San Jose’s Department of Corporate Welfare

Like everyone else who went to college, I took Economics 101 and read Adam Smith. I guess I got the wrong idea about the meaning of the “free market”—at least that is what I am learning from the current attempt to bring Nvidia to the Sobrato building in downtown San Jose. Apparently, it means the cost of operating these profitable businesses is passed on to the taxpayers.

John Sobrato, a gazillionaire developer who owns 110 buildings with 10 million square feet of real estate, and Nvidia, a $3 billion company located in a Sobrato-owned building (!) just up the road in Santa Clara, want to execute a long-term leasing agreement for Sobrato’s never-occupied, 2002 building on Almaden Boulevard. According to reports, Sobrato has lowered his asking price as far as he can, but it is still not low enough to get Nvidia to sign on the dotted line and make the move. The proposed solution: more corporate welfare from the Redevelopment Agency—another handout from the people of San Jose.

Why should the working stiffs of San Jose subsidize multimillionaires? Residents aren’t getting the city services we need now. In the past week, we have learned that we have the worst city streets in the nation. Add that bit of good news to the lack of a much-needed hospital downtown, the decrepitude of our public pools, the unfinished state of Guadalupe River Park, the financial troubles at the Rep Theater, etc., and the absurdity of asking the citizens to pay for Nvidia’s lateral move hits you head-on.

If Nvidia can’t pay the asking price, and Sobrato is not willing to take less, then why is it our problem? None of the arguments that will be made to try and get citizens to support a subsidy will hold water. There will be no new jobs for San Jose, just people already employed in the area driving to a new nearby location. The workers will park in the bowels of the building, eat in the company cantina or drive somewhere else where they can park for free, and go home away from downtown at night—just like they do at Adobe. The city council should politely turn this worthless deal down, but, given the history of the current body, don’t hold your breath. This is the council that has already thrown $4 million in the toilet for a doomed car race and given $11.5 million of corporate welfare to Norcal. And please don’t worry about poor John Sobrato; when he can’t afford to keep his 380,000-square-foot building empty any longer, he will find some tenants.

Legions of unemployed, uninsured people are ridiculed everywhere these days for trying to get welfare or public assistance amounting to a few hundred dollars to help pay their rent or feed their families. Yet, mega-profitable behemoths like Chevron, Enron, Exxon and Halliburton can jump on the corporate welfare gravy train—The Free Market Limited—anytime they want. Today, it’s Nvidia and Sobrato. Who will be next? All aboard! Step right up—no ticket necessary for overpaid multibillionaire CEOs, corporate war profiteers and real estate barons.

38 Comments

  1. Jack, I often don’t agree with your left-wing rantings but I’m thinking you’re right on this one. Here’s another opportunity for our mayor and city council to throw taxpayer money down the toilet. I’m sure they’ll not disappoint us.

  2. Thank you Jack.

    Every last councilmember that votes to subsidize this deal should be subjected to a recall election. 

    Enough is enough already!

    Lily Tomlin once posed the question, “Have you ever actually seen someone laughing all the way to the bank?”  I think anyone who tails Mr. Sobrato on any given day will see exactly that.

  3. Jack, there’s only one reason why the City would fund such a deal.  Historically, our “movers and shakers,” the Mayor, the City Council and well-heeled real estate investors in Downtown, suffer embarrassment that the area isn’t vibrant and exciting as is San Francisco.  These same people are also completely out of touch with our citizens’ desires.  I challenge the Council or the RDA to concuct an independent poll wherein our citizenry would be asked the question, “Do you really give a hoot about Downtown or are you more interested in restoring basic City services to historical levels?”  I think we can all forecast the outcome of that poll.

  4. Actually Jack, you missed part of the game here.
    Sobrato has indicated (per SJ Merc) that he won’t bail out SJ Rep again, and the SJ RDA is unable to use tax increments to help because they must be utilized for capital projects only. So if the Council uses RDA capital monies to help Sobrato, then expect Sobrato to step in within the next month as the “angel” for SJ Rep. It’s a pass-through of public money that is perfectly legal as long as the deal is done verbally based on trust among the players.

