First Things First

On March 12, I hosted the second annual budget meeting in my district. My goal was to inform the community about the budget process, the size of our budget, where the revenues come from and different options on trying to deal with the current deficit.

The major message from the residents that attended the meeting was that the city needs to change employee policies and compensation (including sick leave payouts and pensions) before cutting services. Residents brought newspaper and magazine articles about how other cities are facing major financial issues, including bankruptcy, due to pension obligations.  Many people brought up analogies to Vallejo, which filed for bankruptcy.

The residents continuously asked when the City of San Jose was going to make these changes; city employee compensation, sick leave payout and pension adjustments.  Several people in the audience work at Hewlett Packard which implemented wage cuts for every employee in the company. Others had hours reduced at their employers, resulting in a cut in compensation, or were laid off. Other views expressed were switching to 401K’s from pensions. And 100 percent said new city employees should be given lower benefits than current empleyees, since we cannot afford them.
 
Recently, I read how union employees at the San Francisco Chronicle took pay cuts, fewer vacation hours and eliminated seniority just to keep the paper alive.  They did this so that more people could keep their jobs and therefore keep the Chronicle operating.  I hope these examples set the tone for San Jose’s management and unions.  The message that we are all in this together folks, lets see what we all can do for the sake of keeping our city healthy during this prolonged recession.
 
I prepared a presentation about the City budget for the meeting.
 
Some of the major facts:
 
• In the last seven years there has been a 58 percent rise in total compensation.
• In the last seven years the average salary went from $73K to $117K.
• In the last seven years our contribution towards pensions has more than doubled.
• We have a $1.4 BILLION dollar unfunded medical liability.
• To fix the budget deficit via economic development we would need to build 15 Valley Fair’s or 24 Oakridge malls. (That would require 750-1,200 acres of land, they would all have to be equally successful and residents would have to accept more traffic and parking in their neighborhood.)
 
At the end I made my own suggestions of how to balance the budget:
 
• Wage freeze for the next three years.
• Freeze Step and Merit increases.
• 5 percent pay reduction for all 2,663 employees that make over $100K.
• 2 percent pay reduction for all employees making under $100K (includes council and staff).
• Make changes to sick leave and vacation payout.
• Raise fees on card rooms but allow them nine extra tables which will bring the city $5.5M every year on top of the existing $13M. (Bob Brownstein, a union leader and Pat Dando, the President of the Chamber agree on this.)
• In future years we maintain wage freezes.
• Sell the Hayes Mansion to cut the $4M we lose every year.
• Retain industrial land for job growth and slow down housing growth.

However we cannot provide core city services without more revenue:

• Therefore I proposed that we raise utility tax 1 percent on electricity, gas and water only. This would bring $11.43M a year that would go to police only.
• Spend 70 percent of new revenue on new officers and the balance on non-sworn police employees and technology so more police officers can be out on the street versus behind a desk.
• Also I believe we should do a $100M bond to pay for street repairs only, since we have a deferred backlog on maintenance of $457M, and the longer we wait it will cost us even more to fix streets since we will go from repaving to rebuilding.

The journey is far from over on the budget so stay tuned.

 
 

 

26 Comments

  1. Pierluigi,

    Thank you for the summary of your budget meeting.  I wish all council members were as motivated to keep their constituents informed.

    Today’s SF Gate has an article about a 20% increase in management positions in San Francisco in the past three years with small increases in positions actually providing services [1].

    With San Jose’s dramatic rise in salaries, do you have any data giving any insight where the money is going?  For example, what is the ratio over this time between management/non-management positions in the city?

    [1] http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/03/15/BAFD16F31K.DTL&type=politics&tsp=1

  2. Pierluigi, you did a great job in preparing your budget proposal.  It shows insight and a real understanding of all the issues. In Santa Clara, we called Pat Kolstad, PK.  I think you have earned status as PG.

    Did anyone notice that Chuck Reed mentioned that using funds for stadiums was an excellent method for a city to create revenue and development?

    Good job, Chuck.  Glad to hear it.  Trouble is, the waddling Libertarians like Brian Darby campaigned on his website that you were against stadiums.  Well, Mayor Reed, I am glad to see you can sit a course on your own without some of the people who really did nothing for you, like BD, have to sit back and watch you govern the right way.

  3. Mr. O.
    I`ll give you this much, at least you put some thought into the budget. In the end it all comes down to the same old thing doesn`t it. The rich get richer blah blah blah. You
    state that everyone that makes over $100K a year should take a 5% wage deduction and those making under $100K should take a 2% pay cut.Lets think outside the box for a minute. How about if you make $200K or more a 25% cut. Between $100K and $200K a 20% cut and all who make under $100K get a pay raise of 5%. It would give those on the bottom rung a little help in paying their bills. It would bring a starting point to reverse this trend that has been going on for way to long. This country is going in the wrong direction as far as Wages go. Just who in the hell is going to afford to buy TV`S, Couch`s, Clothes, Cars, Houses, Etc., making $15.00 an hour. Hell who can even put good, healthy food on the table let alone pay the rent,PG&E and on and on and on. Our so called “leaders” do not have a clue. If you can`t see what is clear to most people then get out of the way. Our problems are of our own making and we better solve them quick or America will drown in greed and apathy.

