While the pandemic blows holes in city budgets across the nation, a new report released this month shows San Jose was already financially struggling before the coronavirus collapsed local economies.
The annual report, released by the nonpartisan think tank Truth in Accounting, assessed the fiscal health of the top 10 U.S. cities based off each city’s taxpayer burden — the amount each taxpaying resident would have to pay to get rid of the city’s unfunded debt.
San Jose was already in “poor fiscal shape,” according to the report, but the coronavirus pandemic will likely drive the city into more debt. While the city has a taxpayer burden of $9,400, the total jumps to a staggering $41,900 once state, county and other agency debt is added.
“This report analyzed the fiscal health of the 10 most populous cities based on financial reports before COVID-19 hit,” Truth in Accounting spokesperson Courtney Fox said in a news release. “These cities went into the pandemic with bad fiscal health, and they will most likely come out of the pandemic even worse.”
Ranked from best to worst, the report placed San Jose sixth ahead of Philadelphia, which has a taxpayer burden of $45,800 per resident, and behind San Diego at $34,200. The city with the smallest taxpayer burden is Phoenix, with $10,000 per resident, while Chicago had the highest taxpayer burden with $122,100 per resident.
A city’s unfunded debt is determined by how much it owes across all government entities and agencies, which includes the city, county and state as well as from its school districts, transit and housing authorities.
“Collectively, taxpayers in these 10 cities face an average combined per-taxpayer burden of more than $45,000,” the report said. “This compares to an average per-taxpayer burden of $17,000 for their city government alone.”
In an earlier report this year on the finances of the nation’s 75 most populous cities, Truth in Accounting said San Jose’s financial problems stemmed largely from unfunded retirement obligations that have accumulated over the years. It was one of 32 cities nationwide to receive a “D” grade for its fiscal health and ranked 55th overall.
Due to the coronavirus pandemic, the Federal Reserve last month said it would buy up to $500 billion of municipal bonds in an effort to stabilize local economies. To qualify, a city must have at least 250,000 residents, while counties and states must have at least half a million residents. More than 80 cities and 120 counties across the nation qualify for the program, including San Jose.
While San Jose is facing a grim economic future, Julia Cooper, the city’s finance director, said it has “continually reviewed opportunities” for savings to its taxpayers.
Last year, the city refunded all outstanding general obligation bonds, she said, which will result in more than $74 million in debt service savings over the 15-year lifespan of those bonds. The city is also seeking refunding of the bonds issued for the construction of City Hall, she added.
“The refunding is expected to result in one-time funds that will be used to pay off remaining debt,” Cooper said. “The elimination of these debt obligations, along with the lower debt service on City Hall debt, is anticipated to yield a total ongoing, annual savings of $4.2 million.”
Governments from Sacramento to San Jose are facing historic budget deficits due to the pandemic. With revenue declines worse than the Great Recession and dot-com bust, city lawmakers last week proposed massive cuts to operations and functions as they brace for a $71.6 million hole in next year’s budget.
“Undoubtedly, more difficult decisions lie ahead as we work through a long road to recovery,” San Jose City Manager Dave Sykes said in a statement.
Despite the challenges, Cooper said the city plans to use “other financing vehicles” to generate savings for next year’s budget and save taxpayer dollars, which includes pre-funding the city’s retirement contributions, which will save $7.4 million.
Still, city leaders are relying on federal reimbursements to help cover the hefty costs of running emergency operations during the pandemic. With public dollars stretched thin, Mayor Sam Liccardo in March said it is critical the city spend its dollars where the need is highest.
“Given the high estimates of both infection and mortality rates, we now live in a world requiring dramatic changes to our daily hygiene, work patterns, travel and social engagement — this new reality compels us to pivot,” Liccardo said. “As we navigate this turbulence, we must make spending decisions mindful of the dramatic changes that our lives and economy may endure.”