Environmental Innovation Center a Risky Project from Day One

The San Jose Environmental Innovation Center (EIC) has been in the news a lot recently, due to the fact that it is $1.6 million over budget and six months behind schedule. This project was always risky, as it utilized complicated tax credits that expose the general fund—the guarantor of the project—to future risk.

During my tenure as a San Jose councilmember, I have had to deal with numerous general fund debt obligation issues. Some of these projects end up totaling millions of dollars each year, for expenses related to golf courses, the Hayes Mansion and similar ventures that reduce available funds for other core city services. So, being in the position to avoid future financial risk, why would I support yet another project such as the EIC, which could imperil our general fund? When this issue came to the council, I voted “no” several times, where was I often the only “no” vote. When there is a single dissenting vote, this automatically means that any substitute motion would die for a lack of a second. This is true in all cases.

The first time I voted against the project was on May 17, 2011, when I was the only “no” vote. This is important, because the project could have technically been stopped that day, thus avoiding the current situation. The next time I voted against this project was on Oct. 25, 2011, when once again I was the only “no” vote. On Jan. 10, 2012, the item returned to the council, and this time I was joined by my colleagues Xavier Campos, Kansen Chu and Ash Kalra in voting “no.” However, the 7-4 vote was still not enough to stop the project and place the general fund at risk. The item returned to council twice more on Oct. 2, 2012, and April 30 of this year, and in both of these instances, I was once again the only “no” vote.

In each of these prior decisions, councilmembers were allowed to vote unencumbered by legal limitations. However, on May 31, 2011, the council was constrained by the city charter. The charter requires the council to accept the lowest cost bid for public works projects. This requirement—accepting the lowest cost bid—has been reaffirmed by voters of San Jose in eight municipal elections.

Whether or not an individual councilmember supports a particular project, the council must accept the lowest bid. If the lowest cost bid is not accepted, it opens the door for a lawsuit from the winning contractor, as the city would not be following the process laid out in the city charter.

The winning contractor had its attorney speak at the May 31, 2011 council meeting, and he noted that nothing was done improperly in the bid. The council must select the lowest bid, he reasoned. The city attorney and public works director both reaffirmed this opinion on lowest responsible bids. After listening to my colleagues speak at length on the issue, I knew that this was going to pass—even the head of the building trades union spoke in favor of accepting the lowest bid.

A substitute motion to reject all bids would have had zero support since the tax credits were expiring and the project would be dead. The overwhelming majority of the council wanted to move forward with this project. It stands to reason then, that this is exactly what the council did that day. The die had already been cast on moving forward with the project in a prior vote, and now the council was simply following the legal mandate laid out it in the charter. 

Going forward, the council may want to consider asking voters to amend the charter in a way that allows for more flexibility during the bid review process. This may be difficult, however, as many voters feel that the lowest bid is always the best bid, and this stipulation avoids awarding contracts to friends, relatives and major campaign donors. Where the council really has discretion, in my opinion, is during the deliberation phase of the project, when we are debating whether or not to build something at all. This is where I respectfully disagreed.

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

8 Comments

  1. OK Mayor Reed!!!!  “I voted for pay increases and benefit increases, but if I could do it all over again, I wouldn’t.”  Spin control much???

  2. PLO, The bottom line is at the end of the day you voted for the project. The Charter does not require the City to accept the lowest bidder as you try to spin this but requires the City to accept the “lowest RESPONSIBLE bidder” you seem to have conveniently out the word RESPONSIBLE in your effort to run from your vote. I would point you to http://www.sanjoseca.gov/DocumentCenter/Home/View/107 but I believe you already know what it says.

    No matter what kind of fragrance you try and spray on this it still smells like B.S.

  3. Nice try.  You will NEVER get the Mayors’ position, no matter how hard you try.  You always seem to say the wrong things at the right time.

  4. Its funny how you , PIerre are always the first to take credit but always the last to take responsibility .  Hasn’t it already been proven that you did vote “Yes” when it actually counted .  You have zero credibility ,  and couldnt begin to tell the truth if your life depended on it . How can you be trusted , when it is a fact that you were caught stealing campaign signs? How can you be trusted when you supported Mayor Reeds $650 million dollar Pension Lie ? How can you be trusted when you also screamed that Pensions are drowning this city when it is a fact the Airport debt and The RDA debt and Convention Center Debt are easily 4 or 5 times larger than the pension debt ? How can you be trusted when you assisted in the absolute decimation of our public safety ? How can we possibly take you serious as a candidate for Mayor???

  5. I apologize in advance for the length of this rebuttal to Councilman Oliverio’s post. If he going to continue to intentionally mislead the public then I am going to go into as much detail as necessary to make sure that the truth in this matter is known.

