Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

The Center of our City Center

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Last week I attended evening budget meetings in Districts 3 and 5. The center of our city (District 3) had a high turnout from residents who find great value in community centers. Particularly, the Gardner and Washington Community Centers. Both facilities provide a place to go and where residents can be positively impacted. Classmates and friends of mine from Willow Glen High grew up in the Gardner area, formerly known as “Barrio Horseshoe.” It was a problematic neighborhood with many gang issues.

My friends in Gardner managed to stay out of the gangs because their parents would physically discipline them if they hung out with people involved in gangs, and kept them busy with chores and work. David Pandori and Cindy Chavez both worked hard to make improvements in the Gardner neighborhood and should be complimented for turning that neighborhood around with the help of passionate residents like Rudy Martinez. Also, praise to my colleague Sam Liccardo for continuing the Pandori/Chavez legacy in Gardner.

The other facility is the Washington Youth Center located in the neighborhood around Washington Elementary and Sacred Heart church. This is another area that has been dealing with gangs for decades. The Redevelopment Agency funded the construction of the Washington Youth Center and the adjacent library along with physical improvements to Washington Elementary. However the general fund is responsible for the day-to-day expenses. Many came to tell their stories of what these facilities meant to them. Some stories brought people to tears as they had family tragedies but also success stories of their children.

Some attendees came from other cities to advocate for our Therapeutic Services program that enables kids in wheelchairs to participate in sports like basketball. They come from other cities like Cupertino and Monterey since surrounding cities stopped offering these services.

There were those who asked, “Why did we ignore the structural deficit all these years?”

Many expressed their opinion that public safety unions should accept wage cuts to save city services and binding arbitration was unfair. Pastor Sonny Lara asked, “Why are people so generous with money for tragedies in other countries but we do not donate to our own local community?” My favorite quote of the night: “We need to stop electing politicians that promise us everything!”

If there was one theme in the District 3 budget meeting it was to keep community centers open. It was stressed by many that community centers and libraries save lives in certain neighborhoods and that these facilities act differently than in Almaden, Cambrian, Evergreen, Rose Garden and Willow Glen. Many felt that community centers and libraries should be open more hours in neighborhoods that have higher needs, which could be determined by crime rate, poverty rate, etc..

I was asked afterwards by several young people who were good role models if would I support their specific community centers over others. I said, “The easy answer is to tell you yes and then walk out the door and vote no.” However, I continued, “the idea of, should some neighborhoods get more services then other neighborhoods is worth debate.” I then asked the youth if they cared who cleans City Hall or would prefer that their community center stay open. They chose the community center.

I believe we should maximize cost savings in areas of our city that do not directly touch residents before cutting services that impact residents. Otherwise we are saying, “Sorry young people, the status quo on cleaning city hall is sacred and better then providing you services that would directly impact your future.” If you do not like this trade off of cleaning staff versus community center employee, then how about community center employee versus librarian or community center employee versus a police officer? Take your pick. Side note: Laying off new police officers is a double loss since we lose the investment/cost to recruit, test, background, academy, field train the new officer.

But let’s get back to the debate on providing more services to certain neighborhoods and less to other neighborhoods. I would acknowledge that higher needs exist in certain neighborhoods and that prevention is less costly than the worst-case scenario of incarceration. There is a disconnect between costs and responsibilities of the city and final costs that may end up on the County or State, but there is also limited sharing of revenue to achieve these goals. On the other hand, I do not believe every person in a certain neighborhood or zip code is affluent.

Within each neighborhood perceived to be upper-middle income, there are those who rent, have a mortgage they are struggling to pay, long- term unemployed, a single mom with kids, seniors on a fixed income, disabled veterans, etc. I assume these residents and specifically youth would want to have the opportunity to read a book or partake in an activity at a community center.

In addition these perceived upper-middle income neighborhoods pay higher property taxes and may feel that they should at least have equal neighborhood services. Personally, I think each neighborhood should get equal infrastructure like sewers, streets, sidewalks and streetlights. Equity in parks is more difficult because of the build-out of nearly all open space and the cost to procure it at today’s prices.  (Such a tragedy that we lost out on approximately $90 million in park fees from exempting affordable housing from this fee.) When it comes to what amount of neighborhood services for each zip code, I am open for debate and would like to hear your views.

Is it fair to provide more service to specific neighborhoods? Is that Marxist? “Each according to his abilities to each according to his needs.  Should government be neutral and provide exactly the same to all areas?

