Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

All New City Employees Should Be Given Second-Tier Pensions

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The city of San Jose should put a hold on hiring firefighters until the firefighter union accepts a lower cost, second-tier pension plan for new employees. This would achieve cost savings and keep the city on a fiscally responsible path. Doing so would allow us to dedicate more funds to hiring police officers.

My prior work experience before joining the City Council was in the high tech industry, so pensions and their financial obligations were new to me. However, given that the annual property tax revenues collected by the city were not sufficient to cover the annual pension payment, it was obvious that action needed to be taken. Nearly three years ago, I initiated a pension reform ballot measure that allowed the city to establish a lower cost, second-tier pension plan for new employees. Voters passed Measure W with more than 72 percent of the vote. The city was then able to negotiate a second tier pension plan with 10 of the 11 city unions, including the police officer’s union. The firefighter’s union is the one exception.

The firefighter’s union set themselves apart from the other city employee unions, and simply refused to negotiate a two-tier pension plan. In order for the city to sustain itself and provide day-to-day services to residents, a second-tier pension system for newly hired employees, including firefighters, is not only the financially responsible option, but it has become essential.

Every other city employee union has realized that the only way to keep the city viable, and the existing pension system intact, is to accept a second-tier pension plan for new hires. The firefighters have shown their objection to joining fellow city employees through their unwillingness to start arbitration on the issue. The city was forced to request that a judge compel the fire union to arbitration, and, on June 17, the court ordered the fire union to arbitration pursuant to the city charter. Even with the judge’s recent decision, final implementation of any changes could take approximately one year.

Filling any future vacancies with new hires on the first-tier pension plan is not only financially costly, but it is also unfair to the other city employees who have agreed to the two-tier system. Continuing to hire firefighters under the old single-tier system simply increases the unfunded pension liability that has plagued the city for years, and it impedes the city’s ability to meet its critical needs in the future, such as hiring additional police officers. Among all the proposed pension reforms, a second-tier pension plan for new employees has always had the strongest support from the public. The fire union should not be exempted.

I appreciate and respect the work of all San Jose firefighters, but I have found the fire union bosses to be obstructionist in their dealings with city officials. They have historically been unwilling to work towards the necessary solutions that are required, so that San Jose can have both adequate police and fire protection for residents.

How to Save the General Fund $10 MIllion

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The city reached a deal with Jose Theater to extend the lease of the property, home to comedy club The Improv, for another 10 years. But a different item discussed at last week’s Oversight Board meeting could have a huge impact on the city’s upcoming budget.

Many of the historic buildings in the downtown area were purchased, renovated and brought to life by the now defunct Redevelopment Agency(RDA). One example of this is the $13 million restoration of the Jose Theater, which currently houses The Improv comedy club.

The Improv brings national comedy acts to San Jose, and with it an audience that animates the downtown district. The property was previously owned by the RDA and has now been transferred to the RDA successor agency, appropriately called the “Successor Agency Redevelopment Agency,” known by its acronym of SARA.

The City Council serves as advisory to SARA, but the SARA Oversight Board must ultimately approve all actions, such as the disposition of property or allocation of funds. Since the formation of SARA, I have attended the Oversight Board meetings in order to understand what options are before us as a city, and what impact any actions taken will have on the general fund.

Last week, the SARA Oversight Board, comprised of members from local tax entities as laid out by the state, approved a 10-year lease with the Improv. The terms of the lease allow SARA to charge rent and collect a portion of gross receipts on a monthly basis, and all proceeds go to pay off the debt. The county representative, who is not an elected official, stated that the city of San Jose was doing a good job in negotiating these leases, and that it was important to have this comedy club downtown as it draws more visitors to the area. I appreciated this perspective and positive feedback from the county board member.

Later at the same meeting, the Oversight Board discussed the Housing Due Diligence report. During the course of review, it was revealed that $10 million had not been allocated in a clear manner. In no time at all, a strong difference of opinion surfaced on how the funds should be spent: for building a specific affordable housing project or paying down the debt. Not surprising, the housing director, Leslye Corsiglia, wanted the entire $10 million to be dedicated only to the affordable housing project.

Bearing in mind that SARA has inherited over a billion dollars in debt from the RDA bonds that were issued over past decades, I could not support the “double whammy” outcome of yet another non-revenue producing project that simultaneously casts a blind eye to the city’s debt situation. (As an aside, I found it very interesting that when the subject of the $10 million was being discussed, the only other person present for this item—besides myself and staff members—was a representative from an affordable housing developer.)

