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Santa Clara's 2011-2012 Capital Improvement Budget is Cautious


On May 17, the Santa Clara unveiled a cautious capital improvement budget (CIP) for the coming fiscal year. Capital improvements are the infrastructure of the city, as opposed to the ongoing operations of the city. This year the City proposes to spend $16 million less on capital projects than the 2010-2011 fiscal year.

The City currently has  $1.2 million in capital projects reserves, $3.8 million less than the targeted $5 million, City Finance Director Gary Ameling told the City Council at the May 17 meeting. However, the City has freed $1.7 million in the CIP budget from closed and reduced projects, Ameling reported.

In addition, many CIP projects will increase Santa Clara services revenues. For example, the current 40 percent expansion of the City's recycled water system – which is almost finished – will bring the 10 new customers that, alone, will increase Santa Clara's recycled water sales by 50 percent.

Of $69 million that the City will spend on capital improvements next year, the 3 top funding sources are charges for services, developer fees, and municipal bond sales. By comparison, last year Santa Clara's top funding sources were charges for services, the ARRA federal economic stimulus program, and RDA bond sales.

Click on the charts below to expand the detail.

Here's how Santa Clara will be investing in capital projects in the coming year:



Here's where that money will come from:














Here's how the 2011-12 capital project budget stacks up against last year's:


Got questions about the Santa Clara budget? Visit the city budget webpage. Not only will you find current and historical budgets and financial reports, the webpage also offers a "City Budget 101" booklet that can be viewed as an online book or downloaded. 

The Cuts That Keep on Giving: How Municipal Budget Cuts Add Up to Higher Costs


As they say, you don't get something for nothing. That remains true even when the subject is cutting government costs. Cutting costs by cutting public services often adds up to higher long-term public costs as well as "hidden" taxes on residents in the form of higher cost-of-living. Because the business of municipal government is public services, city budget cuts almost invariably come down to cuts in services.

One example is New York City during its 1975 financial crisis. A 2006 study in the American Journal of Public Health (AJPH) found that the budget policies and cuts designed to address the city's financial woes crisis contributed to subsequent tuberculosis and HIV epidemics, as well as higher homicide rates. The city ultimately spent over $50 billion to control these synergistic epidemics, estimate the study's authors.

And the savings from New York's budget reductions? About $10 billion.

In other words, reduced services, deteriorating living conditions, and the dismantling of public safety, health and social service infrastructure cost New York $40 billion in additional expenditures over the next two decades.

With Santa Clara currently facing a future of systemic budget deficits and increasing pension and salary costs, city residents can almost certainly expect to see cuts in the city's core services in coming years.

Despite wishful thinking about cutting "waste," in reality municipal cost-cutting equals reduced services, as well as increases in deferred maintenance and capital costs, according to former Santa Clara Director of Street and Automotive Services, Rick Mauck. "It's a case of 'pay me now or pay me later.'

"Reduced public works maintenance results in 'deferred maintenance costs,'" he explains. "This increases indirect costs to the public, and incurs greater future costs to the entire publicly financed system."

Mauck, who was with the Santa Clara Department of Public Works for nearly 30 years, explains in detail how these increased costs and liabilities that are created.

When street maintenance is cut, potholes increase, road surfaces get rougher, and street markings get worn. This, in turn, increases vehicle wear and tear, as well as the number of traffic accidents – all of which drivers and vehicle owners pay for in the forms of higher repair and insurance costs. Poorly maintained sidewalks create tripping hazards and increase the City's liability exposure and insurance costs.

"The deferred costs to repair these roadways later always comes at a higher cost," Mauck continues, "because timely on-going maintenance extends roadway life and costs much less than more significant roadway rebuilding and repair."

Deferring economically justified maintenance and capital improvements to public buildings and infrastructure also ratchets up future costs. The reasons, Mauck says, include "critical failures of equipment and infrastructure – such as gas lines, water mains, electrical power systems, and storm and sewer pipelines and pumping facilities – reduced quality of service, and increased liability."

Even services that seem "cosmetic" in fact make sound economic sense, he says.

"Deferred maintenance for the city's 30,000 trees increases City's liabilities from falling trees and branches. Deferred park maintenance increases litter and graffiti and accelerates landscape degradation – leading to lower use and increased crime. Reduced street sweeping increases litter, and creek and waterway pollution – adding to cleanup costs, and damaging the environment, degrading aesthetics, and reducing property values."

