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San Jose Mercury News (Calif.) (pg. 1A) [Printer-friendly version]
October 17, 2006

SAN JOSE SURPLUS CREATES DISCORD

City Urged To Bail Out Arts, Clean Up Toxic Watson Park

By Deborah Lohse, Mercury News

Buoyed by a $34 million budget surplus, San Jose's city manager is recommending using about $13 million of it for such key projects as cleaning up Watson Park, bailing out foundering arts groups and getting the new City Hall ready for a Starbucks.

But what could be viewed as a happy opportunity is taking on political overtones heading up to the mayoral election and is likely to create sparks at today's city council meeting.Some council members say too many suggestions are coming out of the blue, and some neighborhood leaders say they wished they had been able to choose how to spend the city's surprise bounty.

"That's money that could be spent on patching the potholes, or keeping the community centers open, or any number of things," Councilman and mayoral candidate Chuck Reed said.

Indeed, the 2005-2006 budget year was another in a series of tough ones for city officials, who had to trim a nearly $36 million deficit, largely by using budget funds left over from the previous year, extending a $1.75-per-phone-line emergency services fee and raising a wide assortment of other fees. Funding for neighborhood services got a slight boost after years of cuts.

But even in tough times, the city can wind up with ending surpluses about this time of year. They are the result, said City Manager Les White, of conservative budgeting earlier in the year, or a surge in revenues or a drop in expenses late in the budget year.

White and his budget chief Larry Lisenbee say it is their job every year to make their best recommendations for how to use any extra money. In recent years, the city has put much of it into a reserve for future deficits, which by city policy is supposed to be the main purpose of such funds.

During the past several years, the surplus "ending fund balance" has ranged from $18.9 million to $30.31 million, and the city has put as much as 40 percent each year back into the reserve fund.

But this year, not only is the surplus larger -- a total of $34 million -- but White said he also has identified more last-minute budgetary emergencies -- ailing arts groups need bailouts and toxic Watson Park needs a multimillion dollar cleanup.

White has recommended that nearly $12 million of the $34 million be spent on items from last year's budget that weren't accomplished; $9 million be added to a future deficit or other reserve funds, and that $13 million be used on a slew of items he says the city council has indicated it wants funded.

"It's the manager's prerogative to identify needs like those and bring them in," White said. "If the council disagrees with that, they can do what they do with the mayor and each other, and take it out."

Some of the biggest items White recommends include $5 million toward the cost to clean up Watson Park, a site that became toxic from an incinerator in past years. Also, White recommends $4 million for an "arts stabilizations fund" to help bail out such groups as the San Jose Repertory Theatre or the American Musical Theater.

Councilman Dave Cortese said he would rather see accurate budgeting than a surplus every year. For example, he said, this year the $13 million could have helped ease some difficult labor negotiations between the city and its public safety officers. "Are we in the business of hoarding money or are we in the business of providing services to the citizens?"

City budget policies dictate that the so-called "ending fund balance" must be put into a reserve for future deficits, except if the money is needed to correct budgetary mistakes or to "reflect updated cost information" about items the city council has already approved.

That last category, White and Lisenbee say, justifies their suggested expenditures.

For instance, they say the city council wants to bring in restaurants to the ground floor of City Hall, and directed the city manager to budget $300,000 to install ventilation and other improvements, and reach a deal with a tenant to spend another $800,000 on the improvements.

But a deal they had lined up fell through. The city's redevelopment agency told White it will likely take at least $500,000 of improvements to attract tenants such as Starbucks to take up residence there.

But Reed and others say it's possible another tenant might be willing to make the improvements.

"I'm not going to support the $500,000 until I know the parameters of the deal," said Reed, noting the council hasn't weighed in on the issue publicly.

His mayoral opponent, Cindy Chavez, agreed. She said that pre-approval of the $500,000 could influence negotiations with future tenants.

Some neighborhood leaders said it seemed unfair that they were not consulted on how to spend the surplus.

"We have pools that are closed, we have parks and community centers that are shut down," said Don Gagliardi, president of the Northside Neighborhood Association. "I don't think we need to spend $50,000 to think about what to do with the old City Hall," he added, referring to a suggestion to spend that much on a consultant.

White said that the items he recommended may indirectly help neighborhoods, such as $90,000 for recruitment in the human resources department to hire maintenance and other workers. His report also notes that he hopes to come back to the council later in the year with more money for park maintenance. White also recommended that the city spend $470,000 to buy a sound system owned by the American Musical Theater that is in the Center for Performing Arts. Because AMT had requested that purchase as part of a larger bailout plan that hasn't yet been approved, some council members wonder if the city manager jumped the gun in recommending the purchase.

But Lisenbee said no, because AMT plans to sell the sound system and if the city doesn't buy it, they'd have to buy another sound system to replace it.

The expected controversy over the annual report is a rarity, some say.

"This is usually a report that's adopted without really much of any dialogue whatsoever," Cortese said.

White said he's done his part, now it's up to the council. "They may choose to do nothing that I've recommended in there."