Oliverio for Supervisor 2018

Independent - Transparent - Fiscally Responsible

Unexpected Support for the Plan to Sell Hayes Mansion

By

Last week, I got a mailer from the No on V campaign railing against the decisions of past city councils about spending on the Hayes Mansion.  I was elated! I felt validated in my support for selling the Hayes Mansion to stop the annual bleeding of millions of dollars. I wrote about selling the Hayes Mansion two years ago on the Council and on this blog.

I remember sitting through many long speeches from my former colleague Forrest Williams who touted that money spent on this hotel and conference center instead of spending the money on police and libraries was appropriate.  So, I wonder why are the people who support the No on V campaign endorsing Forest Williams, who was biggest proponent of the Hayes Mansion, in his supervisorial race?

I am thankful that the Hayes Mansion and its $4 million a year subsidy is being brought to light to all the voters of San Jose. However, it’s dwarfed by the $52 million taxpayers had to pay just for the pension loss last fiscal year. I can’t help but wonder where everyone was when I spoke about selling the Hayes Mansion in the past? Where was everyone when the vote was taken for taxpayer subsidized golf courses and when income-producing land was converted from industrial to housing?

It was also interesting that this mailer cited—almost as gospel—the Santa Clara County Civil Grand Jury Report titled “Money-Losing Hayes Mansion: A San Jose City Council Responsibility.” Apparently, this campaign supports the Civil Grand Jury as a trusted and reliable source. So perhaps they would then agree with other Civil Grand Jury Reports, such as: “Cities must rein in unsustainable employee costs” or “City of San Jose Hosed by IAFF Local 230 Executives” or “Los Lagos Golf Course—San Jose’s Financial Sand Trap.”

It is difficult for policy makers and interest groups to be consistent and this to me is an example of being inconsistent.

Here are the Civil Grand Jury Reports mentioned above:
Grand Jury report on Hayes Mansion.
Grand Jury report: Cities Must Rein in Unsustainable Employee Costs
Grand Jury report: City of San Jose Hosed by IAFF Local 230 Executives.
Grand Jury report: Los Lagos Golf Course—San Jose’s Financial Sand Trap.

A Public Spanking

By

County Assessor Larry Stone visited the San Jose City Council study session last week and gave an extensive lecture on the role of the County Assessor and a critique of Spectrum Economics. His comments were blunt, sparing only profanity about the economist hired by the RDA for $15,000. I wrote about this topic three weeks ago.

This is the only time that another elected official has spoken to the City Council at length during my tenure. Mr. Stone explained how property values rise and fall. Property values change for a variety of reasons: when property is sold, new construction, Prop 13 adjustments, Prop 8 appeals, business property (servers, factory equipment) and assessment appeals. Revenues from property tax will not increase for local governments this year and may even fall further.

Those that are hopeful of more property tax revenue have stated that if a global corporation stock price rises then so should their property value.  Assessor Stone stated that there is no correlation between the stock price of a single company and how much their commercial property is worth.  His example was that if you got a raise or bonus that your own home would not increase in value.

I think next year we may want to forgo an economist and instead pick up the phone and call Larry Stone. To be fair, the assessor only looks back and does not offer projections; however he has a more informed view then most and the only cost may be lunch.

Click this link to view the Spectrum Economics Report.

Click this link to view the informative presentation of Larry Stone.

Click this link for the the play by play speaking notes that went with the presentation slides.

This Wednesday night at City Hall, 6:30PM our City Auditor will present the findings of the pension audit to the public.

Can We Learn From the Fall of Rome?

By

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance. Cicero, 55 BCE

The San Jose convention center was visited by experts on the National Debt last Friday, Sept. 23. This was part of the Fiscal Solutions Tour comprised of both Democrats and Republicans, with budget expertise organized by the Concord Coalition. The speakers former titles included: the Comptroller General of the United States, head the General Accounting Office (GAO),  head of the Congressional Budget Office, Public Trustee of the Social Security and Medicare program to name a few.

Unfortunately, the Power Point presentation stopped working after the first few slides, which was a shame since the slides were very informative and gave background information on the enormity of the problem we face.  I showed their documentary film IOUSA at City Hall in May 2009 to show parallels with our own budget in San Jose.

The presenters shared some eye-opening items on Friday. One was that there is no Social Security trust fund. No money stashed away in a “lockbox”  to pay obligations. Instead, there is a file cabinet in Virginia with a long list of IOU’s, since the government has the spent the money. This year Social Security is paying out more in benefits then it takes in.

Another revelation was that this year we will spend $202 billion just on interest on the national debt, which is more than the wars in Afghanistan and Iraq. By 2019, nearly all federal revenue will go to paying interest on the national debt and entitlement programs like Social Security, Medicare and Medicaid, leaving a sliver for military, food safety, science, etc.. Not mentioned was the sleeping giant of $3-5 trillion in unfunded pensions from local and state governments nationally.

