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May 16, 2005
Budget woes put brakes on projects
Silicon Valley/San Jose Business Journal
After three years of multi-million-dollar budget cuts, San Jose this year faces more of the same. Only this time it is running out of stockpiled cash to soften the impact.
Is the sky falling?
"The sky is continuing to fall," says San Jose Mayor Ron Gonzales, "and it will probably continue to do so for another two years."
Redevelopment is stymied. Accident prevention is on the skids. Road repair has hit a rut.
Even the Mineta San Jose International Airport, funded not by taxes but by fees charged to airlines, has had to whack its expansion plans. It is cutting its five-year capital plans by two-thirds -- from $2.1 billion down to $723 million.
Those plans maintain spending on a new North Concourse, but gone from that five-year schedule are a South Concourse, a Central Terminal and a double decker roadway.
"We've run out of the easy stuff to cut," says San Jose Budget Director Larry Lisenbee.
"We've been able to get by by raiding the reserves," says Councilman Dave Cortese.
The city manager has recommended a 4.1 percent cut in the operating budget to $1.41 billion. The capital budget, not including the airport, would see a 23.3 percent cut to $938.4 million. The combined budget would drop 12.9 percent to $2.3 billion for the year beginning July 1.
The city has had to cut road maintenance to a third of what is was four years ago. One of the eight police traffic teams will have to go, and half of the city's community centers will either have to close or be taken over by nonprofit groups.
"This is real life stuff," says Mr. Lisenbee.
More threats could lie ahead, says Councilman Chuck Reed, an announced candidate for mayor in 2006. "We've made a lot of assumptions to get us through," he says.
Negotiations with the police and firefighter unions have not gone well and are headed to arbitration. Both have worked without contracts for 14 months and a significant raise made retroactive could take a further toll on the budget.
Mr. Lisenbee won't talk about how big a raise the city is prepared for. Salary contingencies are camouflaged in the city budget.
But there is a contingency plan for budget cuts of up to $35 million that would make major cuts in services, including reduced police patrols and the closing of at least one firehouse.
One thing that would force the city to make some of those deeper cuts would be the loss of up to $20 million in revenue from a fee on phone service to fund 9-1-1 service that the city approved last year. SBC is challenging the fee in other locations, charging that it is actually a tax that should have been approved by voters, not council members.
Council members say that through it all, the city will keep its priorities, including safety and economic development, but will have to do that without some of the particulars, if police and fire face budget limits and the Redevelopment agency has no new money to encourage the development of North First Street.
Vice Mayor Cindy Chavez worries that if the city can't invest in public safety, libraries, parks and other amenities, businesses may have trouble recruiting the people they need to remain competitive.
"Will we be able to attract young entrepreneurs if we can't make the city attractive to them?" she asks.
There is a little light ahead.
The real estate investment craze, both in commercial and residential development, is producing sales that will increase the taxable value of properties in the city.
In a recent report explaining why it lowered its ratings on San Jose RDA debt, Standard & Poor's Ratings Services noted that the value of residential properties in specific areas of the city is rising, offsetting in part the fall in commercial property values.
In addition, new development also should boost the tax base. A case in point is the new 385,000 square-foot Cousins Properties' retail development on the northern outskirts of downtown. That development is valued at $80 million and is supposed to be finished next spring. The city estimates that the project will generate approximately $1 million a year in property taxes and $1.7 million in new sales tax revenue or a total of $77 million in city revenue over the next 20 years.
But overall, redevelopment agency property tax revenues fell the last two years and are expected to fall again next year. At its peak, the Redevelopment Agency had $190 million in property tax revenue, its primary source of income. Next year it projects $145.7 million in revenue, most of which goes to pay for existing debt.
The drain on the city's Redevelopment Agency (RDA) funds has put a squeeze on neighborhood business districts trying to promote their collections of small retailers and restaurants.
The San Jose Downtown Association would see the RDA's contribution to its operating budget cut by more than half to $125,000 in fiscal 2006, from $278,191 this year, according to the proposed city budget.
Other neighborhood districts are slated to receive the same $10,000 through their local business associations as they received this year, plus the free services of an RDA employee who serves as a manager to the associations. But not too long ago, the city gave each $20,000 a year.
Unable to rely on the RDA, associations have created Business Improvement Districts (BIDs) funded by an assessment on the business licenses of businesses operating within the district.Posted by Coalition Webbies at May 16, 2005 06:22 PM