Self-Inflicted Wounds

Although we are entering “road paving season” we have next to nothing for the maintenance of our 2,300 miles of road. This issue was raised at the city council meeting last week.

A question was asked about issuing bonds to pay for road paving. To issue bonds you need a source of revenue, such as a tax. For example, the $300 annual parcel tax for road paving that was discussed during the Council study session last year. This parcel tax would require appproval by a two-thirds supermajority of San Jose voters; however the two-thirds requirement may drop to 55 percent if the legislature changes the law as is currently being discussed.

I asked the question at the council meeting: “Did San Jose voters approve the bonds for the Hayes Mansion and Golf courses?” (In my view these are an example of self-inflicted wounds as the City chose to purchase these facilities). The answer from the city attorney was no, since they were lease revenue bonds. Cities can issue lease revenue bonds anytime as long as there is collateral such as property for the bond.  I asked what was the collateral for Hayes Mansion and got a fuzzy answer that the City took over a lease from HRLP, which is approximately $5 million a year from the general fund.

I then asked about the collateral for the golf course and was told the course itself was the collateral. This seems strange but apparently it is legal as it is called “certificates of participation.” I then asked: So, when we issue commercial paper to pay the SERAF payment to the State, does that diminish our ability to borrow? The answer was yes, since we may exceed our debt ceiling.

I then asked what city property is not collateral today, since so many city properties are being used as collateral, including the California Theater, Mexican Heritage Center, etc.. The answer was that the finance department maintains a list, however, not one property could be identified at the council meeting that was not collateral for debt. To be fair, sometimes any of us could be asked a random question and not know the answer. However it would seem like there must be one property that has not been secured as collateral for the purpose of borrowing. I suspect we may be near the end of having properties available as collateral.

As individuals we may dream of things we cannot afford and furthermore sometimes we cannot say no to someone. Same is true for government—both the elected officials and the voters who elect them.


  1. Pierluigi,

    I posed a question in your column of 9 May but you dodged answering it by giving me an answer to another blogger’s question.  I repeat my question below in hopes that you might answer it this time.

    You mention road repair.  Because you’re the only council member with any sense, I’ll ask you here in SJI to do the residents of SJ a giant service. 

    As I recently read in the “Murky-News” and the “WG Resident,” street resurfacing can add many years to the life of the underlying road.  I recall that the article mentioned that the life may be extended by as much as 20 years! 

    I believe that any good accountant or financial analyst would classify that sort of a life extension as a capital improvement, rather than maintenance only.  Think about it – when a business rebuilds a piece of machinery, the cost becomes a capital item and is posted on the balance sheet as such.

    That being the case, I don’t see why the SJ Capital Budget Account cannot be used for much of the work needed to fix our poor streets.  I know that our politicians, lobbyists and developers favor using capital money for pet projects only, but that’s simply not fair.

    Please do look into this matter.  We taxpaying residents would like to be on the receiving end of some City services that are rapidly disappearing.  Thanks in advance for taking up this issue.

    • How about a list of City assets that are not used as collateral for a bond. The City and the RDA have about 5,000 parkings spaces downtown in lots and garages. Except for the Fourth Street Garage, I think that most are owned free and clear. Profit and loss statements for these facilities cannot be found on the City web site but I think that most are under performing. Sell them or privatize their operation and the City would get a big revenue bump which could be used for street repair.

      • Par ki ng Fu n d (533)
        In April 2005, the City and Agency entered into a Loan Agreement
        whereby the City loaned the Agency $6.8 million from the City’s
        Parking Fund , representing approximately two years of debt service
        the Agency would be paying on the Fourth and San Fernando
        Parking Garage. The loan was requested by the Agency in response
        to reductions in their tax increment revenue to “ensure the
        continuity of Agency projects and essential redevelopment
        programs”. The loan was originally scheduled for repayment in
        January 2009. In 2007, the loan was amended to defer repayment of
        the $6.8 million loan until July 31, 2012 and eliminating the accrual
        of interest after June 30 , 2007 if the loan was repaid by July 31, 2012.
        In February 2010, the loan was amended again. The principal
        payment shall be due on or before June 30, 2015. If the Agency pays
        by this date, it is proposed that interest for the $6.8 million should be
        waived. If not , interest would accrue from June 30, 2007.


    • Greg,

      The simple answer is we do use our capital program for pavement maintenance.  All of our state and federal grants get processed through the Traffic Capital Improvement Program (CIP).  The only City funds now programmed for pavement are from capital program development taxes—$1 million annually.  The problem is that the CIP revenues are very low due to limited development activity.


      • @ Pierluigi Oliverio:

        Are you prepared to address a groundswell of concerns amongst citizens and CSJ employees about fraud and the mismanagement of funds that is becoming increasingly evident?

        It might do you well to be out in front of this 20/20 tsunami before it reaches proportions like those in the City of Bell?

        Your thoughts?

  2. Golf courses… Hayes Mansions… Convention Centers… Sewage treatment plants… Mandated “Art” for all City buildings… more and more and more low-income housing… refusing to pay the County taxes due them from Redevelopment areas and having to give them the Old City Hall plus $58million more in cash and land ( $58mill is more than one half the current deficit BY HE F’ING WAY!!!!)… no money to repave roads…

    … and all you clowns on the City Council can do is blame city employee unions. SHAME ON YOU!!!

  3. Too little, too late, Pier. This should have been discussed years ago. You, the rest of this city council, and the mayor, have destroyed our police department and the lives and families of many officers with your “self inflicted wounds”. Because you point these wounds out makes you no less responsible for the tragedy that will now visit San Jose residents, and the police officers that have given their collective blood and soul for this city. 

