That Shiny New City Hall - The Financial Analysis

In a previous post on the folly of building a new City Hall, sdrostra.com commenter Phil Rath called me out on the issue of the return on investment of the new building. He linked to a Financial Analysis by the Center City Development Corporation, Implementing Downtown’s Redevelopment on Behalf of the City of San Diego [their tag line] and chides for me not reading it before commenting on the advisability of building a new civic center. Fair enough. Frankly, I was not aware that such a document existed. Mayor Sanders did not refer to this study when he complained that the public was unaware of the benefits of the new building. But thanks for sharp readers like Phil, who knew more or dug deeper into the issue and pointed out relevant material of which the author was unaware.

However, after briefly perusing the supporting documents, I stand by my original assertion that the new City Hall should not be built even though the documentation in the financial analysis purports to support that conclusion. First, and most importantly, the time frame for which the cost of operations is analyzed is 50 years. Under this scenario, building a new structure is the most economical option. In my view, 50 years is too long a period because too much can change in that time frame. 50 years ago was 1961, think about how much has changed since then. The internet wasn't even an idea then, for example. The City Hall development proposes to house 3,000 city employees. I would hope that we could find ways to significantly shrink that work force over the next ten years, much less the next 50, so planning an edifice that leaves the size of government the same merely perpetuates our current problems.

The study also admits that over a 15 year capital planning period, the cost of maintaining the current facilities are less:

In the first 15 years, scenario 5, which proposes no renovation and has the City absorbing latent risk of current facilities, is the lowest cost alternative to the City at approximately $381 million.

Now all of this assumes that the supporting documentation is adequately written. Since I am by nature a skeptic, the first document I started reading was the peer review of the financial analysis written by independent auditors, in this case Ernst & Young. Here are some objections they made to the analysis. Here are some relevant quotes from that review:

Ernst & Young believes that certain assumptions utilized by JLL are not supported by current market evidence or are not documented in the JLL Reports. Some of the assumptions have changed over the past nine months due to declining market conditions. It should also be noted that EY found market support for many of JLL’s assumptions.

EY identified certain JLL cash flow assumptions which were not supported by current market evidence or were not documented in the JLL report.

Office rental rates have declined since the JLL field work was completed in early 2008. We believe their growth rates over the near term are too aggressive.

EY is Ernst & Young. JLL is Jones Lang LaSalle, the company that prepared the analysis.

Bottom line for me is that the financial analysis is not adequate for such a large capital outlay. Further, the city incurs significant risk when it owns its own buildings; a closer look at long term lease options seems more appropriate. The 0ther advantage of leasing office space is that it will continue to push efficiencies in the city government. Every reduction in the number of employees will result in decreased office costs. Encouraging more telecommuting and other space saving measures will result from having to pay for every square foot of office space consumed. It seems that a decision to delay building a new City Hall is the wisest course, given the insufficient case for a $294 million capital outlay.

I also question why the city isn't pursuing a public-private venture, where by a private firm builds the new city hall, and the city proposes to lease it on a fixed schedule of increases tied to the rate of inflation, with the option of reducing the amount of space leased, which could be recycled to the private sector. Such an arrangement would offload the risk, and frankly cause the private firm to keep construction costs under control. Further, the city would not have to make the capital outlays that we lack funding for anyway.

Zapf, Sanders and a Shiny New City Hall

Last Friday, I received an email in response to my question about the a City Hall from Job Nelson, identifying himself as Lorie Zapf's Chief of Staff. (None of her staffers names are yet up on the City Council Web Site for the District 6.) I must say that I am still not impressed that the council member's staff took this long to respond (from December 27), did not issue a public statement (as far as I can tell) and is not actually responding to my inquiry "Please address the rumors published in the U-T that you might support building a new city hall without a vote of the people." Read the response for yourself and decide.

The question of whether to put a new civic center on the ballot is beyond premature. We should not even be asking the question of council versus ballot for a new city hall, instead the Council and Mayor should be focusing on fixing our budget and pension problems. I heard loud and clear on the campaign trail that voters are distrustful of local government to spend their tax dollars wisely. Until we restore their basic confidence in local government- that we can fill their potholes, patrol their streets and keep their libraries open- we cannot even begin to think about building a new home for city workers. While the City is facing potentially significant costs to maintain city hall, we have higher priorities that we must focus on in the months to come. Until the city eliminates its structural deficit, resolves its pension problems and restores basic services the question about whether or not to place a new city hall on the ballot is a moot one.

