Cost of Doing Business

By Ed Rast

Did you know that San Jose, without sufficient jobs for its residents and lacking the tax revenue that would generate — has raised taxes and fees to the point that the cost of doing business in our city is prohibitive to recruiting new businesses.

As I noted last week, San Jose loses 50,069 working residents — or 5.6% of our residential population — during the day when they commute to jobs in other cites.

Businesses looking to startup, grow, or relocate review many factors when making a decision about where to locate their operations: availability of skilled workers and management, housing for those workers, access to transportation, city service levels, quality of life, customers, suppliers, the city’s public policies, time to approve permits. All of these factors contribute to the “cost of doing business” in a particular locale.

A 2008 survey by the Kosmont-Rose Institute ranks San Jose as a “High Cost of Doing Business” city based on city business, sales, property, electric and phone utility rates, and state corporate income taxes. Community data takes into account city population, FBI Crime in the United States rates, taxable retail store sales, and transportation and economic development Incentives to create a complete understanding of the business climate in a city.

The Kosmont-Rose Survey User Guide explains the methodology behind the rankings.

The Kosmont-Rose survey is widely used by corporations, real estate developers, community planners, and public officials. Business relocation specialists use it to compare cities, especially when trying to decide between desirable locations.

Economic development officials use it to target companies in high cost cities that might be relocation candidates as we have seen with relocation campaigns run by states like Texas, Arizona and Nevada. Many former San Jose companies have moved their jobs or expanded in other states

California’s corporate tax rates are among the ten highest in the nation per the Kosmont-Rose Index of Corporate Tax Rates by State.

This Santa Clara County Cost of Doing Business and Jobs Map shows the cost of doing business ranking and the number of jobs per 100 employed residents for cities in Santa Clara County. Here are the top seven cities in jobs per 100 employees and their cost of doing business:

Palo Alto : Average CODB; 254 jobs per 100 employed residents
Santa Clara: Low CODB; 218 jobs per 100
Milpitas – Very low CODB; 164 jobs per 100
Mountain View: Average CODB; 147 jobs
Cupertino – Average CODB; 147 jobs
Campbell – Low CODB; 109 jobs
San Jose – High CODB; 88 jobs

This South Bay Area Cost of Doing Business Map shows other cities color-coded by cost of doing business. Note that job growth in Northern California has come mostly in inland cities with lower costs of doing business.

A February 2009 survey by the Ticon Company entitled Tenant Improvement Permits and Fees shows that fees and plan check times for a 10,000 square-foot tenant improvement with a valuation of $300,000.00 range from $4352 to $9763 on average. San Jose’s fee for the same permit is $24,000.

A high cost of doing business, while not the only factor that determines where a business will locate, is many times a “deal breaker” in these decisions, especially when the debate is between desirable neighboring cities, a problem San Jose knows all too well in Silicon Valley.

California city government revenues can be significantly increased or decreased by business activity – through jobs and consumer sales taxes or increases in business tax and fee rates. The local cities with more jobs and retail stores per resident have higher revenues and a lower cost of doing business than San Jose.

However, instead of trimming back on non-essential services, San Jose’s city administration chose to increase tax and fee rates to balance the City budget.

See my blog from last week for comparisons of local city tax revenue and jobs.

Sleeping Giant

By Pete Pomerleau

Admiral Yamamoto could have been speaking for the San Jose City Council when he said: "We have awoken a sleeping giant." Yamamoto’s sleeping giant was the United States, awoken by the bombing of Pearl Harbor. The giant in today's terms is the body of active and retired employees of the City of San Jose, and the battle is over our pension plans.

For those not up to speed, the City is in full-on attack mode. City administration hired an outside agency from Canada called Cortex to look at making our pension plan "better." We were assured during meetings with these consultants that we as stakeholders would have a say in any re-organization. I can tell you for a fact that we will, because this is a clear meet-and-confer issue under our contracts, as noted by Bobby Lopez and Randy Sekany in their blog last week on Protect San Jose.

I spent two nights last week listening to and addressing some of the changes proposed by Cortex that the City is planning to ram down our throats. Beyond the damage these changes would do to officer morale as well as our recruitment and retention efforts, the proposed plan is just plain flawed.