The last packs a double whammy for homeowners – first from lower sale prices, and second from reduced municipal revenues.

Reduced hours at libraries, public pools, and community centers also carries a double hit as residents pay more to replace public services with private ones.

For example, an annual family pass for Santa Clara's public pools is currently $132, and day passes are between $2.25 and $3.50. By contrast, membership at a private pool club runs about $500 – if you can join at all. The end result is a vicious cycle where reduced access in turn reduces use, which in turn reduces taxpayers' willingness to pay for public services and leads to further service reductions.

Colorado Springs and Newark Bring New Meaning to "Bring Your Own"

To see what the brave new world of "bare-bones" municipal services looks like, visit Colorado Springs, CO. The tax-averse city – and home to right-wing evangelical media company, Focus on the Family, which describes its objective as "…sharing the Gospel of Jesus Christ with as many people as possible by nurturing and defending the God-ordained institution of the family and promoting biblical truths worldwide" – has slashed services most of us don't think twice about.

A third of the city's streetlights are dark and police helicopters were put up for sale. Firefighters, burglary investigators, and beat cops were laid off. Trashcans are gone from public parks and the city no longer mows public spaces – residents are encouraged to bring their own lawn mowers to the park. Public toilets have been locked for years. During an ice storm last winter, the city didn't have enough sand and salt to keep roads open. Recreation centers, public pools, and museums ran out of funding and shut their doors for good last March.

Even Colorado Springs, however, isn't in such dire condition as Newark, NJ, which last summer stopped supplying toilet paper for City Hall restrooms. But leave it to yankee ingenuity to jump into the breach. Marc Polish, owner of N.J.-based Just Toilet Paper (www.justtoiletpaper.com) will donate a roll to Newark for every order the company receives for holiday-themed toilet paper before Dec. 15.

For more information about Santa Clara's budget, visit santaclaraca.gov (click on "Budget Update"). Printed copies are also available at the Central City Library on Homestead Road. 

Stadium Won't Fix What Ails Santa Clara General Fund


The proposed 49ers stadium won't be a magical fix for Santa Clara's general fund deficit – forecast to reach nearly $5 million this year and grow to over $18 million in 2013-2014.

Both sports industry consultant CS&L International and real estate advisory firm Keyser Marston Assoc. conservatively estimate $700,000 annually in additional revenue for Santa Clara general fund revenue from a 49ers stadium. A more generous estimate is the $2.4 million that San Francisco brings in today in taxes from the football team.

However, regardless of which number you use, even the most optimistic estimates barely makes a dent in the City's growing deficit, shown in the following chart. Regardless of the proposed stadium's merits of in terms of economic growth and civic pride, Santa Clara must look elsewhere for solutions to its budget woes.

Sources: Evaluation of 49ers Economic and Fiscal Benefits Study, Santa Clara City Manager, June 5, 2007; City of Santa Clara Proposed Five-Year Plan, May 18, 2010; " NFL dangles Super Bowl as Santa Clara stadium reward," www.fieldofschemes.com, May 3, 2010. 



Doing The Pension Math Part 2: The Magic of Multiplication

If you've done your homework, you'll remember that last week we talked about how the chickens of CalPERS' (California Public Employees' Retirement System) bad investments flew in to roost in Santa Clara's budget. This week's lesson is on how payout amounts are calculated.

Santa Clara's pensions – like those of most states and cities – are defined benefit plans, and payouts are based on a formula, regardless of contributions and the pension fund's value.

Once city employees are vested – in CalPERS, that's five years – they're entitled to receive a percent – a "multiplier" or "contribution factor" – of their highest pay for each year of employment. Years of Service x Benefit Factor = Percentage of Final Compensation. The monthly pension amount is that result divided by 12. Public safety pensions are capped at 90%.

So far, it's fifth grade arithmetic. But, as they say, the devil is in the details. In this case, it's in the values assigned to these variables, the definition of "high salary," and the magic of multiplication.

Multipliers are, quite simply, any number that the municipality and its bargaining units agree to. They're not tied to anything – say, like the cost of living. Multipliers can be different for different employee groups and contract periods. The current plans date from the flush years of the late 1990s, when the City had a budget surplus. They don't change simply because the City now has a deficit. The terms can only be changed if unions agree to renegotiate the contracts.