  4. Thank you again Pierluigi, for hosting the March 12th meeting and for posting your presentation.

    A couple of things stand out for me:
    1) The Council/Mayor MUST have a conversation about personnel expenditures. From what I hear, some council members even refuse to have a conversation about labor, the unions, collective bargaining or whatever you want to call it. This is a sad state indeed because without open and candid dialog it will be “business as usual,” and the results we’re seeing from years of “business as usual” is NOT WORKING for everyone. The dialog should be publicly held so that the public (collectively it’s our money, right?) understands the pain points and where there is room for negotiation. At the very least the meetings should be taped. I want to emphasize here that City of SJ employees are deserving of decent wages and benefits, otherwise they have the right to vote with their feet, just like anyone else. So too are the City of SJ residents deserving of affordable and good services and a livable community, otherwise they too may vote with their feet or simply drop out of community involvement altogether. (In Corporate America it’s called “quit and stay.”)

    2) At the meeting my question was what can I do to help push a more balanced approach to solving the budget problems and you replied it helps for Council/Mayor to hear from their constituents.

    I hope everyone who attended the meeting and those on SJI will take to heart your suggestion to write/call the Mayor and ALL Council Members and make your voice and opinions heard.

    Thank you again,

    Tina

  5. Pierluigi,

    Great job… would that all of our elected officials go to this length to educate their constituents. 

    Seeing that our entire RDA area downtown generates roughly the same taxes for SJ as does Santana Row alone, I’d have to say once again that we should terminate the RDA.  They just don’t add any real value. And look at the Fairmont travesty, where the RDA sucks up nearly every dime of property tax… how ridiculous!

    As for employee medical, why not immediately put in place the same plan that most companies offer?  Health insurance should be extended only as long as the employee continues working. Further, this should apply to all employees on the city payroll, not just new hires.  I understand that negotiations with the unions would be necessary and that’s fine.

    Thanks again for sharing your presentation.

  6. P.O.

    I’m always amazed at how government mismanages money, and then comes to tax payers with tax, and fee increases as a solution to fix the mess they created. Or they cut vital services, low level employees, or programs for those most badly in need. It reminds me of strong animals banning together to kill off the weak in the wild.  They do any thing and everything but cut the FAT, and divorce themselves from their special interest buddies!

    Secondly, I really have to agree with Dave G. Does anyone in the City Managers Office, or on the 18th floor have any clue how cutting wages, and benefits to city employees making under $100K a year, would only worsen the problem of getting our economy back on its feet, never mind keeping hard working people and their children housed, fed, and clothed?

    Why don’t you start by providing less expensive medial, dental, vision care benefits, and allowing City employees to pay into Social Security like the rest of us, so they don’t have to pay into a program designed by the City, or create their own retirement funds?  That would save millions right there!

    I feel the way government is deciding how and what to cut in our State and City budgets is fashioned after the over paid AIG clones. Screw the tax payer, the elderly, the disabled, the small business owner, and the average hard working Joe, but help keep the rich, lazy higher ups safe from the reality and consequences of a trashed economy they created.

  7. Pierluigi,

    Thank you for your candid analysis of San Jose’s budget woes and your suggestions on how to fix it. There is defiantly much to do and I hope overtime we can create a sustainable budget that accounts for providing residents with essential services while also ensuring that employees are well compensated through wages and other benefits.

    With that being said I do think these tough economic times require sacrifices from residents and employees alike.  Residents already are facing the possibility of decreased library hours, increases in fees paid for the use of city facilities, and the prospect of bumpier rides to school and work with the continuing deference of much needed maintenance to our cities road ways. 

    One rarely spoken of issue that will affect residents is the impact of employee layoffs.  City employees play an important role in being the ones that make things happen, including maintaining our parks, enforcing city ordinances and implementing city council priorities.  As the city considers layoffs I hope that they will think about the long term affect that shrinking the workforce will have on San Jose.  Not only will it put additional burdens on those city employees that stick around for the extra work that may be forced on them, but it also means that all the things we count on them for, some of which I’ve mentioned above, will either be addressed much slower or not at all.  I surely don’t want to see services and/or infrastructure begin to deteriorate because there aren’t people around to address them.  Additionally, layoffs will also impact the lives of employees and their families.

    This doesn’t mean that we should disregard the financial impact that employees have on our cities budget, but however rethink how to address it.  This is where I think city employees need to begin making some sacrifices themselves, for the benefit of residents, our city and one another. 