The best people to manage a pension fund are the employees who pay into it. City staff has been trying to figure out ways to cut into our well-managed plans for years to subsidize the many financial quagmires they’ve gotten themselves into. We have to scale back on our new Southern Substation because of poor business decisions and practices made by supposed experts. We couldn't even get our new City Hall completed without numerous problems, and we hired the best architects in the country. Now the city wants us to hire more experts to manage our pensions. Well, I’ve got news for you: You could hire Warren Buffet to manage our funds, but he wouldn’t be able to guarantee higher returns.

I want to share some other ideas that were presented to us by Cortex and some of our responses. For reference, you should click here to open their report, which City Manager Figone brought before the City Council on June 23rd.

On page 27 of the report (p. 33 of the pdf), Cortex cites “good” examples of companies that changed their retirement boards in similar ways. Funny, but the numbers I have tell quite a different story:

• Canada Pension Plan: lost 18.6%
• National Railroad Retirement Investment Trust: lost 19%
• Yale Corporation Investment Fund: lost 25% this year

On the other hand, during 2008, the San Jose Police and Fire pension plan lost 5.1% and the Federated plan lost 3.1%. The question begs to be asked: What are we getting by putting our future in the hands of the “experts”?

As members, we contribute a chunk of our salaries every payday to the future of our plan. We also contribute our tax money into the plan along with every other resident. This is a well-developed plan that has generated tens of millions of dollars in returns to the City. We never asked for a bigger cut while the City reaped the rewards in the bullish years. But they have seen it fit to attack and demonize us in the court of public opinion in the lean years.

Maybe in the future the City should think about putting some revenue away for a rainy day, rather than spending it on non-essential services. Wouldn’t that be a sound business idea?

Before I sign off, you should know that Councilmembers Ash Kalra and Rose Herrera sat through both community outreach meetings last week. They listened as City employees described their frustrations. Rose even walked through the crowds and spoke one-on-one with us. This is a fine example of the dialogue we so desperately need to have with our Councilmembers. I’d like to thank Ash and Rose for leading the way.

Righting a Wrong

You might have seen this story by Lisa Krieger in the Mercury News about Boy Scout Troop 294, which had volunteered to help clean up newly-renamed Jeffrey Fontana Park in Almaden Valley. Chris Coutinho, a scout trying to become an Eagle Scout, left a rented Hilti rotary hammer at the park entrance while he went to pick up supplies at a nearby Home Depot. When he returned, the power hammer had been stolen, and Chris and his troop were on the hook for $5,000 to replace it.

Well, we're happy to say that the San Jose Police Officers' Association Victim's Assistance Fund has stepped up to help raise money to defray the cost of the hammer. Donations can be made online at www.sjpoa.com. You can also mail a check payable to SJPOA-CF to SJPOA-CF, c/o Chris Countinho, 1151 N. 4th Street, San Jose, CA 95112. For more information, call 408-298-1133. We'll post updates on this story in later blogs.

Stay safe, and have a great weekend!

Meet and Confer

By Bobby Lopez & Randy Sekany

As promised two months ago, the City of San Jose will do public outreach this week on proposed changes to its employee retirement boards. Up to now, neither of our organizations has been engaged in the outreach process – even though this is a “meet-and-confer” issue per our contracts. (This was the case in 2000, when the board was expanded from five to seven members.) Nonetheless, we’ll be attending public meetings at City Hall to learn more about what’s being proposed. We’re always open to listening and talking about ways to improve things.

Under the current system, the boards are made up of two city councilmembers, two active employees, one retired employee, a member of the Civil Service Commission, and a city administrator with experience in financial matters. The City’s consultants have proposed eliminating the two council positions, the Civil Service Commissioner, and the city administrator in favor of four outside financial experts, who would be appointed by the City Council.

Putting experts in charge of the pension funds sounds like a good idea – or does it? Weren’t Wall Street financial expert responsible for our recent financial disaster? This is something we should think about and talk about.

Regardless of who was sitting on our retirement boards, our pension funds were bound to take a short-term hit thanks to the stock market collapse. In fact, when you look at other struggling funds around the country, we’re in pretty good shape. Despite all the losses, our pensions are still fully funded, and that’s a testament to how well they’ve been managed by the current boards.

The bottom line is: everybody’s interested in improving things. We all have a stake in the City’s financial security because it’s all our dollars that make it run. Like you, we’re anxious to see the results of this week’s public outreach meetings, but we want to make sure that whatever comes out of these proposals, nothing is done to jeopardize the top priority of our organizations and our residents: public safety.