Job Nelson

Chief of Staff

Office of Councilmember Lorie Zapf

So far, so good, as far is it goes, but there was wiggle room for a change in her position down the line, and nothing to preclude bypassing a vote of the people. Also, the discussion of how much it costs to run the old city hall has been part of Mayor Sanders standard line on the subject for some time. From yesterday's U-T editorial pages, Q&A, Sanders responding:

Q: There’s been talk again about moving forward again on a new City Hall. What is your view of that?

A: I think we need a new City Hall. I think it saves us money every year, but I can’t educate the public. They’re not looking at it saving money. They’re looking at it as being some new monument.

Of course that's how we are looking at it, Your Honor, because the savings for such projects always seem to evaporate. As an experienced manager, I would like to see the "return on investment" with hard numbers. Here is what the mayor was summarized as saying last July (from KPBS):

He has argued that building a new City Hall will save San Diego money by avoiding significant maintenance expenses at the existing 1960s-era building, and because the city would not have to continue leasing office space for workers at locations around downtown.

My problem is that the gleaming structure pictured in the artist's rendition looks much more expensive than necessary to achieve the savings desired. The failure to educate the public is the mayor's own fault. Put out the numbers and let informed members of the public take a good look at them. Given the track record of our city government, just don't ask us to take this on faith.


Cross posted to sdrostra.com

City Hall and the Tea Party - 2011

This is my first post cross-posted to sdrostra.com. Dave Maass asked me earlier about what I thought the Tea Party would be watching locally in 2011. As the unofficial chief ideologist, I thought the question deserved an answer. (By the way, no one selected me, in a decentralized organization, people just do the job that needs to get done. Shared vision is the glue that keeps the Tea Party together, not a party organization.) Here is what we will be watching:

City Hall. Will the politicians at City Hall vote themselves new digs, without a vote of the people? Will they have the audacity to put it on the ballot, where I predict flaming defeat? This will be a litmus test for the new and more evenly balanced council. Rumors that this boondoggle might move ahead are in print.

Pensions. Despite a small bit of good news from this morning's paper, the pension problem is the main fiscal problem facing the City of San Diego. Regardless of the faux-fabulous headline: BUDGET GAP SHRINKS, the actual fact is that the city has 67.1% of the funding needed to close a $2.14 billion gap (technically, the unfunded actuarial liability), up from 66.5%, hardly cause for rejoicing, or even a headline for that matter. My headline would have been: Tiny Progress on Pension Funding. During the November campaign, Howard Wayne performed a public service by explaining that the employees are not contributing to their own pensions to the extent allowed by law and that increasing these required contributions would be an ethical and legal way to close the gap. Even though I endorsed Lorie Zapf, I want to give credit when Democrats positively contribute to the dialog. Carl DeMaio has been doing a good job of pointing out other ways that the city can deal with this funding crisis, with ideas like freezing pay increases and not calculating certain benefits as part of base salary. Perhaps this sounds a bit arcane, but this is the hard work that needs to be done to legally and ethically meet the city's pension obligations without increasing taxes. But the other key component is the number of employees. This brings us to another key issue.

Managed Competition. The issue of managed competition makes my blood boil, because it is a proven way to reduce the costs of city services, but it has been obstructed by left leaning council members since 2006. Often times, even when the city department wins the competition, the taxpayers still end up winners because to win the competition, that department streamlines its own operations. Today's U-T offers a glimmer of hope in this area, with Mayor Sanders announcing details of competing street sweeping and public utilities. The article only identified 134 full time employees impacted. Certainly a start, but much more needs to be done. We will be watching.