    Understanding the dire circumstances the city faces I hope the employee unions would be willing to look at an across the board temporary cut of employee compensation at a level that ensures not a single layoff.  However, we would want to be cognizant of ensuring that those cuts levied now would be recuperated once the economy improves, with some changes that have been mentioned in your posting.

    I’m no expert when it comes to the dicey world of government budgets or all the rules that go along with employee compensation, but I think I do understand that employee layoffs will be a burden to our residents who can expect slower responses to neighborhood issues, to our city that will experience continued deterioration with less people to maintain it, and employees left to run the city that will become overwhelmed with the additional workload.

    I appreciate very much, Pierluigi, your continued efforts to think outside the box when addressing some of the city’s most pressing issue. It’s not always easy to say the things that nobody else wants to hear and I’m sure you take a lot of heat for it, but they need to be said.  To paraphrase Harry Truman, keep fighting hard and give them hell.

  8. Mr. Oliverio:

    Thank you for taking the time to post and keep your constituents informed.  You are the main reason I continue to read from this blog site.

    After reviewing your budget presentation, I vote for the following, which I believe is a combination of cost savings and revenue building. It affects citizens, employees and business.

    Eliminate all Merit and Step Increase ($7.92M) (this should have been none yesterday.)
    Increase gambling fees and tables ($5.5M).
    Increase sales tax 1/4cent ($34M) no more than 2 years.
    Increase Biz Tax ($6M).
    Increase Parking fines ($1M).
    Recover False Alarm Fee ($.5M).
    Total $54.92M.

    The remaining gap should be overcome from increased golf fees, postpone new facilities, restructure leases, ensure city fees cover costs, take a hard look at the Hayes Mansion etc.

    I’m not a big fan of higher taxes, fees and fines but I just don’t see another way around this.

  9. Mr. Oliverio, you wrote,
    “My goal was to inform the community about the budget process, the size of our budget, where the revenues come from and different options on trying to deal with the current deficit.”
    Conspicuously absent from this list of worthy goals is “where the money is spent”.

    You are to be commended for your efforts to involve your constituents (regrettably, my own rep is a phantom) but I still don’t see how it’s possible to make smart, informed decisions regarding the budget when we’re ignorant as to the details of the spending side of the equation.

  10. Finally!….someone on the council has the brains and guts to speak the truth and advance a plan.
    Another solution would be to require all departments to go back to staff levels from two years ago, and rescind all salary increases (going back two years).
    I know of a major Silicon Valley firm that has imposed mandatory weeklong furloughs every week for six months! (a huge cut in pay if you haven’t stored vacation time…but, no one got laid off).

    QUESTION:  Will Pierluigi be recalled for speaking the truth?

    Pete Campbell

  11. #12

    <b>I know of a major Silicon Valley firm that has imposed mandatory weeklong furloughs every week for six months!<b>

    So, the company is shut down for 6 months, and everyone gets 6 months off?

  12. Thanks Jake #14,

    I had not noticed the link and I’m happy to see that there is at least SOME breakdown of the City’s expenditures.

    Not being an accountant, my first question would be;

    From slide #3, what is the distinction between the Capital Funds, the Special Funds, and the General Fund? The General Fund accounts for only 27% of the adopted budget but it is the only portion of the pie chart that is addressed when searching for ways to cut costs. Is the remaining 73% of the budget off limits? 

    Look. I’ll be the first to admit that I’m an ignoramus when it comes to finance so that may be the stupidest question ever posed on this website. It’s clear to me though, that the experts whom we’re paying top dollar to run this City in a fiscally sound manner are not doing the job.

  13. There’s a $60M+ gap. Employee compensation is 2/3 of a $900M+ general fund budget.

    How about a 10% reduction in total employee compensation? Some thoughts.

    1) Eliminate automatic step increases. Reward employees for performance and creativity, not longevity.
    2) Switch to a defined contribution pension plan, not a defined benefit one. Not just for new hires, for everybody.
    2a) If you can’t do 2, switch to a system where the pension benefit is based on base pay only, not deferred sick, vacation, OT, and “sergeant for a day” promotions.
    3) Eliminate the guaranteed health insurance for life for people who “survive” 15 years of city service.
    4) Split police compensation into two tiers: base pay and “at risk” pay. Desk jockeys only get base pay. That might help put more police feet on the street.
    5) Eliminate Presidents Day, Martin Luther King Day, Columbus Day and Veterans Day as paid holidays, and replace them with one floating holiday so that employees may honor whomever they choose.

    Addressing the issue of employee comp this way should eliminate the need for service reductions, unless massive quantities of employees bolt for jobs elsewhere (but where?).

    Then start looking at asset sales. And don’t stop with the Hayes Mansion. What about the golf courses? What about the old city hall?