We invite you to attend these meetings to hear what city staff has to say. Tonight’s meeting is scheduled for 6:30 p.m. in City Hall Wing rooms 118 & 119. Tomorrow’s meeting is at 1:30 p.m. in City Council chambers.

Thanks for reading, and stay safe out there.

Bobby Lopez is President of the San Jose Police Officers’ Association, and Randy Sekany is President of the International Association of Firefighters Local 230 in San Jose.

Just the Taxes, Ma'am

By Ed Rast

Do you know why San Jose city administration year after year has recommended police staffing and budget cuts?

The primary reason is for the last eight years San Jose has had a “structural budget deficit” — in other words, city government’s projected revenues (from taxes, fees, licenses, service charges and other sources) are less than projected spending. State law requires cities to have balanced operating budgets for each year when city revenues are equal to or less than projected spending.

San Jose revenues increased steadily from 1990 through 2007-08, at a rate between 1% and 13% a year, except for FY 2002-03 and 2003-04 when they declined 3% and 1% respectively following the burst of the dot com bubble. City revenues decreased again in 2008-09 and are projected to fall once more in 2009-10 due to the ongoing economic recession.

Have a look at these three tables:

• California General Revenues by city/county
• Population — California Department of Finance Demographics
• General Revenues per Resident

(Source: Computations by CaliforniaCityFinance.com from State Controller and Dept. of Finance data, 1991-92 through 2005-06.)

San Jose’s average General Fund revenue of $663 per resident ranks around the middle of both the 15 cities in Santa Clara County (5th of 15) and the 12 largest cities in California (5th of 12). (On a brighter note, this has improved from 1991-92, when we were 9th out of 15 in Santa Clara County and 8th out of 12 large California cities.)

The cities in Santa Clara County with higher tax revenues than San Jose have more jobs and businesses, more sales taxes, or both. Here’s the top ten and how they rank for total revenue per resident, jobs per 100 residents, and consumer sales tax revenue per resident:

1. Palo Alto: $1,194 revenue per resident; 254 jobs per 100 employed residents; and $228 consumer sales tax revenue per resident
2. Mountain View: $998; 147; $125
3. Los Gatos: $860; 143; n/a
4. Santa Clara: $ 848; 218; $159
5. San Jose: $663; 88; $82
6. Gilroy: $658; 83; $200
7. Milpitas: $655; 164; $133
8. Sunnyvale: $628; 125; n/a
9. Campbell: $607; 108; $138
10. Cupertino: $581; 147; $82

San Jose does not have sufficient jobs for all of our employed residents and during the workday loses 50,069 or 5.6% of our residential population when they commute to other cites for jobs. The resulting loss of sales tax from spending by both individuals and business and other business-related revenues is in the tens of millions of dollars per year.

In July 2008, the U.S. Census estimated San Francisco’s residential population at 808,976 with daytime population increasing by 168,747 (21.7%) due to work commuting, for a grand total of 977,723. At the same time, San Jose’s residential population of 948,279 drops to 898,210 during the workday.

By comparison, Palo Alto adds 47,707 workers or 81% of its residential population, while Santa Clara adds 54,655 workers (63%), Milpitas 18,948 (30%), Mountain View 18,972 (26%), Cupertino 11,119 (22%), and Sunnyvale 18,163 (13%).

Here’s how San Jose compares to other large California cites in terms of revenue per resident:

1. San Francisco: $2459
2. Oakland: $873
3. Los Angeles: $768
4. Sacramento: $758
5. San Jose: $663

All four cities ahead of San Jose have a higher ratio of jobs per resident, and many have higher sales tax revenue per resident.*

In coming weeks, we will continue this discussion about San Jose’s structural budget deficit, city revenue sources, where taxes are being spent, other city budget comparisons, policies/practices that affect our city budget and revenue, and spending and policy recommendations.

In the meantime, to better understand San Jose’s budget and how it compares to other city’s budgets, you can track back and read my June 30th “Dollars and Sense” blog and last week’s “Priorities and Objectives".

