This is the first installment of a new San Jose Inside feature that allows readers to pose questions to public officials. This week, San Jose Mayor Chuck Reed has answered 10 questions selected out of hundreds that were submitted by San Jose Inside commenters. The topics range from pensions and public safety to a proposed ballpark. The next public official to be interviewed by readers will be announced on Friday.—Editor
1. Why is the Mayor saying we have a fiscal emergency when the CAFR (Comprehensive Annual Financial Report) says that in 2010 we (the City) are financially secure and billions in the black? Figures from 2010 CAFR (12-7-10): total 6.6 bil in liabilities and total net assets 9.9 bil.
— Gil Zamora
We have a fiscal emergency because we are laying off cops and fire fighters and closing libraries and community centers and next fiscal year will be worse. We are draining money from services to pay for runaway retirement costs.
San Jose’s problem is with our General Fund, which pays for police officers, firefighters, libraries, community centers, parks, and road repairs, among other things.
In fiscal year 2011-2012, the General Fund budget totals about $820 million. The General Fund gets its funds from sales, property, and other taxes. Public safety accounts three-fourths of our discretionary general fund spending.
Nearly half of the General Fund is non-discretionary, meaning the City is mandated to make these payments. The biggest of these costs is our annual contribution to the retirement funds to pay for the pension and healthcare benefits that employees and retirees have earned.
San José will spend about $245 million in 2011-2012 to pay for lifetime pension and retiree healthcare benefits for employees. That is about three times what it paid a decade ago – and about 25% of the general fund. These costs are projected by the Retirement Boards’ independent actuary to reach $432 million by FY 2015-2016. They could jump to $650 million if actuarial assumptions are adjusted to reflect modern conditions. According to a recent City Auditor’s report, rising pension costs “threaten the City’s ability to maintain service levels.”
To pay for these increased retirement costs, San Jose has three options:
1. Layoff workers and cut services.
2. Restructure the retirement program to reduce the cost of benefits.
3. Make the employees pay more for benefits.
After a decade of General Fund deficits and service cuts, we have the lowest number of employees providing services since 1986-1987 when our City had a quarter less residents.
This is NOT sustainable. We can’t afford to cut services anymore. That’s why I’ve made fiscal reform my top priority.
A few words about the CAFR:
The City’s Comprehensive Annual Financial Report (CAFR) includes all funds, not just the General Fund. It includes the Redevelopment Agency of the City of San José, Parking Authority of the City of San José, San José-Santa Clara Clean Water Financing Authority, and the City of San José Financing Authority. Many of the City’s assets are in capital investments or proceeds from bonds that must be spent on the projects for which they were issued.
Many of these component funds are fiscally healthy and/or have secure funding sources. For example, the sewer service and use charges you pay on your property tax bill are restricted to funding day-to-day sewer services and improvements to the sewer system and water pollution control plant.
By law, the City cannot use restricted funds for uses other than the uses for which they are intended. So sewer funds can’t be used to pay for police officers or libraries, and library parcel taxes can’t be used to pay for anti-gang programs.
The CAFR is also a snapshot in time, much like your monthly bank statement. Your bank statement tells us what we have in the bank today, but it doesn’t tell you whether you’ll be able to pay your bills tomorrow. Similarly, the CAFR doesn’t project into future, even though we know that retirement costs are projected to increase to $432 million annually by 2016.
Starting in 2013, our CAFR will change. Billions of dollars of pension liabilities will be added to the balance sheet as new Government Accounting Standards are implemented.
2. How does the mayor and city council monitor the impact of the police layoffs? Does SJPD provide the council with weekly/monthly response time data along with a breakdown of the number of calls for assistance—especially those calls that were not handled due to lack of officers?
The Chief and I have regular conversations about this topic.
The Police Department provides a quarterly report to the Council’s Public Safety, Finance, and Strategic Support Committee. Additionally, the Committee will be discussing:
• Options for changing the span-of-control (ratio of officers to sergeants/lieutenants/captains) to get more officers on patrol and working the streets.
• Cutting Workers Compensation costs in the police department. Dollars saved in this area can go to putting more officers in the field.
• Civilianizing certain positions. A City Auditor’s report looked at options for saving funds by returning some positions, such as records positions and entry lobby staff, from sworn officers to civilians.
After review by the Committee in an open meeting, these reports come to the full City Council.
