of union officials and city staff in real time. Thus, on Wednesday, I am asking the Rules Committee to support my recommendation to have the city and unions talk about this issue with the hope that both parties will agree to move forward and allow these meetings to be public.

The current process contributes to misinformation, which then results in ill will and hurt feelings all around. Why continue with the same process that drives people nuts? Public negotiations would open up the process so that we could avoid posturing, brinkmanship and emotional pain. This would help restore trust for those who have become disillusioned.

Last year, the City Attorney union (ALP) allowed councilmembers and the public the opportunity to attend their negotiations. As a result,  I attended all but one of the numerous public negotiation meetings involving this union, and I was the only councilmember to do so. After listening to both sides, I could not disagree with many points raised by the union. Attending these meetings allowed me to receive unfiltered information.

I believe open negotiations would do a lot to help the low public approval rating of unions. It would allow others to see what I saw while attending the attorney union negotiations. The model used by ALP in my view was a good one.

I have high respect for the City of San Jose labor relations team, but I still desire a more open process to actually end labor conflict(s). This would not affect the mediation process, which is a confidential proceeding. However, mediation is just a fraction of the entire labor negotiation process.

The public already spoke once in November 2010 by voting for arbitration to be held as public meetings. This would simply be an extension of that desire for a visible process. Ideally, it is done by mutual consent, but if not we should allow the public to decide in a future election.

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 …

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?