When people buy a more expensive home does that mean something? People choose to buy or rent in areas based on surrounding amenities and pay a price determined by other property owners and renters. Do we let that be the barometer?

A Dollar Borrowed is a Dollar Earned

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Last week, I attended budget meetings in council districts 9 and 10 as well as the labor unions’ budget meeting at the Tully library. The people that attended this meeting were mostly union members and city council staff. It was admitted at the meeting that significant layoffs were inevitable since the deficit is enormous.

Ideas were presented on what money-saving measures could be implemented and what new sources of revenue could be found to balance the $118 million budget gap. Ideas ranged from replacing natural lawns in parks with artificial turf (lower ongoing maintenance costs, but more costly upfront) to turning down the air conditioning at city hall during the summer. Others included putting banner ads on the city website for advertising revenue and charging owners of vacant property a fee/fine since they do not have a tenant.

Although many “creative” ideas were mentioned, none of them seemed to really tackle or help offset our deficit of $118 million—nor did the suggestions even get close to $1 million. Other thoughts were a “crash tax.” For example, if you were to get into a car accident and police or fire truck showed up, then you would pay $500 to $2,000, since you used city services. Another idea would have the city attorney sue code enforcement violators for fines owed rather then placing liens on their property as we do today.

There was a proposal advocating outsourcing. Really?! This concept would outsource the workers compensation program to a third party since it would be cheaper and faster then if the city continues to run it. Interesting that it makes sense for this program but not outsourcing city hall janitorial to keep swimming pools open!?

The major theme at the meetings, however, was about borrowing more money. There was a discussion advocating pension obligation bonds (POBs), which is an arbitrage scheme where the city borrows tens of millions of dollars in the bond market, and then we give that money to the city retirement funds, hoping the retirement board investment strategy earns more money than the city pays for its bonds. If the retirement fund does make more money than we owe the bond holders (and the associated investment fees), then the city can spend the difference. However if the investment return is lower than the city’s cost, then city loses even more money. Similar to a cash advance on a credit card and then investing the cash advance amount in the stock market and hoping that the stock will have a higher return then the credit card interest rate. Also, by issuing POB’s the pension obligation, which can vary over time due to investment returns, becomes a hard liability in the sense that debt service is fixed for 30 plus years.

Probably, the «best» idea, was to borrow money by taking out tens of millions of dollars in one-year notes/commercial paper to pay for ongoing city services. Then, when these notes come do in 2011, we would issue more notes to cover the original 2010 notes. When the 2011 notes come do in 2012, we would issue more notes again for 2013 and so on or until city tax revenue came back.

First, the revenues will not come back to pay for existing city services since pension obligations as a percentage of the general fund will continue to grow faster than revenue coming into city coffers. Second, this bright idea is like a consumer who charges up one credit card and then gets another credit card to pay off the previous one and so on. Issuing commercial paper to cover ongoing operations would hurt our bond rating and banks that provide San Jose with Letters of Credit will look at the city as irresponsible. I cannot recommend this type of borrowing/financing for city services as it passes on the problem to another eneration. We are partly suffering now because of the lack of tough decisions by previous elected officials at all levels of government.

“We should avoid ungenerously throwing upon posterity the burdens that we ourselves ought to bear.»—George Washington

Here Come the Cuts

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The City Manager will release the list of proposed cuts to balance the city budget today (March 29). These cuts are based on no concessions from any of the labor unions nor savings gained through outsourcing of janitorial services (among others) to save money.

Money saved from outsourcing could help pay for library hours or the aquatics program, for example. The question of concessions has been out there for months and could be included in the budget. Agreement would need to be reached in early April since layoff notices would start going out April 19. If concessions are made then some of these cuts could be avoided but in lieu of an agreement in hand here are some of the proposed/likely cuts.

As it stands now, 802 positions would be eliminated, of which 656 are filled positions, which closes the deficit of $118.2 million. In addition, there were services that were funded last year with one-time funds ($7,476,000), such as library hours, community centers and the SJPD horse-mounted unit, which will be going away as well, accounting for 77 filled positions.

Library:
Eliminate 104 positions to save $7.4 million in 2010-2011 and $7.9 million in 2011-2012. Neighborhood branch libraries would be open three days a week and the MLK Main library would reduce hours 12 percent. Delay opening of new Seven Trees and new Bascom libraries saves $2.3 million for library staffing. Does not include community center staffing costs.

