Taxpayer group says Silicon Valley's tax and pension system is broken, headed for trouble

Pierluigi Oliverio, board member of the Silicon Valley Taxpayer's Association, analyzes why local residents are paying more to the government in taxes and fees and getting less in return.

Opportunity Now: How would you characterize the tax burden of citizens in Silicon Valley?

Pierluigi Oliverio: We have a medium-to-high tax burden just in terms of the percent and raw amount of money we pay in taxes. We are comparable with other major metro areas in California, such as Los Angeles. However, when you throw in the high cost of living in Silicon Valley, especially as it relates to housing, the tax burden looks much higher and more onerous; so high, in fact that the combination makes it very difficult for some people, even working people, to live in Silicon Valley.

We also have a variety of parcel taxes and bonds that have been issued that end up on our property tax bill, that many people don't even know about. When these bonds are on the ballot, people mistakenly believe that these bonds are free, which is a lie. I can remember in 2014 I was asked to vote for a bond, and the campaign surrogate told me it wouldn't cost anything. When I got my property tax bill I did the math and realized it was over $700 a year.

ON: What are the major factors forcing our higher tax rates?

PO: The existing business model of government has services provided by public employees. Through no fault of the public employees, their pension system liabilities have grown significantly and it's causing the model to crack. The percent of local government revenue allocated to pensions has skyrocketed, from single digits in the 1970's to 25% today. As a result, we just don't have the same amount of money to
provide services to residents because so much of the money is going to cover pensions. For example, In the current fiscal year San Jose will collect $354 million in property tax remittances citywide and in the same fiscal year the annual required pension payment is $412 million.

And this phenomenon is just going to get worse: we are going to end up having fewer government employees providing fewer services and still be paying more money.

A contributor to this problem is that county governments have neglected many of their primary responsibilities such as homelessness and the severely mentally ill so cities have to pick up the slack. You can do this as long as you have the money, but at some point you will have to cut back. It's like any
business: you can expand in good times and create new departments, but when hard times come you have to cut back or eliminate less vital departments.

ON: How do you break this cycle?

PO: It's a tough legal process dealing with vested rights and the state constitution when it comes to changing pensions. Cities like San Jose and San Diego have gone down this road. Ultimately we will have a
decision point as a greater community because taxpayers will say they are unwilling to pay more taxes to get no new services. At that point, local governments will have to decide which services are most important, and they will have to lay off employees they can no longer afford. So we will go from having an expansive government to one more focused on core services, albeit at a high cost. The cost of each
individual worker will continue to climb: For every dollar in salary allocated, almost an additional second dollar must be allocated for pension benefits. New employees in a second tier will also pay a higher amount than is necessary for benefits of those who are retired.

ON: What are the big proposed taxes or fees coming up that you are most concerned about?

PO: I'm worried about the upcoming attack on Proposition 13, the split-roll initiative. This effort aims to take away Prop 13's defense of commercial real estate tax rates. If they succeed here, I wholly expect them to come after residential rates next. The split roll effort is trying to cover the cost of all the unfunded pension liabilities I mentioned earlier. The thinking is that the commercial property owners aren't that big a population, and that they're easy to target: they will be positioned as faceless corporations or faceless commercial property owners who aren't paying their full share. It's hugely misleading: anybody who recently has bought commercial property, just as with residential property, is paying taxes on the fully assessed value of their land, commercial or residential. And this idea that Prop 13 has cut into government revenue is ridiculous: Property Tax revenue has gone up 1000% since Prop 13 passed, there are built-in increases every year, and whenever a property sells, the government gets to tax it at its new, higher, assessed rate.

ON: From your perspective, what's the most unreasonable tax or fee citizens pay in SV?

PO: In the case of Santa Clara County, it's the PERS levy. This is a levy paid by property owners to fund the pension of just county employees (not city or school districts).

It was passed in 1944 as Measure 13, as a special ad valorem tax on property to raise the amount required to provide revenue to meet the obligations of what was then called the State Employees' Retirement System--now it's the Public Employee Retirement System--or PERS. It charges you a percent of the assessed value of your home. Oddly enough Santa Clara county intentionally omits line item costs from the annual property tax statement including the PERS levy even though our neighboring counties willing provide this information.

Further reading: Oliverio's San Jose Mercury op-ed about tax transparency.

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