3. Are there any plans to hold pot clubs to the same code of conduct as other, similar narcotics dispensing business? (e.g. Bars, pharmacies, etc.)
— Robert Cortese
Yes, and the costs for enforcement will be paid from the taxes and licensing fees paid by the facilities. The proposed Medical Marijuana Zoning Ordinance is scheduled to be heard by the Council on Sept. 13, 2011. The draft ordinance (as reviewed by the Planning Commission) is online here and includes restrictions such as hours of operation and security requirements. Additionally, the Council will be enacting detailed operational regulations for the facilities that it permits.
4. Sunshine reforms and transparency were major campaign themes from your first mayoral campaign. Have the changes made a difference in how city business is conducted, and what more could be done?
— Blair Whitney
Since I took office in 2007, San Jose has implemented significant changes in sunshine reforms and open government, including:
• The Council no longer votes on millions of dollars in expenditures without information and staff reports being available to the public online in advance. Memos are released 10 days in advance (and sometimes longer).
• The Mayor and Council must disclose their contacts with lobbyists and special interest groups before they vote on an item. They also must disclose any communications (such as an email or text message) received from an interested party during a Council meeting.
• Calendars of the Mayor, Council, Chiefs of Staff, and other City officials are posted online each week, allowing the public to see who we’ve met with.
• San Jose has improved disclosures related to campaign contributions and expenditures.
• Salaries and benefits paid to all City and Redevelopment Agency employees, including the Mayor and Council and their staffs, are now public and posted online.
• San Jose has moved to a community-based budget process that includes an annual priority-setting session with neighborhoods and the youth commission, an annual survey, and community budget meetings in every Council district.
• If denied, public records requests can be appealed to the City’s Public Records Manager or the Rules and Open Government Committee.
• The Mayor and Council must disclose in writing any fundraising activity on behalf of candidates or nonprofit organizations that they or their staff engage in.
• Officeholder accounts have been eliminated. In the past, Councilmembers and the Mayor raised funds year-round from special interests and lobbyists to pay for tickets to political events and charitable activities.
5. If it is true, how can any councilmember justify medical for life? From what I understand, when a councilmember serves two consecutive terms, they are entitled to medical for life. That’s only eight years worth of work. Yet you say that police officer’s ride the “gravy train.” We may get medical for life, but that is after 20 years of service; 20 years of fighting, running, injuries, dealing with deaths, seeing people die right in front of you; interviewing child and adult rape victims, sexual assault victims, child abuse, elderly abuse and domestic violence victims; divorce, depression, suicide and alcoholism. Unfortunately, the list could go on. So my question is, what entitles any city councilmember medical for life?
— Officer B
This is NOT true. The Mayor and City Council DO NOT receive medical for life from their service on the City Council. Employees need 15 years of service to qualify for this benefit, although I have proposed we increase that number to 20 years as part of a fiscal reforms ballot measure.
The rare circumstance in which a former Mayor or Councilmember would receive retiree medical care from the City would be if a retired public employee (such as the late Councilmember John DiQuisto, who was a retired firefighter) ran for office and won a seat on the Council. In that case, this is a benefit provided from prior service. Or if a former Councilmember came back to work for the City and earned the 15 years of service that are currently required to vest in the retiree healthcare benefit.
6. It seems like the “underfunding of the pension system” is partly due to the City failing to make its contribution. Has the City contributed its share? If so, why has the City’s contribution not earned any interest? and if the City has not made the contributions it budgeted for Why did it not deposit the money in the system and where did that money go?
— Peter Grande
The City Council DOES NOT set the contribution rates for what the City owes the system. The independent Boards of the two retirement funds do. Based on their actuaries’ advice, the retirement boards send the City a bill and the City pays it.
The City of San Jose has consistently made the Annual Required Contribution required by the retirement boards. Here’s a statement from the City Auditor’s report on pension sustainability: “Unlike some jurisdictions, the City has generally been fully funding its annual required contributions for pension benefits. The plans have had actuarial valuations completed on a regular biennial schedule and, with the exception of two years in the 1990s, has consistently made its annual required contribution (ARC). The plans recently changed to having annual valuations. Furthermore, the City is moving towards fully funding the ARC for retiree healthcare.”
