What's the strategy behind the city's upcoming budget cuts?

SJ City Council recently approved big cuts--$45 million--to the city's upcoming budgets, due to the coronavirus health crisis and concurrent business shutdowns. Pierluigi Oliverio of the Silicon Valley Taxpayers Association parses the cuts, and explores why the city spends so much money on programs outside its charter. 

Opportunity Now: Which parts of the city's revenue stream are taking the biggest hits and causing the shortfalls?

Pierluigi Oliverio: If a local business is not in operation, it hurts city revenues. Sales tax revenues go down, and with that there is a reduction in utility tax revenues, because if a business is not open it is not using electricity. If new land use developments are not moving forward they are not paying fees which employ the Planning staff. (Related to this, Boston Properties halted construction yesterday on a one billion dollar office project in Downtown). Property taxes are fortunately stable, so that revenue stream is consistent for the time being. But the city's revenue model anticipates property tax revenue will continue to increase, and that will likely not be the case next year given the health crisis and recession. If property tax revenues are flat then it creates a larger deficit going forward. 

It's important to remember at this point, the City's elementary, immediate step is to fix the hole in their current budget. The city's fiscal year ends June 30.  The next fiscal year and the one after will be the real challenge. 

ON: The City says that one of its principles for this round of cutbacks is to avoid layoffs. Doesn't that really constrain the city in its ability to prioritize its cuts and be strategic?

PLO:  Yes. If the priority was public safety, they would cut things so they could prioritize law enforcement. However the city council priority appears to save all city jobs regardless of the department. So they are doing the easy stuff: drain reserves funding, close vacant positions and with that the budget allocated to those vacant positions. They will probably cancel professional services contracts, and furlough employees that are not full time. Having to prioritize what is most important is hard for legislative bodies, so it's not surprising they are choosing the low hanging fruit. 

ON: Are they reallocating funds that were promised to  particular projects?

PLO: No. These are General Fund expenditures so they can be reallocated. The new Measure E revenues might come under pressure in the coming years as that was marketed for affordable housing, but public safety might need that money if the city budget is under stress. They may have some tough choices as they will have to balance essential services with promises some have made to provide services which are the responsibility of other levels of government. 

ON: You have made the point historically that the city spends millions of dollars on activities that are outside its very specific charter, and in fact part of other local government's charters. Such as education, job training, homeless which are the specific domain of school districts, state and county. Since these are all the responsibility of levels of governments, could it be said that San Jose City's actions in this regard are expensive and redundant. Why doesn't the city just focus on its charter responsibilities, such as Police, Library, Airport, etc.? 

PLO: It's a fair question to ask. There's nothing stopping the city from going outside its charter, but residents will increasingly ask why, when the city's core responsibilities are being cut back, we are paying for what should be the county's and state's responsibility. I don't believe the city has publicly reported actually how much of  its budget is spent on core services outlined in the charter and how much is spent on programs outside the charter. It seems that should be a metric that is readily available to everyone. 

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