  5. Jack:  Sign me up for “Republicans Against Corporate Welfare”.  This deal and the Morton’s/Divco West request deserve a resounding “No, and don’t come back with a modified request, either!” from the mayor and council.

  6. Dear San Jose:

    That’s the tough thing about subsidies…if you give to one, you should give to all.  How is it fair for one to have to compete with another who has his/her risk underwritten with public capital?  Having said that, I guess that I’d rather see RDA money “wasted” on bringing a great company downtown than on some of the other crazy projects that RDA money is spent on.

    Gotta great idea!  Why don’t we salvage pieces of the rotunda to pay for some of the city’s needed services?  I figure each segment of customized glass could bring a pretty penny.  According to my calculations, the REP could be saved by removing and selling 13 pieces of the rotunda’s dome.  Another 4 pieces of glass could be sold on the open market for evey community center that we would like to keep in operation.  We could probably fill the city’s potholes too, but that would require removing the rotunda’s steel framework. 

    Seriously, when will the Mercury News do an analysis of the construction costs of the new city hall, particularly the rotunda?  I’ve read estimates that range from $25-30 million?  Wouldn’t it be interesting to see a real cost breakdown on that thing?  Apart from the fancy glass, the rotunda is a very basic structure.  It ‘s essentially, a steel silo.  I don’t understand how that structure could cost so much.  The fact that the new civic center is pleasing to the eye should not divert our attention from the fact that the project was approved by a deceitful administration that accepted a “whitewashed” altenative sites study.  (This story remains the most underreported issue in our city’s recent history).

    Pete Campbell

  7. I don’t like subsidies to business either but the devil is the details.

    Right now, the building is vacant. It has a certain tax liability based on that condition. If it is occupied, it will generate more taxes. If some portion of those additional taxes are refunded by way of a subsidy and the taxpayers actually end up with more revenue than previously obtained, that is a “subsidy” that I think I can support.

    If the cost of holding Sobrato to the entire tax bill for an occupied building keeps us getting the smaller amount of revenue instead of a marginally larger amount of revenue (as well as other benefits of an occupied building) then we would be foolish not to deal. Also, having a HQ that was previously in Santa Clara will mean that other taxes will be generated for San Jose.

  8. The only taxpayers that contribute to the Redevelopment Agency are the property owners of the improved or redeveloped property Those are PROPERTY TAXES.

    The Redevelopment Agency gets increment or the difference between the old property tax and the new value of the redeveloped land!

    Didn’t you learn anytthing while you were slopping at the public trough?

    Old Downtowner

  9. Jack:

    I agree with you completely.  I have had an office downtown here for over 18 years and the city has never given me anything except higher parking charges and stupid rules about not backing into a parking space in city owned lots.  Oh yeah, and making it difficult for us and our clients to get to work for a couple of weeks in July.  As I said yesterday, if this subsidy goes through, all small business owners in San Jose should revolt.  We don’t get any help (nor do we seek any)  but then most of us do not donate large sums of money to the council people either.  By the way, about 5 to 10 Adobe people leave the building around lunch time every day so maybe they do contribute a few hundred dollars a day downtown.  How many millions did San Jose give them?

  10. If we can’t stop ‘em from giving away our money, let’s give them the credit they deserve. I suggest we erect these signs around the city:

    “The potholes on this street are brought to you by the Norcal Scandal”
    by order of Mayor Ron Gonzales and friends

    “You pay for downtown parking so rich landlords can get a break on their rent”
    your friends as SJ Redevelopment

    “This tax money needed to maintain this public pool was instead given away to organizers of San Jose’s Grand Prix”
    Thank you Cindy Chavez, neighborhood champion

    “This area is not staffed by the police department because your city and county leaders argue like children”
    Downtown Music Hall Debacle

    “This extravagant City Hall is the reason San Joseans will never receive a level of city services like those provided by the City of Santa Clara”
    courtesy, your half-billion dollars

  11. If we could trust our City Council and city government to tell the truth and not give us more false economic justifications like the Grand Prix fake numbers then it might be worth a small taxpayers subsidy to bring 1500 new Nvidia jobs and more taxes to San Jose since it would bring other new service jobs, sales taxes and possibly more residents to support downtown retail

