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Muni Bond Talk

Will Silicon Valley Melt Down?

Ironically in many cities taxes are going up regardless of home prices going rising or falling. The annual operation costs that towns must pay for schools, police, fire and other essential services are increasing. Much of the increase is fueled by pension and health care burdens and this problem is echoing across our nation.

A rather strange recent victim is San Jose, CA. (Silicon Valley) where they are currently paying 90% pensions to their police force after 20 years of work! This city houses Cisco, Intel, Apple, and probably hosts servers for Linkedin, has 2 new libraries that remain closed because they dont have the money to pay for staffing

Here is a San Jose tax revenue bond that just last week issued a notice of potential default.

Tax revenues are going towards bloated retiree pensions pensions. Whats wrong with this picture?

And here is the rub. While Silicon Valley is currently experiencing job growth and declining unemployment, revenue from property and sales taxes has been stagnant. This year’s gap is expected to be $25 million. By the end of the year, the city will have to pay $244.4 million to fund employees’ pensions, up 235% from 2001. That will likely come thru taxes or a pension overhaul.

In the past three years San Jose has laid off or cut the positions of more than 1,500 city employees, or more than 20% of the city’s work force, and cut dozens of services to help reduce costs.

“This forecast stands out because there’s a heightened sense of awareness among employees and residents as a result of the cuts we’ve done,” says San Jose Budget Director Jennifer Maguire. “There’s no wiggle room now.”

Union representatives for San Jose’s police and fire employees—two of the city’s largest unions—have objected to how pensions have been cast as a primary culprit for recurring budget deficits.

San Jose last year projected that the pension payout number would rise to $400 million by fiscal 2015, or about half the city’s budget.

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