Parks, Recreation & Neighborhood Services:
Eliminate 38 positions to save $4.3 million in 2010-2011 and $5 million in 2011-2012. Close smaller community centers.
Eliminate 12 positions, saving $836,000 in 2010-2011 and $854,000 in 2011-2012. Reduce maintenance staffing at parks; restrooms open only on weekends except in summer. Eliminate 10 park rangers, saving $634,000 in 2010-2011 and $848,000 in 2011-2012. Eliminate 24 positions, saving $630,000 in 2010-2011 and $637,000 in 2011-2012. Reduces aquatic program to only 2 pools in San Jose. Eliminate two positions in Code Enforcement, saving $302,000 in 2010-2011 and $323,000 in in 2011-2012.

Fire:
Eliminate 90 positions (88 are filled), saving $12 million in 2010-2011. 2011-2012 costs determined through binding arbitration. Reduce/suspend fire apparatus and fire fighters at station 30 Auzerais, Station 33 Communications Hill, Station 34 Las Plumas, Station 35 Poughkeepsie, Station 3 Martha Street and one other station yet to be identified.

Police:
Eliminate 160 positions (153 are filled), saving $25.5 in 2010-2011. 2011-2012 costs determined through binding arbitration. Reduce police patrols; eliminate funding for new officers; reduce Metro Unit; reduce Investigations unit; reduce Downtown services unit; delay opening of Police Substation; reduce Financial Crimes unit. Reduce the Crossing Guard program by 8.3 positions to save $354,000 in 2010-2011

Transportation:
Eliminate 12 positions for capital projects, including transit and bike/pedestrian projects. Saves $1.4 million in 2010-2011 and $1.6 million in 2011-2012. Eliminate 9 positions for Neighborhood Traffic Calming. No more traffic studies and no implementation of traffic calming tools. Saves $921,000 in 2010-2011 and $999,000 in 2011-2012. Eliminate five positions for residential street sealing. Saves $375,000 in 2010-2011 and $415,000 in 2011-2012.

Convention Center:
Eliminate 25 positions to save $1.9 million 2010-2011 and $2 million in 2011-2012.

This list is not comprehensive and may/will fluctuate based on final Council adoption of the budget in June.

3%—100%? 250%!

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Monday: No Impact Man Film at City Hall
Nearly 300 San Jose residents attended to watch this documentary, which portrays a family that adopts environmentally friendly choices over the course of a year.  For example, they bike instead of driving, buy only locally produced food and give up their television. The main point of the evening was that we do not have to wait for government to mandate behaviors that help the environment but that collectively we as residents can choose to compost, use less electricity, bike vs. drive today, etc…
A reporter from the San Francisco Examiner attended and wrote about the event. Read the report here.

Tuesday: City Council Meeting
Council waived the business license fee for the first 1,000 business under 35 employees retroactive to Jan 1,2010.  Some on the Council commented that it was symbolic and would not create jobs. The Council does not create jobs; private individuals do.  If the Council wants to do something symbolic lets get rid of the Labor Peace regulation and allow Starbucks to open at city hall as planned. Nearly five years and still empty.

During public comment on the Mayor’s Budget message, a lobbyist from the union chided the Council for even thinking about 2nd Tier benefits that the taxpayer can afford since it would be unfair to have people working side by side who have different retirement benefits. The next non lobbyist speaker stated that people in private sector are compensated differently from each other today and they survive. The current pension system is unsustainable and must be changed for new employees.

A couple of SJI readers asked last week how retirement works under the city charter.  Here is the response to that question:
Each employee puts $3 and the city puts an additional $8 into the retirement fund. On top of the over 200 percent match, the city guarantees an 8 percent net rate of return, but the fund needs to gross 9 percent to cover investment fees. (Average rate of return the last 10 years is 4.4 percent) If the retirement portfolio (stocks, bonds, real estate,etc.) does not return 8-9 percent, then the taxpayer covers the difference.

Any changes to the current system requires a vote of San Jose residents.  As we hopefully implement 2nd tier benefits I would suggest an option for new employees of a one-to-one dollar match up to the federal 401K limit of $16,500 and no guaranteed 8 percent return.  This way the retirement funds will continue to get funded by new employees much like social security is funded by younger workers.  The newer employees will draw less benefits but then we will not have to close more libraries or layoff more police in future years.