    Can we now trust anyone on City Council?  No

    Can we now trust anyone in city government – A few

    After years some would say decades of lies, scandals and backroom deals from our elected officials how can we believe any of them or what they say

    City Council needs to start rebuilding public trust, by acting in a highly ethical manner, being completely not politically truthful, and have accountability to the public for their actions, spending our taxes and public policies that benefit the public not politicians, developers who pay for elections or special interests

    This proposal for a tax subsidy would be a good place to start to rebuild the public trust to

    – give the public real economic justification nunbers for any developer tax subsidy weeks in advance with all economic data
    – so we can check the numbers and
    – then have a public meeting where Council actually listens to the public before making any tax subsidy decision

    We are now known as –  Scandal Capital of Silicon Valley and people ask – What scandal did you have this week, any more indictments or more special interest funny deals? 

    Without changing how City Council does business the public’s mistrust of City Council will be justified again –

    More backroom deals as paybacks to campaign contributors – More unbelievable politician statements and numbers ustifying payback deals – More public mistrust

  12. #6 – I’d like to know the cost of the skinny poles at City Hall.  A few weeks ago while driving west on Santa Clara, the mist appeared to be white smoke.  Does anyone have an explanation as to why we needed these? They might be justified if San Jose was located in the desert.

  13. Channel 26 Watcher – Your RDA money to Sobrano and then Sobrato bails the Rep out sounds liike many city shell games played with city taxes and RDA fundsto get arounfd legal limits

    A posible backroom deal $1 million dollar shell game – Any previous examples of Sobrato, city taxes / RDA RDA shell games?  Your statement that – a pass-through of public money for consideration received – a contribution to the Rep is not perfectly legal – it is illegal and would be the basis of another indictment

    Pete – don’t give up some day Merc will do the City Hall cost scandal story – So many San Jose scandals – so little time to report them

    More political paybacks – More public mistrust – a true statement that describes –  Scandal Capital of Silicon Valley

    Finfan – where can we get the signs?

    Great comments – not different day – same political bickering

  14. “Apart from the fancy glass, the rotunda is a very basic structure.  It ‘s essentially, a steel silo.”

    To the average layman the rotunda would appear so – but my sources tell me it also doubles as a nuclear missile silo.

    It was built to thwart attacks by the unwashed Milpitian hordes.  My sources say that the Mercury News and the homes of the regular “2 minute” critics are on the missile targeting system’s speed dial.

    BTW, anyone ever notice how Dr. Evil and our Mayor have never been seen in the same room together?  Coincidence?

  15. I’m not sure that your facts are accurate, so I have some questions.  And, please, don’t attack, these are questions that I haven’t seen answered.

    Wouldn’t the city derive more revenue from this deal?  These are employees currently working outside the city and aren’t there payroll taxes to collect?  Wouldn’t bringing that business also generate money to help repair some of the infrastructure problems you listed?  If bringing a company here from another city doesn’t generat revenue, why do we try to attract any business here?  Santa Clara is getting something right now, what would we get?And, wouldn’t some of those extra people working here pay to park in the lots on a daily basis?  Yeah, I know parking fees aren’t going to pay for a downtown hospital, but I’m trying to figure out the economics of it, not just react to the emotional backlash of your arguments somehow tying this into “war profiteers”.

    I’m not seeing any evidence this is being driven by anybody on the council.  I’m seeing very cautious response from a proposal being brought forward by the developer.

    We could also discuss the potential for this to join with the city’s desire to build transit oriented housing, Sobrato’s 900-1000 units proposed just down the light rail line and how subsidizing the office space could help boost that development?. Is seems like this arrangement would be a double boost to Sobrato by getting a tenant into a vacant building and at the same time building in a workforce to occupy the proposed housing development.  That on the surface sounds like more corporate welfare, but wouldn’t the people living there shop for groceries, buy gas, or load up on lattes close to home?  Isn’t that potential revenue we could be capturing from people currently doing these things elsewhere?

    I’m not necessarily buying into the argument that we shouldn’t give “corporate handouts” to rich people and successful businesses.  If it’s something that pencils out with the city collecting more revenues than it expends it’s an investment, not a handout.  What I’m not seeing is the dollar breakdown either way and I’d be really happy if I had facts to help me decide either way.

