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How to Save the General Fund $10 MIllion

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The city reached a deal with Jose Theater to extend the lease of the property, home to comedy club The Improv, for another 10 years. But a different item discussed at last week’s Oversight Board meeting could have a huge impact on the city’s upcoming budget.

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.

Also posted in City Council, Downtown, Economics, Lobbyists, RDA | Comments closed

Park in the Sky or Pie in the Sky?

Planning departments across the USA commonly create “specific plans” and/or “master plans” for certain streets and neighborhoods within a city. San Jose, not unlike other cities, has many of these same plans.

These plans tend to have colorful illustrations depicting what life in the future would be like, and almost always seem to be utopian in nature: happy residents walking with their animal companions in tow, people on bikes, massive parks that melt into the horizon, cafes filled with laughing people laughing, and my favorite … children with balloons.

Most of the time these plans are put together with the best of intentions, but they end up sitting on a shelf due to their inherent lack of practicality or feasibility. For example, many of these plans depict large parks that have no funding source—this is deceptive. If a plan calls for a large park, then many market rate housing units are required to fund that park. (Only market-rate housing, not affordable housing, pays 100 percent of park fees.) In one instance in my district, Cahill Park could have been larger. However, the City Council prior to my tenure approved a housing development that was less dense, and therefore a smaller park resulted.

Sometimes staff solicits ideas from the community, and in doing so propagates a false hope that can only exist in an alternative universe separate from our fiscal reality. For example, one idea involved building a park “in the sky” over the 280 freeway, which would have ended up costing approximately $100 million. This idea should have been eliminated instantly, due to the prohibitive cost. Instead, it was kept alive by the somewhat absurd notion that San Jose voters may someday tax themselves to support a nine-figure project.

In the past, staff and ultimately the council have limited the development potential in a specific plan area when it has been deemed that residents would prefer to maintain the status quo. Case in point, based on community feedback, the 1998 Alviso Master Plan limited the construction of any new industrial office buildings to one or at most two stories on North First Street.  The unfortunate consequence of the height limitation is that we have had to forgo market driven demand for taller, 5-8 story buildings. In effect, this specific restriction in the premier technology corridor of San Jose has limited the city’s economic development as a whole.

An alternative approach that would be more conducive to economic growth would involve first identifying a limited number of job creation sites in San Jose located within specific plan areas. We should then re-examine any existing limitations within these job creation sites and remove any restrictions that may block private investment, as in the Alviso example cited above.

Another reason these plans are often doomed to failure can be attributed to the fact that a private property owner may simply not want to develop their land. In other instances, residents will express a desire for a new park on land that is privately owned, and oftentimes this same parcel has an existing structure with tenants already in place. At the end of the day, America is a country that places high value, rightfully so, on private property rights. Thus, successful development is most likely to occur when the private property owners themselves initiate plans, not when an outsider who does not actually own the property injects impractical conceptual drawings into the process.

Currently, staff is planning the development of “Urban Villages,” with the goal of mixing residential and employment activities. Furthermore, the development of such villages would establish minimum densities designed to support transit use, bicycling, walking, high-quality urban design, revitalization of underutilized properties, and the engagement of local neighborhoods and private property owners in the process. Here is a map of the future Urban Villages.

Having attended three Urban Village planning meetings in October, it is my hope that the plans ultimately approved by council are realistic and allow for expedited development. However, I believe a disclaimer acknowledging private property rights should be on the first page of any proposed plan, and that ultimately development will be initiated on a timetable that government cannot control—especially if the plans are too far from market realities.

Sometimes, a proposed development is in harmony with a pre-existing plan, but just as often this is not the case. In either instance, my objective as a councilmember has always been to consider different points of view and support or oppose development based on the long-term economic benefits to San Jose as a whole.

Also posted in Parks, Politics, RDA | Comments closed

89 Houses, or 170-High-Paying Jobs?

On April 18, 2006, the City Council unanimously approved the Guadalupe Mines General Plan amendment, changing the zoning from Research & Development to Residential. At that same meeting, the Council debated other industrial conversions along Old Oakland Road/Rock Avenue, and voted to convert all of the employment-land parcels that night to housing.

Now, four years later, on Aug. 31, the Council heard a proposal for housing on the Guadalupe site for 89 single family homes.  The issue for many who spoke at the meeting was that this piece of land is against a creek and the city’s Riparian Corridor policy should be adhered to.  (A riparian corridor is another term for a waterway. The purpose is to make sure that developments are not built right next to a as a creek, river, etc..)

Although the internet is great for providing maps and aerial views, I prefer going out to the sites of land-use items that are on the council agenda.  I drove through the existing neighborhood across the street from the proposed development to know more about it, and finally drove and walked the parcel.

The thing that struck me is that I saw many parked cars. I looked up and recognized the name on the building, Monolithic Power Systems (MPS). MPS is a $240 million analog semiconductor company whose global headquarters are in San Jose. I went into the lobby, introduced myself and asked for the Chief Financial Officer (CFO).  While I was waiting, I noticed people were coming in for job interviews. I later found out they had 11 open positions they were hiring for this location on top of the 160 current employees in San Jose.
I met with Richard, the CFO, and he gave me the history of the company which started in Los Gatos and then moved to San Jose. MPS ranks as one of the fastest-growing companies in Silicon Valley. The CFO told me they like the location and would really like to stay, but they understand they do not own the property. They like the location so much they offered to buy the building—and an additional vacant building, even though they did not need it to sweeten the pot.  So they put in an offer for the market price for R & D office space and a housing developer put in a bid as well, based on building houses. We know that housing trumps jobs for the cost of land. So the private property owner chose the higher bid.

The CFO understands they will have to move, so I asked what about Edenvale or North San Jose?  He responded that San Jose is not on the short list, as they have looked at properties in other cities based on where executive management lives.

Understanding the rezoning was done four years ago, I could not vote for housing knowing the city of San Jose would lose a corporate headquarters and 170 really well-paid jobs.  As a result, I voted ‘no,’ as I did not want to associate myself forcing a technology company to move out of San Jose. My colleague Councilmember Kalra also voted ‘no,’ citing concerns from the dais about the development being too close to the creek. Final vote was 8-2 in favor of housing.

PS: I highly recommend seeing the documentary The Tillman Story at the Camera Cinemas. It is the story of San Jose native Pat Tillman. It is a must- see and good on many levels. Do not wait for Netflix.

Also posted in City Council, Politics | Comments closed
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