As it turns out, the housing director has been lobbying the state Department of Finance (DOF), which oversees all of the oversight boards in California, for quite some time. The objective of the lobbying is to get a favorable opinion from the DOF that would exclusively dedicate the $10 million to the affordable housing project.

Such an action, with no further deliberation or input from the council, would fly in the face of flexibility, especially in situations that became available to cities when the state dissolved RDAs. Until the council has had the opportunity to weigh in on this issue, in the form of a public session, all lobbying efforts should cease immediately.

The flexibility reference above allows excess affordable housing funds to cover debt payments, or, in city speak, allows these funds to be “swept in.” If the city chooses to responsibly pay down the debt, it would have the additional benefit of avoiding any further hits to the general fund, which other city departments—police, libraries, etc.—draw from to provide services to residents.

This $10 million would minimize the hit to the general fund next fiscal year, which would permit us to pay down senior debt obligations and allow continued funding for other city services. As you may know, the general fund is currently covering the shortfall in SARA property tax revenue by paying the senior debt payments on the 4th Street Garage and Convention Center. Bridging this funding gap from the general fund means less money for day-to-day services such as public works, road maintenance, code enforcement, etc.

In conclusion, I feel strongly that the discussion of how the $10 million is allocated should go before the council for a decision in a public meeting. After all, it was already covered once at the public Oversight Board meeting, and I do not think this issue is one that would be best addressed in a closed session.

Furthermore, I disagree with the housing director’s viewpoint. It is shortsighted and untimely to advocate for an additional affordable housing project that would directly and negatively impact the general fund.

Ultimately, we all have choices and responsibilities in life, and we must work within the dictates of reality. The opportunity cost of allocating $10 million to an affordable housing project that doesn’t pay property taxes means we cannot simultaneously pay down our debt in the same amount. The money simply cannot be in two places at once.

By dedicating the $10 million to paying down debt obligations, it allows more funds to remain in the general fund and be directed towards vital city services.

Birds, Dogs and Debt! Oh My!

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All Nippon Airways will now provide a new direct flight from Mineta San Jose International Airport to Tokyo.

All Nippon Airways (ANA) hosted a reception last week in honor of a new direct flight from San Jose to Tokyo. The inaugural flight is scheduled for Jan. 11, 2013. ANA will also offer connecting flights to 22 cities worldwide. This is good news for SJC, because the new connection will create a positive economic ripple effect for San Jose and the region at large. A special thank you goes out to all those who advocated for a new direct connection to Asia.

While attending the event, I looked at the large ANA model of the 200-seat Boeing 787, and I thought about the council meeting from the previous day. The result of the discussion was to allow airport staff to shoot birds if they interfere with aircraft. When the time came to vote on this matter, one of my council colleagues expressed genuine concern and continued to question the best course of action.

It is very dangerous for birds to get caught in an airplane engine. Not only would such a scenario be fatal to the bird, but it could also cause the airplane to malfunction and potentially lead to a deadly crash. During council discussion, concerns were shared about the shooting of birds in vain and the net impact of such action as part of the grand bargain for airport safety.

It was also suggested that guns should be utilized only as a last resort, and that perhaps dogs could instead be deployed to scare away the birds. The suggestion of dogs being utilized in this capacity raised a whole new set of concerns for me, due to the potential cost and lack of practicality associated with implementing such a program.

I am a self-professed animal lover, and yet I still thought it was odd that a relatively lengthy council discussion would contemplate the life value of a bird over the potential death of 200 passengers on a plane. Human safety comes first in my book, plain and simple, end of discussion.

In the same meeting, the council reviewed the Comprehensive Annual Debt Report, which documents the total debt for the city of San Jose, currently a whopping $5.2 billion. This figure does not include unfunded liabilities for pension and health care, which would add an additional $3.6 billion to the total. At the Federal level, the national debt does not include unfunded liabilities like Social Security or Medicare. When unfunded liabilities are included, the National Debt catapults from $16 trillion to $70 trillion.

Once the meeting concluded, what struck me most was that the council discussion on the $5.2 billion debt was 15 minutes long, while the discussion on birds at the airport was 12 minutes in duration. Going forward, I am hopeful that the council will invest more time on the debt issue and, dare I say, less time discussing the fate of a flock of birds. Too bad we can’t shoot the debt.

There are many different forms of debt, but suffice it to say, we are tapped out. Onerous debt payments and servicing obligations take money away from the general fund, and therefore leave us with less money to pay for city services today. Whether we are looking into training a special service canine unit for avian abatement, or we are paying interest on our municipal debt, the money has to come from somewhere. This is why I take the role of a fiscal pragmatist seriously and advocate investing more time and effort on plausible solutions to reduce our municipal debt.

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.