Lorie Zapf. Someone we will be watching is new council member, Lorie Zapf. (Disclosure: I live in District 6.) Lorie campaigned on reigning in non-essential spending, including dealing with the pension problem, to focus on public safety. She has largely disappeared from the radar following her election, although she did do a phone interview with LaDona Harvey on KOGO. The rumor around her possible support for a new City Hall is driving me nuts because it is so plainly contrary to her stated campaign positions. I have yet to receive a satisfactory answer, even though staffer Brian Pepin left me a voice message. This, from an initial inquiry before Christmas. My honest concern is that Lorie is beholden to business interests who helped get her elected. Nothing wrong with business, per se, but here in San Diego, they tend to team up with government in sweetheart deals not in the public interest. Speaking of potential deals,

Charger Stadium. I am a Charger fan, but I don't want the city subsidizing their stadium, nor the Padres, for that matter. Professional sports are businesses that should make a profit, period. It is not up to us, as taxpayers, to make them profitable. We will be watching the city council's actions. The shenanigans of our Republican mayor don't leave me confident that we can just trust the government on this one. So who will be the new mayor after the 2012 elections?

Carl DeMaio is a council member whom we will be watching. I have really loved much of what he has done over the last year, see the link. However, I have heard some private grumblings among Tea Party activists about him, so I will be digging deeper.

That's it, there are certainly other things to keep an eye on, but B-Daddy's Book of Management, Rule #2 is "The commodity in shortest supply is management attention." It behooves us to keep our eyes on the most important issues.

Odds and Ends

Nancy Pelosi blames Democrat Congressional election losses on George Bush.

Road Dawg asked me to comment on the firing of the C.O. of the Enterprise, Captain Owen Honors. At first, I didn't pay much attention to the issue, figuring that he had made a major screw up and the Navy wasn't going to leave someone in command under those circumstances. However, after reading up on the issue, now I am not so sure. He was XO four years ago when those videos were made. Many officers who are now admirals were aware of the videos, including his then Commanding Officer. Not a peep from any of them, shameful. CDRSalamander comments more extensively.

The Tea Party has repeatedly pointed out that if spending goes up, taxes are eventually going up. Illinois, on the brink of default, proves the case. Democrat legislators and the governor are working up a great plan:

The Democratic leaders in the Illinois General Assembly believe this income tax increase, a corporate tax hike, and a $1-per-pack tax increase on cigarettes would erase the state’s $15 billion budget deficit.

Good luck with that. Income tax increases never generate the revenue predicted, nor cigarette taxes for that matter.

Still no response from Lorie Zapf on the City Hall issue. No mention of the issue during Zapf's interview with LaDona Harvey on KOGO today. (I checked the podcast.)

And in the "Why didn't I think of that?" department, this quote on Obama administration efforts to court business:

Mr. Obama has compelling reasons to repair relations with corporate America. Unemployment remains stubbornly high. There's little likelihood of significant new stimulus spending from Congress or big new moves by the Federal Reserve to pump money into the economy.

That means the key to economic growth—and Mr. Obama's re-election prospects—could lie in corporate treasuries. U.S. non-financial businesses are sitting on nearly $2 trillion in cash and liquid assets, the most since World War II, and Mr. Obama wants them to use it to create more U.S. jobs.

And why are they sitting on their cash, you magna cum laudes in the Administration? Because your policies have harmed the business climate in America and created huge uncertainty. The worst offender being Obamacare, which no one can figure out, and to quote Dean has this fabulousness granting Sebelius Viceroy like powers over health care in the obamacare bill:

700: the number of references to the secretary "shall".

200: the number of references to the secretary "may".

139: the number of references to the secretary "determines".

After he leaves the White House, Barack Obama should sue Columbia and Harvard for failing to provide adequate education in economics and management, hopefully early in 2013.

New City Hall? Call Lorie Zapf

Will we get a shiny new City Hall without a public vote? It certainly seems to be an open question according to today's U-T.

The debate over whether to build a new San Diego City Hall is expected to begin anew early next year as city leaders weigh three choices: abandon the project, put it to a public vote or bypass voters and build it.

. . . Now the project — and its projected taxpayer savings — could be revived by a new-look City Council that may be willing to forego a public vote and break ground.

Last November, when we defeated the half cent sales tax increase, we were told how essential city services were at risk if the tax increase was not passed. But somehow there is now hundreds of millions of dollars available for a new city hall? I don't put "Enron by the Bay" as my location on my blogger profile without cause.