    The citizens of San Jose should know that hundreds of young officers are poised to get jobs with other cities, which represents tens of millions that San Jose spent in hiring and training them, only to be given away free to other cities. That is why our city is in the toilet. This situation could have been avoided by letting senior officers with a couple years to go buy a couple years of retirement with their own money, thus getting rid of senior officers and keeping the younger and cheaper officers. This suggestion was totally ignored by this city council and mayor who are more interested in destroying the department than finding a solution. It is truly disgraceful.

  4. When you write “The City” I think you mean the prior City Council who voted to spend money on these pet projects and of course the voters who moved the prior City Council to higher office at the County and State Assembly.

    • No when I write “the City” I mean Mayor Reed who has served as a councilman for 8 years and mayor for just over 5. Gee thats 13 budgets he has been a part of drafting and voting to approve and an unknown number of contracts that he has voted to ratify with CIty Employees.  (By the Mayors own statistics there have been “10 straight years of Deficits.” that makes him PARTLY to blame for every single one of them!) 

      Im talking about Pete Constant, Sam Liccardo, Nancy Pyle and Madisyon Nguyen who are there second terms ( 5? years as council members?)  thats 5 budgets and associated deficits…

      Oliverio, Hererra, Kalra and Chu Have 2 years and less blame at 2 budgets/ deficits while Rocha and Campos are Newbies and goign to get their first votes…

      Also to blame are the last 3 City managers, Del Borgsdorf, Les White and current CM Debra Figone – covering the span of Deficit budgets from 2001-present.

      The, “I just got here don’t blame me” doesn’t fly anymore especially with the tow persons at the top of the City Food Chain, Figone (don’t forget her 5 years as Asst City Mgr) and Reed.  Their long tenure with the City and the top jobs they hold/held makes them much more liable for the state of the City than anyone! 

      Not ONE SINGLE ITEM in ANY CITY EMPLOYEE CONTRACT could have been inplemented without the EXPLICIT CONSENT OF REED (over 13 years) and FIGONE (about the last 4 years).

      That is plenty of blame in itself.

  5. A lease revenue bond is not based on collateral, it is based on some revenue-generating project (ice rink, etc.) such that the revenue from the project itself will pay off the bond issued to get money for that project.  Like RDA bonds, lease revenue bonds are not subject to a vote by the people.

    This is how the new city hall was built—with a series of lease revenue bonds.  The first round of bonds were issued as a result of a joint venture between the city council and the city’s financing authority. 

    The revenue stream was created (no joke) by the city council leasing the old city hall to the financing authority at X rate of rent, and the financing authority leasing the old city hall back to the city council at X plus a certain amount. That certain amount was the revenue stream that was used to guarantee the bonds to raise the money to dig the hole for the new city hall. 

    For some reason reputable investors purchased the bonds based on a completely fictional scheme arranged by the city council itself and the city council members acting as the financing authority. Same people making deals to issue bonds with themselves.

    The same lease revenue bond process was repeated two more times as the new city hall was designed, constructed, and furnished.

    People should have gone to jail for that trickery. You don’t know about it because the Merc has never reported in depth on it.  I wrote about it in 2004, and the discussion is still effective.

  6. After decades of wasteful special interest ( developers, corporations, labor unions, badly managed city property, downtown disaster, mismanaged non profit bailouts, building dozens of city building that always lose money – most of downtown city buildings ) city tax spending while not repairing streets or giving residents proper level of city services someone at City Hall suggested that San Jose ask voters for $300 year parcel tax to repair neglected streets

    How about No,, Hell No for any tax and fee increases

    Stop wasting more city tax money ( baseball, money losing downtown, golf courses, Hay Mansion etc, and hundreds of other tax wasting projects ) and mismanaging city for benefit of special interests and start managing city for benefits of residents and local small businesses small

  7. Uncontrolled housing development is the biggest collective self inflicted wound this city has experienced.  This city is addicted to housing and the special interests making money at the expense of the General Fund.  Until this City Council can say no to housing, the red ink will continue to bleed.

  8. Pier,
    Where can we find the results of the city council salary setting commission survery which was suppose to be released April 30th?  I have searced the city website and do not see it anywhere. Can you please provide the link?

  9. We really are a small town trying to wear the trappings of a big city.  Public finance can be simple, or complicated.  When it gets this complicated its because we’ve been trying to do to much, please too many and not have to say no to anyone for too long.

    After the financial crisis/layoffs/reform/bankruptcy or whatever the next couple of years hold for us, I suspect things will be simplified.  Possibly the real estate portfolio will be shed as the city needs to liquidate (even in a down market) to meet obligations that cannot do otherwise.

    It’s okay to run a small town city government if you do it simply and well.  We maybe don’t need to try to do so much, and please so many.  Just the basics and save the rest for better days.

    Economic development is nice…but not if the subsidies and incentives far exceed the actual economic gain.  Let’s get real about what these “investments” really are from Ballparks to Hayes Mansion and Golf Courses…upper class entitlements.

    • @Blair,
      I agree with some of your statements about how the $ is spent in SJ, but I’m not so sure about “we are really a small town”. San Jose has the 10th largest population of all cities in the USA (about 1 million), larger than San Francisco.  What is your definition of a “big city” ?

      • I guess I mean that “small town” in a nice way as we’re not like Chicago or New York or even SF where there’s this huge city hall establishment running housing projects, public utilities and patronage programs.  SJ had a relatively simple mandate to provide parks, libraries, community centers, police and fire protection and maintain the streets.  They expanded their own mandate to feed “big city dreams” and sort of got into some trouble trying to do too much.  It’s okay to do just the basics, but do it really well.  Now we can’t even do that…and we may never get back on track because of the fiscal mess we’ve gotten into.

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