How to Save the General Fund $10 MIllion

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.

Pierluigi Oliverio is a councilmember for San Jose’s District 6.

9 Comments

  1. Sounds like the First Rule of Holes to me:
    “When you’re in one, stop digging.”

    Thanks for the update, Councilman. You’ve got it right.

    • Please use the 10 million in another way.  Besides, the housing dept has wasted millions over the past decade and has just created a jobs program out of their housing homeless programs.

      I discovered recently as a volunteer on the homeless encampments fiasco that a significant amount of the housing dept’s homeless grant money confirmed a jobs program for the director’s colleagues, EHC and Destination Home, Community Technology and now Downtown Streets Team. Many other volunteers and nonprofits gave me the inside politics and then I confirmed it that a previous EHC employee reviews homeless grants and makes recommendations for the city of San Jose housing dept,  the leader of Destination home used to work for EHC and then was a homeless consultant for the City of San Jose housing dept, the current Chair of the Santa Clara County Collaborative of Affordable Housing and Homeless issues used to work with EHC and is now the County Homeless Coordinator who makes recommendations to fund these agencies (this is probably the biggest conflict of interest of all). What a web we weave.

      These four orgs have received thousands in grant dollars totaling millions over the years. Pierluigi, you should get the Metro or the Merc to investigate the millions of dollars that have been spent on homeless housing strategies and threaten to verify their outcomes and watch the housing department immediately back paddle away from their 10 million dollar request.

  2. Pierluigi I agree that the $10mil needs to go directly towards paying down the debt. Whether or not the rest of the council agrees will be a bright-line separating truth from fiction in terms of individual members commitment to fiscal responsibility.

    Reading this piece I think it is well past the time for eliminating the “housing department” as that department continues to work against any sort of “fiscal sanity.” 

    Reading the SJI piece on tomorrows council agenda makes this all the more clear. Postponing construction of “affordable housing” in North San Jose in favor of “revenue positive” market rate housing only serve to set up a “bait-and-switch” situation for the SAPs who purchase the market rate housing.  They will be delighted with their purchase and their neighbors until the day when “affordable housing” is rammed down their throats and the rug is pulled from under their investments.

    San Jose has plenty of revenue and service sucking “affordable Housing” that we simply cannot afford.  NO MORE AFFORDABLE HOUSING – not now not ever!

    Imagine how much money the City would save then.

  3. Want to know how to save even more money .Show much do you think the City will waste on Defending Measure B . No one not even The City of San Jose’s own Attorneys Believe Measure B stands a chance in hell of standing. How many millions is this city prepared to waste because of the arrogance of this Mayor? Real and Guaranteed savings were offered by city workers, but because the Mayor has his own agenda , we are where we are .

  4. Time to let other municipalities share the burden of affordable housing.  SJ has certainly done it’s part – I’d bet that 90% of affordable housing in the South Bay has fallen on the shoulders of SJ residents.  We simply cannot afford to keep spending millions of dollars while ignoring our billion dollar plus RDA debt.  Corsiglia should get real… or is job preservation the motivation?!

  5. Leslye Corsiglia is an employee of the city of San Jose.  Can we assume Ms. Corsiglia ultimately reports to the city manager, Ms. Figone, and is carrying out Ms. Figone’s policy?  If so,  why is Ms. Figone redirecting the money to housing instead of paying down San Jose’s debt?

  6. We need to pay down the debt instead of continuing to make a long string of poor financial decisions. Right now San Jose has the lowest housing prices of every city in Santa Clara County. Let’s focus on getting back on our feet before putting 8 figures into non-critical projects.

  7. What are you guys going to do about the police personnel problem? It’s getting hard to keep up with the head count of all the people who are leaving: officers, sergeants, lieutenants, captains, the Chief, the Assistant Chief, probably one or more Deputy Chiefs… Hey, wait! Didn’t you guys just authorize raises for chief-level positions? How’s that working out for you guys so far? I guess even raises for chiefs can’t help keep them on board when they realize that, very soon, the attrition at other levels will very quickly render the police department impotent.

    No one in their right mind would want to take on the job of steering the Titanic to its ultimate demise. Reed keeps saying that he wants to hire more officers. How’s that working out? How is he going to do it when new recruits are watching their more experienced brethren leaving in droves for other agencies which have better pay and benefits?