    Insanity is doing things the same way and expecting different results.

  14. I quickly skimmed through the Mayor’s budget message and did not find much content about how Mr. Reed is actually going to balance the budget. 

    Pierluigi did a much better job presenting his plan to balance the budget.  Mr.  Reed takes the easy way out by asking residents and City employees “…to share ideas for closing the $61 million budget gap.” (didn’t we already do this?)

    Our Mayor needs to show some leadership on the budget by presenting a real plan instead of hoping somebody else (how about Pierluigi?) comes up with good ideas on how to balance the buget.

  15. I don’t understand why there is not much stronger demand from all camps to reevaluate the role of redevelopment agencies and their relationship to taxing and budgeting. If laws have to be changed at the State level, then now is the time for action. An article in the March 15th Mercury News, “As Deficits Widen, San Jose Eyes its Redevelopment Funds” by John Woolfolk, pointed out that the SJRDA budget is equal to about half of the City operating fund and the Agency has jurisdiction in one quarter of the City – two metrics that should have State and City legislators scratching their heads. How can we tolerate a system where there are essentially parallel governments, particularly when core City and State services are under funded? The Mayor repeatedly uses the term “structural budget deficit” to describe the budget from an accounting perspective. How about digging deeper into the fractured foundation upon which the structure is created?

  16. I’m done with the “we all need to share the burden” attitude. The problem with raising taxes is they never seem to decrease, they only go up.  (Occasionally, a temporary tax expires.)  I also have the same question as #16, what are the Special and Capital Funds?

    I also take issue with sponsoring Affordable Housing.  There are quite a few people struggling with their own housing, now they still have to pay for housing for others as well?  It’s a really nice to have, but we just can’t afford it right now.  Maybe we should focus on creating jobs so more people can afford their own home.

  17. P.O,
    Thanks for your reply. I suggest the City and the Union get busy with their “meet and confer” meetings. It is a change that is long over due.

  18. Thanks for reading.

    #2
    Glad you found the slides since many folks said they did not know there was a link to the slides on the blog

    #3
    PG?

    #4
    I would be OK with a higher percentage for people that make over $150K or $200K

    #5 Hi Tina,
    Thanks for attending the meeting and your questions. What can you do? Part of it is showing up and speaking at meetings or at minimum a brief email to the Council.

    #6
    Medical plan changes require “meet & confer” meetings with the union

    #8
    Hi Kathleen,
    Any change in retirement benefits requires “meet & confer” meetings with the union.
    The best opportunity is new benefits for new employees. This also requires “meet & confer” even though these future employees have not been hired yet.

    #9
    Thank you for the comments.

    #10
    Only catch is that the sales tax would require voter approval and an effective political campaign (political campaign donations)for it to pass

    #11
    I believe slide 3 slices up where we spend the money.

    #12
    Yes many private companies are reducing hours and laying off

    #16
    Capital Funds budget is for building things: Airport expansion, new libraries and community centers, police substation etc…
    Special Funds for example is the San Jose Water Pollution Control Plant which is funded by a levy on property taxes.
    The budget is complicated however we need to do a better job of simplifying and demystifying the budget.

    #17
    Golf Courses and Old City Hall are on the list. Slides 35 and 37

    #19
    Agree however trying to change state laws takes multiple years if not longer.

    #22
    Hi Katie,
    Capital Funds budget is for building things: Airport expansion, new libraries, community centers, police substation etc…
    Special Funds for example is the San Jose Water Pollution Control Plant which is funded by a levy on property taxes.

    San Jose has done the most of any California city. In addition affordable housing is exempt from paying fees that market rate housing pays like fees for parks and road paving.  The goal to create more jobs in San Jose is to not convert land that is zoned for Industrial and Commercial to Housing.
    Check these prior posts:

    http://www.sanjoseinside.com/sji/blog/entries/1976_2009_same_problem/

    http://www.sanjoseinside.com/sji/blog/entries/stay_the_course/

    http://www.sanjoseinside.com/sji/blog/entries/quality_not_quantity/

    http://www.sanjoseinside.com/sji/blog/entries/walk_the_walk/

  19. I normally don’t agree with Scott Herhold of the Mercury, but I think his current column made a great point. Herhold points out that currently most of our city council is out of town on various political junkets paid for by the taxpayers, yet these same leaders are crying the sky is falling when it comes to our budget deficit. Our city leaders need to save money and stay put in town. As Pierluigi has pointed this city business can be done over the internet. They don’t need to spend thousands of our dollars traveling. How can anyone take these people seriously when they repeatedly demonstrate the old adage “do as I say and not what I do”. Also, let them be the first to take a symbolic 5% paycut if they want other city workers to follow. Otherwise they are just full of hot air. At least Mayor Reed refused his raise.

    http://www.mercurynews.com/scottherhold/ci_11960321