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The Only Economist Worth Trusting is Named ‘Hindsight’

Last Tuesday,  the City Council had a study session on the upcoming Redevelopment Agency (RDA) budget. RDA funds are regulated by state law and are almost entirely spent on land and construction, similar to how bond monies are restricted. We have funded some limited city services in RDA and Strong Neighborhood Initiatives (SNI) areas (not citywide), such as anti-gang programs and code enforcement. The bulk of RDA funds have gone to capital project like the HP Pavilion, numerous museums, the convention center, parking garages, hotels, Adobe and facade grants as well as industrial projects in North San Jose and Edenvale.  However, RDA also funded approximately $70 million for SNI capital projects like community centers, parks, traffic calming, etc.

The larger discussion was about how we spend or do not spend the limited RDA funds after the State of California raided the funds last year and again this year.  RDA funds are based on assessed property values in the merged RDA areas (Downtown, North San Jose, Edenvale). If those commercial and residential properties increase in value, that creates more tax increment dollars. If those values decline there is less. All 350 RDA agencies statewide are experiencing the same pain. As we know, property values have declined and may decline further depending on which economist you listen to.

San Jose RDA hires an outside economist every year to forecast future revenues for a third-party review. The economist has not always been accurate. The economist has projected higher tax revenues in years past which did not pan out. Economists do not have a crystal ball and economic conditions have not been this dire since the Depression, which makes future forecasting that much harder. We may consider a different economist next year however the current economist has already been paid so I do not see the need to spend more money and hire an additional economist. I would rather take the economist’s number, cut them in half, and budget based on conservative numbers.

The main question for me is: “When revenues are uncertain, do we budget on the lower conservative numbers or the higher optimistic numbers?” I would prefer to do a budget on the lower numbers as it is easy to spend money but harder to constrain spending. The only economist I trust is “Hindsight,” and we will only know the answer in the future.

The RDA laid off 20 percent of its staff last fiscal year and may have to do more layoffs this coming year from their current 72 employees. The RDA is the only city department that is non-union, so layoffs are done by the director and not necessarily by tenure. I believe that with limited funds, the scope of RDA should be narrowed to economic development which creates a tax base and net new employment. That may also mean refraining from issuing any new debt this year and next. Mayor Reed has suggested a mid year budget review for RDA so if revenues change, adjustments can be made.

I attended the ribbon cutting for the Brocade campus on Thursday.  The Mayor knocked the ball out of the park with his comments on how federal law, state law and local regulations hinder job creation. In addition, Mayor Reed pointed out a simple economic lesson—that this country will grow the economy through exporting, and Brocade is a testimony to that as the majority of its technology products are exported overseas.

The RDA spent $4 million to retain Brocade and the jobs in San Jose at a new campus at Highway 237 and North First Street. I believe strategic investments are good.  We cannot always predict which company will succeed, but we know these investments reap increased revenue for the city of San Jose.

Finally, here is a table from Mayor Reed’s RDA budget message last year that shows how RDA economic development is better for city tax revenues and ongoing jobs then RDA affordable housing. The chart shows the increased property tax revenues and both direct and indirect job increase.

Do you plan your household budget on your net paycheck or on expectations of increased wages and/or return on investments?

Also posted in Politics, RDA | Comments closed

Support Our Mayor

It is the City of San Jose’s process that City Manager Debra Figone puts forth a budget proposal in May. Then, after that is released, councilmembers make their budget proposals to Mayor Chuck Reed.

When the Councilmembers make written suggestions of their “budget wants,” they also need to include what funding source within the city will be affected (some written suggestions from councilmembers are done in collaboration with labor unions).

Then, the Mayor takes into consideration the City Manager’s budget proposal and the Councilmember’s suggestions, and comes up with a final budget.  Of course, a mayor could put together their own budget without this input, but it is customary that the mayor takes other perspectives into consideration.

As a result, Mayor Reed’s budget message was released on Friday.

Every San Jose mayor must put forth a balanced budget to be voted on by the City Council.  The mayor is one of 11 votes. So, just like any agenda item that comes before the Council, six votes are needed to pass or deny the item at hand.

Mayor Reed’s current budget proposal does some delicate balancing of top priorities using the limited funds we have.  For some, there may be nothing to like because it is such a thin budget. However, what are the alternatives?  There is no other proposal that has this level of detail, accuracy or is this candid with the challenges we face as a city.

We know both from scientific surveys done by the city and by my non-scientific web surveys that San Jose residents want to see concessions from city employees rather then cutting services.
There has been a lot of talk about 10 percent concessions.

Anything less than a 10 percent concession will result in more layoffs and therefore more service cuts to residents.  Where we end up is a mystery. Still, there is little time left. What is done or not done prior to passing the current budget may implode any chance for future revenue opportunities in November.

The council may vote to drain all of the reserves and punt a portion of the problem down a short road. I do not support that option.

San Jose has some the smallest reserves when compared to other California cities. San Jose has a 3 percent reserve that only covers 2.5 weeks of payroll. Los Angeles has a 5 percent reserve, San Diego and Anaheim have a 7 percent reserve, and Long Beach has a 10 percent reserve.

I invite everyone to read Mayor Reed’s budget message if you have a stake in San Jose. It is imperative for people to understand the challenges before all of us.

Here is a link to the Mayor’s official budget message.

Here is a link to my “Budget Trade-Offs” survey which includes with over 1,000 participants.

Here is a link to my written budget proposal to the Mayor. It suggests reducing items not in the city charter and instead funding core services like police and libraries.

If people support the Mayor, I ask them to please send an email to the entire San Jose city council by clicking on this link.

The public hearing on this budget is June 14 at 7pm, and will go until late. The vote on the Mayor’s budget is June 15 at approximately 3pm.

Also posted in Budget, Debra Figone, Pierluigi Oliverio, Politics | Comments closed
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