But the worse news is that recently elected council member Lorie Zapf, who campaigned on a platform of fiscal responsibility to fund core services, is considering voting for this spending without putting it to a vote of the people. If she did so, it would be a repudiation of her campaign as well as proof that she is nothing but a tool of downtown business interests. To be fair, she has not officially marked out her position. From the same U-T article:

During the campaign, Zapf said she opposed the project but was open to a public vote. She was far less committal when her office was asked last week where she stood on the issue.

Zapf’s spokesman, Job Nelson, said the councilwoman thinks there is some merit to the project given potential savings in building maintenance and leased office space but understands why many are struggling with the notion of building a new City Hall while cuts are threatened to public safety and other services.

“We’re kind of stuck in the middle of this one,” Nelson said. “I would say we side with the community and we need to fix the strong distrust they have before we can try.”

The project’s fate likely hangs on Zapf’s final decision.

I urge my fellow Tea Partiers and all San Diegans, especially those in the 6th district to let Zapf's office know how we feel. To help everyone out, here's how we get in touch.

Email: loriezapf@sandiego.gov
Phone: (619) 236-6616
Mail:
Lorie Zapf
202 "C" Street, 10th Floor
San Diego, CA 92101

For the record, I endorsed Zapf in the primary and the general. I thought she was the candidate who had the most consistent voice speaking out against the domination of city hall by the unions. This is a chance for her to live up to her campaign promises.

Never Let a Tragedy Go To Waste - Local Version UPDATE

The tragic choking death of a two year old, purportedly because of slow paramedic response due to rolling brownouts of firefighting station "brownouts" is being used to push a half cent sales tax increase on the city. You can judge for yourself if the brownout was significant by viewing the linked time line. That local politicians would choose to do so is both highly cynical and sadly typical. I did not use a picture of the deceased for illustration, because this issue is really about the two illustrations pictured, a new library and new city hall. At a time when the city council is making plans for a new city hall and a new central library, claiming that the tax increase is necessary for firefighting and paramedic services is demonstrably false.

First, by refusing to make any progress on managed competition, or outsourcing, the council has failed to reap available savings. As I posted earlier, it was no coincidence that the proposal for the half cent sales tax increase surfaced on the same day as the proposed initiative to force more outsourcing failed to make the ballot.

Second, the manner in which the firefighters are paid needs to be examined. Carl DeMaio, a personal hero of mine, lays out the excessive pay and overtime in the fire department itself in the following article.

The salary list also demonstrates excessive compensation across the city's Fire Department, which is represented by what is arguably the city's most powerful union. In fact, firefighters comprise nearly half the membership in the “$100,000 Club” at City Hall. When comp overtime is factored into total compensation, the number of firefighters receiving net compensation value of more than $100,000 a year jumps to 371 – that's 40 percent of the active city firefighters earning six figures or more.

Of the firefighters who made the “$100,000 Club,” many ended up taking in between $35,000 and $45,000 in overtime during one year. One fire engineer alone was awarded $74,028 in overtime.

Michael Stetz in the Union-Tribune also looks into this issue.

In 2006, our newspaper reported how four San Diego fire officials did this nifty trick: They moved up to higher-paying top management positions for a year or two, then went back to their old jobs. That boosted their pensions by as much as $30,000 a year. For one, it kicked up his pension to $133,000 a year.

In 2008, the third- and fourth-highest paid city employees were fire battalion chiefs who earned $228,000 and $209,000, respectively — more than the police chief.

In 2009, our newspaper reported how 1,560 city employees made more than $100,000 annually during the previous year. Nearly one-third of those happened to be fire department employees.

Maybe the answer to the city's firefighting budget woes would be to pay far less overtime, and use the savings to hire entry level firefighters, reducing the number of engines that must be idled. The monumental waste evident in the fire department, as evidenced above, is a clear indicator that almost any reasonable management review could wring savings that would boost protection for the citizens who pay their salaries.

Local governments have a long history of reducing vital services when faced with tax revolts. Now that we have an active tea party movement, we won't let them get away with this.

UPDATE

Temple of Mut has her own take on the situation and calls into question the timing of tieing a toddler's death to the brownouts. She provides convenient email addresses to contact your local council member.