    (Part 1)

    Councilmember Pierluigi Olivero continues to contend that he has consistently opposed the failed City project known as the Environmental Innovation Center (EIC). Mr Oliverio has claimed in several venues ( San Jose Inside, The San Jose MercuryNews (Facebook comments) and the Daily Fetch (Facebook comments) that a series of 5 “NO” votes related to the EIC proves that he opposed the project. This simply is not true and the record (contained in the San Jose City Council Minutes) bears this out.

    5/17/2011 Oliverio’s first “NO” vote on the EIC

    http://www3.sanjoseca.gov/clerk/Agenda/20110517/20110517min.pdf (see Item 7.1)

    Mr. Oliverio opposed this motion with the lone “no” vote. What did this motion do? It looks like it authorized the City Manager to do a number of things necessary for the City to qualify for the New Markets Tax Credit (NMTC) program – a program that was going to provide “additional funding” to fund the construction of the EIC.

    Mr Oliverio says now that he opposed this then because, “This project was always risky, as it utilized complicated tax credits that expose the general fund—the guarantor of the project—to future risk.”

    He cites a number of prior occasions where he spoke out against financial risk and the exposure of the City’s General fund.  Unfortunately, the Minutes from this meeting show only one person spoke against this this risky “funding scheme.” Who would that be?  A member of the public, David Wall.  Is it an oversight by the person who records the minutes or were you silent on this matter when you could have gone on the record?

    Sure the whole NMTC thing sounds complicated and confusing as many Federal programs can be. Does that make them “risky?”  Maybe especially since this one didn’t relieve the City and the General Fund ultimately being responsible to pay the bill for the EIC. The idea of offsetting costs to the General Fund does sound appealing. So where was the risk? Was the City going to loose the NMTC money if its chosen contractor(s) failed to meet certain deadlines?  If this were the case it seems imperative that the City Council make darn sure that the contractor(s) it was to award a contract to be “responsible” and able (through its past history) of meeting deadlines and providing quality work.

    So if it was such a financial risk and there were already concerns with the “low bid contractor” Applegate Johnston…

    The Minutes show that only one person went on the record and spoke against the motion: Citizen David Wall.  The video shows Oliverio’s concerns were (1) how many financial experts were going to sit on the non-profit – he wanted 2 and (2) whether or not the IRS had ever ruled against the City on anything…

    5/31/2011 Oliverio votes “YES” in lockstep with Mayor Reed and the rest of the Council to award the contract for the EIC to Applegate Johnston

    http://www3.sanjoseca.gov/clerk/Agenda/20111025/20111025min.pdf  (See Item 7.1)

    Councilman Oliverio’s “YES” vote awarding the construction contract to Applegate Johnston speaks for itself yet, he wants everyone to believe that he was against the project.

    10/25/2011 Councilman Oliverio second lone “No” Vote.

    http://www3.sanjoseca.gov/clerk/Agenda/20111025/20111025min.pdf  (See Item 7.1)

    This is where Councilman Oliverio’s “NO” votes really start to defy logic. To recap, Oliverio was the lone “NO” vote to the supplemental funding available from the NMTC then he was one of 11 “YES” votes to award the contract to Applegate Johnston.  This in-and-of-itself shows that Mr Oliverio was both FOR Applegate Johnston as the City’s chosen contractor AND FOR the City and the General Fund being responsible for 100% of the costs – all the costs.

    So why then would Mr. Oliverio be against having the City Manager going ahead with all the things itemized in 10/25/2011’s Item 7.1?  The project is approved with the unanimous consent of the Council and the NMTC money is on the way and certain administrative arrangements need to be in place – so Oliverio votes “NO”?  The essence of a “NO” vote in this case says Councilmember Oliverio was opposed to the City amending its budget to account for the influx of the NMTC money. I am neither a lawyer nor and accountant but I think it is safe to say that that the City has some legal obligation to account for the money it has. 

    Does anyone recall the 10’s of millions that the City Council had to hold a special meeting to account for when the SJPOA PROVED the City was not disclosing it had as part of the recent Measure V contract arbitration hearing? How did you vote in that matter Councilman Oliverio???

    The Minutes show that the only person to go on the record against this motion was Citizen David Wall.

  6. (Part 2)

    1/10/2012 Oliveiro votes “NO” (along with Campos, Chu and Kalra) to a settlement agreement that waives claims the City has against Applegate Johnston for failing to fulfill their contract on the Firehouses in exchange modifications to the contract Applegate Johnston has on the EIC.

    http://www3.sanjoseca.gov/clerk/Agenda/20120110/20120110min.pdf  (See Item 2.7)

    The only person who spoke publicly against this was Councilmember Chu.