A dollar-for-dollar match (100 percent) is extremely generous in comparison to the average 3 percent match of private employers to 401K’s. If there are specific positions in our city that are tough to recruit then raise the entry level salary since young workers want more money up front to buy a home or fancy car.  Same time if there are positions with many qualified applicants then those entry level salaries should be frozen indefinitely or lowered.
Wednesday: Grand Boulevard Committee, Member
Attended meeting at SamTrans in San Carlos. The purpose of this committee is to provide a venue for cities and transit agencies from South San Francisco to San Jose to plan transit-oriented developments all the way up and down the El Camino Real.  The thought is through density, the El Camino will gain the improvements to add large sidewalks and pedestrian friendly accoutrement’s the entire way creating a Grand Boulevard.
Thursday: Public Safety Committee, Member
The committee received a verbal report from staff on why hiring retired San Jose Police Department (SJPD) officers is problematic. Staff response seems odd. We have many qualified retired SJPD in our area that it seems silly not to hire them to do background checks for new recruits instead of pulling police officers off patrol to do this work. But then again we have postponed the police academy indefinitely yet we fund a community center in Los Gatos for $80K out the $11 million in tobacco funds that goes towards charities.
Friday: Diridon Joint Policy Advisory Board, Member
First meeting of the Diridon Joint Policy Advisory Board whose goal is to create a Grand Central Station of the West by collaborating with state, federal, transit districts, adjacent residents and business owners over the next 10-20 years. We elected Mayor Reed as the Chair.

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What Would Cesar Chavez Do?

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Below are a few observations from last week.

Monday: Council study session on Airport
Overwhelming majority of Council thought outsourcing of janitorial to save $3 million was a bad idea so it looks like we will lay people off and consider getting rid of the night time curfew in the future.

Monday Night: General Plan 2040 Task Force Meeting
Although the General Plan board members were informed that the City’s budget problems are partially due to most of our land being dedicated to housing instead of jobs, the Task Force voted in favor of adding 300,000 people with a 14-11 vote. The two options were 200,000 or 300,000 new residents. Several task force members shared that they voted no because they wanted to see higher growth of 500,000 more residents to San Jose! I voted for the option that added 200,000 people by 2040.

Tuesday: Council Meeting
After 18 months of staff and paid consultant “research” regarding my Sept. 18, 2008 memo proposing that developers of affordable housing projects be required to pay park fees, as market-rate developers are required to, the question finally came to Council. I believe that people of lower income are deserving of 100 percent park fees/land dedicated, the Council decided to support the Housing Department’s compromise that developers pay only 50 percent. To date, the City of San Jose has lost approximately $90 million in park fees from developers because of this park exemption.

Are you familiar with the term, “What Would Jesus Do?” Well I wonder as we come up on Caesar Chavez Day, “What would Caesar Chavez do” if he was alive and on the Council. Considering that affordable housing provides for people of lower incomes and is often located in areas that do not have parks, would he vote for equity when it comes to parks in San Jose for all people?

The next agenda item on the council agenda that day was the Habitat Conservation Plan where it seemed that the Council had more sympathy for the checker spot butterfly then parks for people of all income levels.

Wednesday: Visit Medicinal Marijuana Collective in Oakland
One collective is on target to write a check to Oakland for $360,000 in city taxes and another check to the State of California for nearly $2 million in sales tax of which approximately $200,000 will come back to Oakland; therefore Oakland will be receiving approximately a half a million dollars from one legal medical collective that employs 80 people with an average hourly pay of $43.

Thursday Night: Neighborhood Association Meeting
I talked about the budget and announced to the audience that the City would be suspending the $750K aquatics program for the 2010-2011 city-wide. I shared that the City could restore the entire program if we chose different ways to do city services, like outsourcing janitorial services at City Hall for example.  There were many in the audience that felt that they did not care who cleaned city hall but they would rather have a summer aquatics program for youth or a library open.

Friday Morning: American Leadership Forum-panel discussion titled, “A new recipe for regional job growth.”
Panel discussion of private sector and labor spoke to how the region can create jobs going forward. A business person asked the labor panelist, “What if public employees would take less in pensions to help balance the budget and avoid layoffs? Response from labor panelist was that, “Most of the deficit in San Jose is not pensions but debt service on City Hall.”

Actually, the debt service on City Hall is $24 million of which $17.1 million is from the general fund out of a $116.2 million general fund deficit. $52.9 million is the amount the general fund must cover this year in increased pension contributions since the taxpayer must cover any losses in the pension funds. The $52.9 million to cover pension losses is only a portion of the total amount devoted to pensions this year which is $200.2 million.
Looking back in history on 5/14/02 the only votes against new city hall was Linda LeZotte and Chuck Reed.

When Times Get Tough Just Borrow More Money

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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?”