  16. #16-

    Despite how it sounds, giving money to businesses isn’t a god idea, even if it is an “investment”.

    The returns are a zero sum game.  Moving a company from one city to another doesn’t raise money; it transfers money.  In this case, from Santa Clara to San Jose. 

    Later, when Santa Clara responds with their own “investment”, they will transfer money from San Jose to Santa Clara.

    The net effect is that the residents of both towns lose.  After millions of dollars of “investment”, residents of both towns are left with less money for basic servces.

    John Sobrato is a smart guy, and is perfectly capable of figuring out how to rent his buildings without a dime from any of us.  He’s also smart enough to take our dimes if we are fool enough to throw them away.

  17. John Sobrato is a successful and responsible real estate developer.  he and his family and his family foundation have contributed much to this valley.

    I believe his building that is the subject of controversy is the finest looking building in downtown San Jose, and should have been the new City Hall, because it’s closer to freeway access than the Taj Gonzal, has better parking, and is better set up for an office use, which is what a modern city hall should be.

    That said, providing him and/or his propspective tenant Nvidia with a subsidy is a bad idea.

  18. If the city decides not to give a subsidy, what will Mr. Sobrato do next?  Tear down the building?  Let it sit empty for another few years?

    Either Mr. Sobrato wants more than the building is worth or Nvidia is unwilling to pay market rates.  Why can’t they negotiate like tenant/landlords do everyday without a government handout? 

    I suspect they know there is RDA money for the asking so they might as well ask.

  19. Nice try so named “Downtown Small Business guy –  #22 post.
    If the Sobrato deal makes such economic sense, rather than make the corporate handout available only to our well-healed friends, why not establish a program through the public hearing process to make available similar subsidies to owners of any of the other 18% of properties downtown that are vacant. If any of these property owners capture a long-term tenant from outside the city limits, they too should be entitled to use this financial tool and transfer the future tax-increment gains of the city to make their deals happen. This would save everyone money and grief by eliminating the need for lobbyists and campaign contributions for the average downtown business in need of help.

  20. The money they will give to Sabrato will come from the tax increment money the building has developed.  By leasing to the tenent, the tax icrement will go up almost 1 million per year.  That means the RDA can bond an additional 10 million.

    If they are asking for less than 10 million; don’t the tax payers / city win?

    As a small business owner, we need to put employees into these buildings.  The dot com bust has killed us downtown.  Filling the Sabrato building will help a ton.  A company that size will have many daily visitors and a number of smaller firms may move in nearby related to the business they do.  Meaning, startups will want to be nearby.  Maybe a few will become the next cisco or Nvidia!

    all of this will help build downtown without using downtown’s current RDA budget.

    In times like these, RDA money should be used for job creation and retention.  Get the economy moving and we will have plenty of money for garbage sorters, street sweepers and new roads.

    Business Owner

  21. Mayor of LA endorses Cindy Chavez.  Well, it takes one to know one.

    Here’s an LA NEWS story from 2005:

    VILLARAIGOSA WON’T KEEP CONTESTED DONATIONS

    After first rejecting the idea, L.A. mayoral candidate now says $47,000 in contributions from Florida will be returned.

    His opponent, Mayor James Hahn, still wants an inquiry.

    By David Zahniser
    Copley News Service

    Hoping to end a growing controversy over out-of-state campaign contributions, mayoral candidate Antonio Villaraigosa said Thursday he will give back $47,000 in donations from employees and other contributors linked to a Miami-based hotel gift company.

    One day after he flatly rejected calls from Mayor James Hahn to return the money, Villaraigosa’s campaign put out a statement saying he decided to send back the contributions “out of an abundance of caution.”

    Villaraigosa, who is running to unseat Hahn on May 17, has repeatedly criticized Hahn over investigations into city contracting, including allegations that contracts were awarded in exchange for campaign contributions.

    But Hahn hammered back by criticizing his rival for taking money from contributors linked with Travel Traders and an affiliated company, S.E. Florida Investments, some of whom had difficulty recognizing Villaraigosa’s name or explaining why they were writing him checks for $1,000.