    The City had already taken a loss on Fire Station 19 and had a claim against Applegate Johnston. Applegate Johnston most likely had no way of paying the City’s claim much less defend against it. Since they were already on the City’s payroll it seems like a reasonable solution for the Applegate Johnston to settle its claim by amending its contract with the City for the EIC at no cost to the City. That is called a “win-win” solution and Oliverio was having none of it.

    Had the “Noes” prevailed what would be the solution to getting the City’s grievances or claims against Applegate Johnston satisfied? Bankruptcy court?  How much would Councilman Oliverio be willing to spend to go after Applegate Johnston in court?

    10/2/2012 Oliverio is the lone vote against funding Asbestos Abatement at the EIC

    http://www3.sanjoseca.gov/clerk/Agenda/20121002/20121002syn.pdf  (See Item 2.9)

    I am guessing that during some part of the work at the EIC someone discovered that there was some material containing “asbestos” (generally accepted to be a Hazardous Material that is bad if it gets in the lungs). Responsible budgeting (there’s an odd one this City) set aside money in a “contingency fund” to pay for unexpected – unplanned for costs that pop up in the course of projects such as this.

    A company needed to be hired to deal with the asbestos, money had to be allocated to pay the company to clean up the asbestos, everyone on the City Council agreed that the asbestos needed to be cleaned up and rather than do it themselves to save a few dollars they opted to have the Director of Public Works contract with a company with expertise in cleaning up asbestos – Asbestos Management Group of California, Inc.

    Everyone,  that is, except Councilman Oliverio. Why is that Councilman? Why were you opposed to funding asbestos cleanup? How much “risk” were you willing to expose the City too should someone some years down the road file a claim for asbestos exposure?

    According to the Minutes no one spoke in opposition to the resolution. NO ONE,  not even Councilman Oliverio. Why is that? Maybe because common sense dictates that the City spend the money to clean up the problem? 

    4/30/2013 Councilman Olverio Doubles down on the “NO”

    http://sanjoseca.gov/DocumentCenter/View/16887 (See Item 4.4)

    There were actually two votes related to this agenda item. In the fist vote Oliverio is opposed to bumping up payments to 2 contractors and in the second he is opposed to waiving penalties against the contractor(s) for not completing work on time, and granting a 180 day extension to complete all work.

    Regarding vote # 1 neither company is named “Applegate Johnston” and were probably owed money above and beyond what they were originally supposed to be paid do to changes in the job that required the services of (1) the architect and (2) a consulting company.

    Approving payment to those two companies was probably expensive, maybe even too expensive. The reality is that it was probably cheaper to pay them than it would have been to not pay and then have one or both sue the City; have the City defend those suits and ultimately risk a judge/jury rule that the City owed for the work plus the companies legal fees plus interest… The rest of the Council was probably aware of this. Why wasn’t Councilman Oliverio?

    Regarding the second vote: this is very interesting and something that really needs to be highlighted!!!

    Part of this resolution is a change order extending the completion deadline “180 days”  (hey,  that’s 6 months!).  Apparently there were some unforeseen delays.  Delays related to “asbestos” AND “lead-based paint” removal! 

    The council,  minus Oliverio,  approved paying for a work order to remove the stuff (about 7 months prior – one month more than 6) on 10/12/2012 and now we learn that the Council (minus Oliverio) voted to grant a 180 day/6month deadline extension?  Could it be that the planning, funding and actual removal of the HazMat set the project back 6 Months???

    Was that delay entirely Applegate Johnston’s fault as the City’s Monday Morning Quarterbacks are purporting? Or do we learn from the minutes that the delay was apparently due to the discovery and remediation of an asbestos a lead-based paint problem? Something totally out of the control of Applegate Johnston?

    Again, the record shows Councilman Oliverio opposed the motion by vote but never voiced any concerns for the record. See a pattern? Oliverio claims to have opposed the project but he never spoke against it?

    Councilmember Oliverio like every other member of the Council explicitly endorsed the EIC project when they voted unanimously to award the contract to Applegate Johnston. Incidental votes against funding the project, amending contracts and approving the valid disbursement of contingency funds needs arose does not change that fact.

    Councilman Oliverio shows unmitigated gall and utter contempt for anyone with a brain when he claims that any one or all of his “NO” votes are enough to prove he was against something he was explicitly for. It is insulting for him to waive of his “Yes” vote by saying it was futile to vote otherwise!

    Councilman Oliverio should be ashamed to continue this charade. He was wrong but can’t find the courage to admit it – something all to common with the so-called “leaders” in the City’s government.