One may hope the federal government will bail out state and local governments from their pension obligations, however, it would require borrowing even more debt from foreign countries or raising income taxes to benefit one group in society instead of other priorities Americans may have.  The more the United States borrows from other countries limits our liberty, as you must be nice to your lenders (foreign governments) even if they are wrong.

Whatever level of government, hard decisions must be made or citizens will feel the consequences of punting. When asked, “How we solve this problem?” Fiscal Solutions’ David Walker said: “It depends if elected officials are willing to risk their jobs” … “elected officials don’t get re-elected by raising taxes and cutting spending. Instead they get re-elected for not raising taxes and increasing spending.” The presenters offered solutions ranging from budget reform, defense spending, health care reform and yes raising taxes strategically.

Click on this link to view an online video that briefly lays out the problem and provides their proposed solutions. http://blip.tv/file/4048954

Finally, a big thank you to the San Jose police officers who donated their time Saturday morning for the Willow Glen High School homecoming parade. Thank you Lt. Ta, Sgt. Montonye, Sgt. Moody, Sgt. Lira, Officer Ramirez and Officer Herbs.

High Speed Revenue

By

For the most part, I do not think people want things to change. However, could you see living without highway 280, 85, 87 or 237? When building large transportation projects there always seems to be opposition of some sort. Government at all levels—local, state and federal—deems that certain projects have a higher value in the long term.

A current public transportation project that has been receiving attention lately is High Speed Rail (HSR). Last week, the city council discussed whether the trans should run above ground or underground.  The preferred choice among many in Northern California is to underground/tunnel the HSR.  However, it appears that the majority of elected officials support an above-ground structure.

I have attended approximately 16 evening meetings regarding HSR. At first, the meetings were terrible with few answers and little data to answer audience questions. Over time, the quality of outreach and information has improved. It was through this process the HSR decided not to run the trains directly through the Gardner neighborhood, but rather hug highways 87 and 280.

To tunnel or not to tunnel is both a financial and timing question that includes geological reality. A tunnel from the Diridon station to the 87/280 interchange will cost an additional $800 million to $1.2 billion and may add seven years to the project. In addition, not every piece of land and what is beneath the surface lends itself to tunnel. Downtown has its challenges with sandy soil and a shallow water table. So, a piece of land in one city is different then another city, just as some parts of San Jose have streets that sink and others do not.  (Wait till the Big One hits and liquefaction of soil happens in certain parts of San Jose.)

Some questions I asked at the council meeting were: “ How much does it cost to include a tunnel in the Environmental Impact Report (EIR)?” and “What more would we learn if the tunnel was included in the EIR?” The first response was “don’t know” and second response was hard to translate.

Another question I asked: “Where is the local money coming from since the City does not have any?” One response was “Well, maybe the City could make money from parking.” It sounds like we would have to find millions of dollars to build a parking garage and then promote driving your car and parking it over using public transportation—so my questions remained unanswered.

I believe our Mayor is doing a good job trying to manage an uncontrollable situation. Uncontrollable since the power in this decision does not rest with cities but rather with the state. I believe our state assembly and state senate have more power over a state agency then an individual city. We see that year after year the state takes RDA money from the cities.

It is highly unlikely there will be an underground tunnel due to cost and years and examples of issues that occurred with the “Big Dig” in Boston. Overall, I lack confidence on the HSR project since it will take $43 billion to $100 billion to build it out over time. To complete HSR will mean going back to the voters a few times for more money. I know from history that some projects take decades to complete, however you compound this on top of $500 billion in state pension liability and ask, “Where is the ability to pay?”

There is the hope to get a legal agreement with HSR that would allow San Jose to have a say in the architecture of an above-ground structure. There is good reason for HSR to agree since HSR would save money and years in construction. So if HSR would save $800 million to $1.2 billion, then they should allocate some of that money to San Jose for the architecture.

Everyone has a different view of what they like or do not like about architecture but we can agree on is that $100 million, for example, buys you some level of architecture. Since we know that the price tags on these projects grow and grow then we might want to assure a certain percentage of the build cost in that future year instead of an exact monetary figure.

On another topic, this week the council is posed to approve yet another rezoning of land to housing for an affordable housing project that does not pay property tax which has been the number one revenue for our city. How will we fund our police and libraries without property tax?

The Only Economist Worth Trusting is Named ‘Hindsight’

By

Last Tuesday,  the City Council had a study session on the upcoming Redevelopment Agency (RDA) budget. RDA funds are regulated by state law and are almost entirely spent on land and construction, similar to how bond monies are restricted. We have funded some limited city services in RDA and Strong Neighborhood Initiatives (SNI) areas (not citywide), such as anti-gang programs and code enforcement. The bulk of RDA funds have gone to capital project like the HP Pavilion, numerous museums, the convention center, parking garages, hotels, Adobe and facade grants as well as industrial projects in North San Jose and Edenvale.  However, RDA also funded approximately $70 million for SNI capital projects like community centers, parks, traffic calming, etc.