    The complete article can be located at:

    http://www.dailybreeze.com/hottopics/articles/1525517.html?showAll=y&c=y

  22. Article in today’s Merc casts doubt on the whole Nvidia deal.

    Of course any negotiations are including the potential for a subsidy and for sure Sobrato is using that as a bargaining chip and/or incentive. 

    As someone who works for a legitimate business and is exposed on a regular basis to business cases that contain overly optimistic returns on investments, I would have a hard time believing any figures whipped up by the likes of SJ bureaucrats that show the city would get its money back.

    What’s more absurd than giving money to a guy who built an office tower with his own pocket change and could subsequently afford to let it sit vacant for four years and counting?  Oh, maybe giving $4 million away for an absolutely losing proposition?  Now that I’m thinking about it, the list of more absurd spending decisions by the sitting Council is probably a mile long.  But that still doesn’t validate the decsion to hand money over to a guy who has it to burn.

  23. I have a question for all you bloggers hell-bent on keeping DSJ in the Dark Ages…Was it a mistake to subsidize Adobe’s move to DSJ?  Pretty simple question.  And how much would it trully cost us taxpayers (yearly) to invest in Nvidia’s move Dowtown…let’s hear some real numbers to all this anti-subsidy ranting! (If Intel goes ahead and acquires Nvidia, all this debate will have been in vane…rejoice anti-Sobrato Camp!)

  24. #12 The “skinny poles” are misters which are part of the public art at city hall.  I believe 3% of city hall’s design/construciton budget went towards public art (500 mil x 3% = 15,000,000) which includes the “parade of floats” and the fountain.

  25. 27 – That was then, this was now. How long does the desperation of SJ continue? How long must they pay and beg people to come here? If this city doesn’t grow up some day, then no company will every locate here unless they get a handout. Time to stop.

  26. Richard:

    Let’s see.  Giving the subsidy makes sense why?
    I go to your web site and it says giving the subsidy makes sense because Richard Robinson says so.
    Well that’s darn good reasoning.  Maybe I should have been a political science major so I can learn to reason in that fashion.  Maybe I should change my mind on how this potential massive waste of taxpayer money because Richard Robinson says so. 
    You web site is a waste of band width.

  27. #33 Richard Robinson

    Your suggestion that bringing Nvidia to the Sobrato building will be so presitgious for San Jose that residents should pay for it is just plain wrong. Sobrato the billionaire will fill his building with tenants without a handout from the working people of San Jose; if not Nvidia, then other companies. Whoever moves into the building will contribute as least as much as Nvidia to the city coffers. It won’t cost us a dime and we’ll still get all those extra workers downtown.

  28. San Jose needs to have clear full accountability for any expenditure taxpayers money no matter what you call it – loan, gift, grant, tax subsidies or economic development funds paid or given to any group since it takes dollars away from our underfunded city services which is the reason why we are taxed. Our taxes are not supposed to be spent to fund mismanaged arts, theater or community groups or pay some developer tax subsidies because they gave a few dollars to our politicians to help fund their election

    Rather than argue endlessly over who wasted taxpayers dollars both Mayor Candidates and rest of City Council have questionable management of taxpayers money and gvie money to questionable groups and projects

    Where are real estimates for Nvidia subsidy showing the paybak to the taxpayers in increased tax revenue with a ater subsidy report showing itf the estimate were or were not accurate

    San Jose could not then or now afford more style Grand Prix fake economic justification numbers and $60,000 in free food and free tickets to our politicians, families, political friends and contributors

    City Council with Chamber and Labor support gave Grand Prix $4.2 million in taxpayers money, NOW – Show us the Money –  Actual not fake number increased city tax revenues for our $4.2 million of taxpayers money

  29. There is one simple reason San Jose city councilmembers are so eager to generously and illogically dole out plenty of taxpayer subsidy dollars to the developer deal:  huge campaign contributions that need to be “repaid”.  Developer contributions usually constitute the largest portion of politician contributions and they are not given just cause they are nice guys.

  30. RC#26:  Read Today’s Murky News—he apparently did it weeks ago, and the analysis confirmed no improprieties.

    Now that you have nothing to talk about, perhaps we’ll hear from you no longer.

    Well, one can hope.

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