The Auditor notes: “In those two years, the City made 92 percent and 96 percent of the total ARC for the Federated Plan. The reasons were that (1) the City opted to phase in a recommended contribution rate increase and (2) the City elected to defer funding for the reciprocity benefit provided in 1994 as the actuaries were unable to adequately value the liability because a lack of reliable data.”
When the City makes its contribution, it goes into the corpus of the funds. It earns interest and experiences losses along with the rest of the funds. Increases in the unfunded liabilities are due to benefit increases granted in prior years, investment losses, optimistic assumptions about Rate-of-Return, out-of-date actuarial assumptions, and higher than expected pay increases.
Since taking office, I’ve worked to reform the boards, turning them from boards dominated by members with inherent conflicts-of-interest into boards with a majority of members who are independent and bring expertise in fiscal and investment matters.
For more information, the City Auditor has issued a report Pension Sustainability: Rising Pension Costs Threaten The City’s Ability To Maintain Service Levels - Alternatives For A Sustainable Future that is available online.
7. Why don’t you try “Discover Downtown Weekends” by turning off the parking meters on Saturdays and Sundays? It would give the hard-working Parking Control Officers their weekends off. And it just might encourage people to visit downtown restaurants, parks, and museums at their leisure — without the cost and worry of getting parking citations!
— Mona Lisa
Thank you for sharing an interesting idea. Downtown parking meters are turned off on Sundays, except in the Little Italy/Arena area. I will review the costs/benefits of a potential Saturday program with transportation staff.
In July, the City Council changed a number of aspects of the Downtown Parking program. A few key facts:
• Merchants who use the Downtown Parking Validation Program can provide unlimited parking validation in City-owned garages between 6 p.m. and 6 a.m., Monday through Friday and all day on Saturday, Sunday and major holidays, with a two-hour validation coupon.
• For those not visiting a validating merchant, City-owned garages charge a $4 flat daily rate for Saturdays, Sundays and major holidays (which increases to $5 effective January 1, 2012).
Information is available at San Jose Downtown Parking’s website.
8. Do you think that it is morally right to take political contributions from real estate companies, construction companies and other companies when these same companies are receiving money from the San Jose Redevelopment Agency?
— Just anon 4 now
I believe it is moral to follow the law. Since I’ve been Mayor, we have eliminated Officeholder Accounts and increased fundraising disclosure requirements.
Officeholder Accounts allowed Councilmembers to fundraise from special interests year-round, not just while running for office. Campaign fundraising is limited to the six months before the election in San Jose.
Quarterly fundraising disclosures allow you, the public, to see who your elected officials are raising money for and who they are raising money from.
9. The Cato Institute report has additional negative information about the alleged benefits of a ballpark. Thus, in these tough times, why are you investing so many resources into an investment that will likely produce no or, at best, nominal returns?
— Ballparks drain the economy
The ballpark project would be privately funded, privately constructed and privately operated. The $400 – 500 million dollars of private investment would generate about $3 million in revenues for the City/RDA.
The Redevelopment Agency’s economic impact analysis, conducted by an outside entity, found that this privately built and operated major league ballpark will create nearly 1,000 jobs and generate more than $5 million dollars a year of revenue for local governments. San José would receive over $3 million each year in new tax revenue. In addition, Santa Clara County, schools, and other local agencies would receive over $2 million a year in new revenue. That’s good news for local governments in these tough budget times.
10. Why isn’t RDA debt counted as “debt to the City,” if the City has to sell (or give away assets) to pay for RDA debt?
— Helen Chapman
In general, the Redevelopment Agency’s debt is secured by tax increment only, and is not the responsibility of the City or its General Fund. That’s the basis on which most of the RDA bonds are issued.
There are two projects, however, that were financed by the City’s General Fund, with the Agency obligated to reimburse the City for payment of that debt: the Convention Center and the 4th Street Garage. If there is not enough tax increment revenue to the RDA to pay for all of the Agency debt, the City’s General Fund will not get reimbursed by the RDA for debt service payments for these two projects.
The City also loaned the RDA funds to pay the State of California $75 million in the last two years. As of today, the state legislation being litigated would not allow the RDA to repay all of the debts from the RDA to the City.
The City hasn’t sold assets to pay Redevelopment debts. There may be some confusion about the disposition of the Old City Hall. The City transferred the Old City Hall to the Redevelopment Agency, which then transferred the property to Santa Clara County in lieu of paying the County cash for the funds that it owed. In return, the Agency transferred other property of similar value to the City.