The larger discussion was about how we spend or do not spend the limited RDA funds after the State of California raided the funds last year and again this year.  RDA funds are based on assessed property values in the merged RDA areas (Downtown, North San Jose, Edenvale). If those commercial and residential properties increase in value, that creates more tax increment dollars. If those values decline there is less. All 350 RDA agencies statewide are experiencing the same pain. As we know, property values have declined and may decline further depending on which economist you listen to.

San Jose RDA hires an outside economist every year to forecast future revenues for a third-party review. The economist has not always been accurate. The economist has projected higher tax revenues in years past which did not pan out. Economists do not have a crystal ball and economic conditions have not been this dire since the Depression, which makes future forecasting that much harder. We may consider a different economist next year however the current economist has already been paid so I do not see the need to spend more money and hire an additional economist. I would rather take the economist’s number, cut them in half, and budget based on conservative numbers.

The main question for me is: “When revenues are uncertain, do we budget on the lower conservative numbers or the higher optimistic numbers?” I would prefer to do a budget on the lower numbers as it is easy to spend money but harder to constrain spending. The only economist I trust is “Hindsight,” and we will only know the answer in the future.

The RDA laid off 20 percent of its staff last fiscal year and may have to do more layoffs this coming year from their current 72 employees. The RDA is the only city department that is non-union, so layoffs are done by the director and not necessarily by tenure. I believe that with limited funds, the scope of RDA should be narrowed to economic development which creates a tax base and net new employment. That may also mean refraining from issuing any new debt this year and next. Mayor Reed has suggested a mid year budget review for RDA so if revenues change, adjustments can be made.

I attended the ribbon cutting for the Brocade campus on Thursday.  The Mayor knocked the ball out of the park with his comments on how federal law, state law and local regulations hinder job creation. In addition, Mayor Reed pointed out a simple economic lesson—that this country will grow the economy through exporting, and Brocade is a testimony to that as the majority of its technology products are exported overseas.

The RDA spent $4 million to retain Brocade and the jobs in San Jose at a new campus at Highway 237 and North First Street. I believe strategic investments are good.  We cannot always predict which company will succeed, but we know these investments reap increased revenue for the city of San Jose.

Finally, here is a table from Mayor Reed’s RDA budget message last year that shows how RDA economic development is better for city tax revenues and ongoing jobs then RDA affordable housing. The chart shows the increased property tax revenues and both direct and indirect job increase.

Do you plan your household budget on your net paycheck or on expectations of increased wages and/or return on investments?

89 Houses, or 170-High-Paying Jobs?

By

On April 18, 2006, the City Council unanimously approved the Guadalupe Mines General Plan amendment, changing the zoning from Research & Development to Residential. At that same meeting, the Council debated other industrial conversions along Old Oakland Road/Rock Avenue, and voted to convert all of the employment-land parcels that night to housing.

Now, four years later, on Aug. 31, the Council heard a proposal for housing on the Guadalupe site for 89 single family homes.  The issue for many who spoke at the meeting was that this piece of land is against a creek and the city’s Riparian Corridor policy should be adhered to.  (A riparian corridor is another term for a waterway. The purpose is to make sure that developments are not built right next to a as a creek, river, etc..)

Although the internet is great for providing maps and aerial views, I prefer going out to the sites of land-use items that are on the council agenda.  I drove through the existing neighborhood across the street from the proposed development to know more about it, and finally drove and walked the parcel.

The thing that struck me is that I saw many parked cars. I looked up and recognized the name on the building, Monolithic Power Systems (MPS). MPS is a $240 million analog semiconductor company whose global headquarters are in San Jose. I went into the lobby, introduced myself and asked for the Chief Financial Officer (CFO).  While I was waiting, I noticed people were coming in for job interviews. I later found out they had 11 open positions they were hiring for this location on top of the 160 current employees in San Jose.
I met with Richard, the CFO, and he gave me the history of the company which started in Los Gatos and then moved to San Jose. MPS ranks as one of the fastest-growing companies in Silicon Valley. The CFO told me they like the location and would really like to stay, but they understand they do not own the property. They like the location so much they offered to buy the building—and an additional vacant building, even though they did not need it to sweeten the pot.  So they put in an offer for the market price for R & D office space and a housing developer put in a bid as well, based on building houses. We know that housing trumps jobs for the cost of land. So the private property owner chose the higher bid.

The CFO understands they will have to move, so I asked what about Edenvale or North San Jose?  He responded that San Jose is not on the short list, as they have looked at properties in other cities based on where executive management lives.

Understanding the rezoning was done four years ago, I could not vote for housing knowing the city of San Jose would lose a corporate headquarters and 170 really well-paid jobs.  As a result, I voted ‘no,’ as I did not want to associate myself forcing a technology company to move out of San Jose. My colleague Councilmember Kalra also voted ‘no,’ citing concerns from the dais about the development being too close to the creek. Final vote was 8-2 in favor of housing.

PS: I highly recommend seeing the documentary The Tillman Story at the Camera Cinemas. It is the story of San Jose native Pat Tillman. It is a must- see and good on many levels. Do not wait for Netflix.