* Data sources:
1. General Tax revenue comparisons 2005-06 data by city, jobs per employed resident and sales tax revenue per resident from CaliforniaCityFinance.com
2. City Population and Commuting Workers from U.S. Census
3. 2007 Consumer Sales Tax from City of San Jose / MBIA – Consumer Sales Tax Retail, Transportation and Food Products from SJEconomy.com

Crime Stoppers Make a Big Splash

By Jim Cogan

This month, among arrests for drug sales, assault and burglary was a new one for me. One of the criminals arrested through a Silicon Valley Crime Stoppers tip had 44 stolen tickets to Raging Waters valued at $2,200. (Maybe he was in planning on a whole summer worth of daycations.) While it doesn't sound serious, this crime could result in charges like felony grand theft. I guess you could say that this guy is all washed-up and could get sent up the river for a long time thanks to an anonymous tip from a concerned citizen.

All joking aside, crimes like this one are all too common and can have a devastating affect on businesses that are just barely making it in this economy. It is unclear how the suspect was able to get so many tickets, but in many cases it is an inside job. Merchandise theft from employees results in millions of dollars in lost profits annually.

At Crime Stoppers, we are serious about helping businesses avoid unnecessary losses. We have worked with retailers and their loss prevention departments to make employees aware that they can call Crime Stoppers and remain anonymous. If you know of anyone stealing from your employer, then please call our tip line at (408) 947-STOP.

Crime Stoppers also made a big splash this month in San Jose by partnering with Councilmember Madison Nguyen to give her constituents a tangible way that they can make a difference in their community. A couple of years ago, Councilmember Nguyen approached me about partnering with us to pass out t-shirts with the Crime Stoppers name and phone number printed on them. Hundreds of San Jose residents learned about Silicon Valley Crime Stoppers this year thanks to this partnership and Councilmember Nguyen’s support of the program.

Thank you, Councilmember Nguyen. Crime Stoppers works because of leaders like you.

Jim Cogan is President of Silicon Valley Crime Stoppers. This is a monthly report he writes exclusively for Protect San Jose.

Beat Cop: Tag, You're It...

Did any one notice massive amounts of graffiti on buildings as they drove to work today? I didn't either, probably because San Jose has long made reducing graffiti a priority. Travel to any major city in the country and you will very likely recall tagging spread throughout the city where you were vacationing or on a business trip. Some large cities like San Francisco, LA and New York have even become destinations for traveling vandals. People traveling to San Jose can feel our community pride and have a sense of security knowing that a city this free from graffiti makes crime a priority. A business looking to relocate to San Jose surely will be influenced by tagging in the area of their prospective business. There has been a long standing partnership between city leaders, city services, community members, business, probation, courts and the police department to keep San Jose free from graffiti. Unfortunately, like many crimes in our city, graffiti vandalism has risen in recent years. Two San Jose Police Detectives in the METRO unit are responsible for investigating thousands of graffiti and vandalism cases a year.

Now the citizens of San Jose have a new weapon to help keep their streets clean. A little more than two weeks ago, the San Jose Police Department launched a new online graffiti reporting system. The new system is accessed on the department’s website, SJPD.org, under the Report a Crime/Graffiti tab. It allows citizens to take digital photographs of graffiti and upload the pictures directly into a police database. The reported graffiti does not even need to be on your property. Graffiti detectives track the distinctive tags and locate the suspects responsible for them. Having a database of tags allows for effective prosecution of vandals in our community. Once a suspect is associated to a distinctive tag, detectives can then charge the suspect with past tags logged in the database. Victims of the vandalism are reconnected and have an opportunity to recover the cost of the vandalism through the court’s restitution process. All police agencies in the county have signed on to the San Jose police-initiated system. Other cities in the state like San Francisco are joining the shared network as well. Citizens who are in need of a crime report for insurance proposes or who have suspect information can still call 3-1-1; or file an online report using SJPD.org.

If you locate graffiti on city property, you can report it for clean up to the city of San Jose Anti graffiti hotline at (408) 277-2758. Remember, by immediately addressing new graffiti, we send a strong, zero-tolerance message to the perpetrators. If you want to get directly involved in keeping your community graffiti- and crime-free, you can become a volunteer. The City of San Jose has a program to assist residents and businesses that need to remove graffiti from their property. Free paint and graffiti solvent is available through the San Jose Anti-Graffiti program at 501 Vine St. To pick up your free Anti-Graffiti Tool Kit or to volunteer to clean up graffiti, call (408) 277-3208. Working together we can protect San Jose from the blight and crime associated with graffiti.

Proudly serving you,
Your Beat Cop

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