In Santa Clara there are two employee groups for the purpose of pension calculations: "safety" employees (police and fire) and "miscellaneous" (everyone else). The benefit factor for public safety employees is 3%, and 2.7% for miscellaneous employees. After five years of employment, public safety employees can retire at 50 with full benefits, while corresponding age is 55 for other City employees.

For the last two years, the average retirement age for Miscellaneous employees was 59½, and for Public Safety employees, just shy of 51, according to Deputy City Manager Carol McCarthy.

The definition of "high salary" is another negotiable item. In Santa Clara', "high salary" is the highest consecutive 12 months' pay. This makes it somewhat harder to game the pension system by simply ratcheting up income the year before retirement with overtime and unused sick and vacation days. Twelve Santa Clara retirees receive pensions that top $150,000, and 122 have pensions over $100,000, according to CalPERS data reported by CaliforniaPensionReform.com. The City's highest pension is $186,343.

While public safety employees are not covered by Social Security – they don't pay into it and are ineligible to receive benefits from it – miscellaneous employees do pay into Social Security and are eligible for benefits when they retire. 

However, public employees in the Social Security system are subject to the so-called windfall elimination provision (WEP), which, in its simplest terms, reduces SSA benefits for those with public sector pensions by 10 to 50 percent.*  In addition, their CalPERS pensions are also reduced by $133 a month.

*One of the clearest explanations of this taxation arcana can be found atwww.fedsmith.com. For more information, City budgets, financial reports, and Memorandums of Understanding (union contracts) are available online at www.santaclaraca.gov. Visit www.calpers.ca.gov to get information about CalPERS. 

Caption: Figures 1 and 2 illustrate some results of the pension arithmetic for both of Santa Clara's employee groups. These numbers are estimates, because actual pension amounts are ultimately determined by CalPERS, and can include other CalPERS offers and choices and made by employees.


Sept. 1, 2010: Doing the Pension Math Part One - How CalPERS Adds to City Deficit Woes


By Carolyn Schuk

Big jumps in payments into the California Public Employees’ Retirement System (CalPERS) system is one of the factors driving Santa Clara's "systemic" budget deficit over the next five years.

Aug. 26, 2010: Some Santa Clara Pay Scales Surpass Those in New York City

By Carolyn Schuk

As the largest single metropolitan area in the U.S., New York City garners more attention than any other. And as municipal pay scales remain a leading topic on the news, many cities are comparing their payrolls to New York's.
Santa Clara is no exception. 

Aug. 18, 2010: Comparing City Pay Scales with Private Business Shows City Employees Earn More

By Carolyn Schuk

A comparison of 30 City of Santa Clara salaries to those of private businesses appears to validate a Santa Clara County Civil Grand Jury finding that municipal salaries are "artificially high and out of sync with market trends."

Aug. 11, 2010: City Salaries – Hefty Increases Dominate, With Notable Exceptions of Library, Finance, Police, Streets

By Carolyn Schuk

The growth of public sector compensation has been a hot news topic ever since Bell California's exorbitant city salaries made the headlines. Santa Clara offers its own, albeit more modest, laboratory of how the dynamics of civil service pay can take on independent life of its own, driven by politics and detached from the economic and revenue realities.

Aug. 4, 2010: City Compensation Agreements Can't Be Changed at Will

By Carolyn Schuk

Most would agree that Santa Clara residents receive high quality city services. One reason is that most city services are delivered by city employees – giving the City full control over delivery. Reflecting this, employee compensation accounts for nearly 80 percent of the City's operating budget – a percentage that has been consistent throughout the years.

With the city's budget in a tailspin, some are questioning the pay scales and benefit packages – which unquestionably drive Santa Clara's budget and, with it, a growing deficit.

July 28, 2010: Santa Clara Citizens Advisory Committee Questions City Salary and Benefit Increases

By Carolyn Schuk

As cities and states across the nation face acute budget crises, attention invariably turns to the largest item in public budgets: public employee compensation costs.

For example, Business Insider (www.businessinsider.com) has been making journalistic hay recently with titles such as "The 899 NY State Employees Who Earn More Than [Gov.] David Paterson," "Maywood, CA Lays Off All City Employees, Dismantles Police Department," and "If You Thought New York Was Bad, Check Out The Ridiculous Public Sector Pensions In Illinois."

Santa Clara is no exception to the national conversation.