Deep-rooted dysfunction

March 5, 2014 — San Jose, perhaps surprisingly, is bigger than any other city for 300 miles. At one million people, it is the Bay Area’s forgotten metropolis, defined far less by its own characteristics than by the smaller cities nearby. A 20-minute drive northwest of downtown, in good traffic, will wind through the zip codes of the world’s most profitable tech corporations: Cupertino (Apple), Mountain View (Google), Santa Clara (Intel), Palo Alto (the historical ground zero of tech innovation), and on and on. “The Capital of Silicon Valley” is the self-anointed title San Jose has long strained to live up to; but, more bedroom community than capital, the city doesn’t much feel like the center of anything.

Still, as the de facto suburb of one of the most economically powerful regions on the planet, San Jose is awash with money. It regularly tops the list of richest big American cities, with a median income of $80,090 in 2012. That’s almost twice as much as Dallas, which is approximately 25 percent more populous, and about $7,000 more than San Francisco. San Jose is also headquarters to several big tech names of its own, including Cisco Systems and eBay.

In spite of this, the city has been on shaky fiscal footing for the last three decades. After periodic budget squeezes in the 1980s and ’90s, San Jose inaugurated the new millennium with a decade of chronic shortfalls. The dot-com bust had decimated tech jobs in the region and sapped revenues with it, but while the rest of the Valley restarted its engines, San Jose sputtered. Then the 2008 crash plunged it deep into the red.

Since then, San Jose has been mired in a protracted fiscal and political crisis. Services have been cut so far that discontent is widespread among residents. After initial rounds of layoffs, city workers have responded to cuts in pay and benefits, both real and threatened, by leaving in droves. The shrinking of the city is felt in many places: lagging repairs to infrastructure, reduced hours for libraries and community centers, a perilously understaffed sewage treatment plant.

Most conspicuously, public and political attention has been captured by a steep loss in police officers and firefighters. For a long time, San Jose’s great pride was its status as America’s Safest Big City. Then, in 2012, crime rates surpassed the state and national averages for the first time. This has only sharpened a general malaise, said Terry Christensen, a retired professor of political science at San Jose State University. “People are a little paranoid about it,” he said, “because we hear about it a lot. It’s still a very safe city. It’s just not as safe as it was — you didn’t used to hear that there was a burglary down the block.”

To make matters worse, 2014 opened with a serial arsonist. Over the course of a week in early January, he set 12 fires, eluding police and causing more than $5.5 million in damage. One fire destroyed a massive warehouse and paralyzed surrounding traffic for hours. “It just heightened the fear and paranoia,” Christensen said.

Rising crime became a focal point for the city’s wider dysfunction — the compounded years of budget quarrels, the threadbare service levels, the shrill tenor of political hostility. The city’s officials, workers, and residents are locked in a triangle of resentment and mistrust, much of it, Christensen said, caused by successful efforts to place the blame for budget problems entirely on city employees. “People are worried about the rising crime, but at the same time they’re resentful of public employees. And public employees are pissed off that they’re resented,” Christensen said. “We’ve started to get divisions and hostility that we’d never seen before.”

A lopsided solution to a lopsided problem

In many ways, San Jose is alone in its suffering. Its neighbors were hit by the financial crash and the recession, too, but in the interim they have managed to ride the wave of Silicon Valley’s extraordinary recovery, the sharp rise in tech wealth and tech jobs applauded by economists — and many politicians — nationwide. Take Palo Alto. Its revenues since the recession have gone up by almost 10 percent (inflation- and population-adjusted); San Jose’s have gone down 12.5 percent.

This is because San Jose’s problems are part of a larger fiscal imbalance in Silicon Valley. The region could reasonably be said to function as an integrated economy, with a shared pool of capital and labor: there certainly is no such thing as “the Palo Alto economy” or “the Mountain View economy,” as distinct from the economy of the Valley or the larger Bay Area. Yet the region remains divided into numerous municipal jurisdictions that alternately benefit and suffer from the uneven distribution of industry and housing. While Palo Alto and Mountain View ingest waves of revenue from concentrated tech-industry activity, San Jose is stuck being the bloated suburb.

And being a chiefly residential suburb is not sustainable in California. “Except for maybe at the absolute peak of the housing boom, residential development is basically a loser,” said Bob Brownstein, who was San Jose’s budget director in the mid-’90s and is now research director for the labor-backed think tank Working Partnerships USA. “That is, the taxes that are generated by housing don’t generate enough money to pay for the public services that the residents require.”

Over the last three decades or so, San Jose has gone to great lengths to attract industrial and commercial activity. The question of how the city ought to find the resources it needs has been almost entirely subsumed under the rubric of “economic development,” following a fairly strict neoliberal logic: private sector growth, induced by low taxes and heavy subsidies along with low expenditures, is the only real route to increasing revenue. The paradox: the efforts to induce growth have, to a significant extent, been successful, and yet the city remains cash-strapped.

As such, it would not seem difficult to understand San Jose’s predicament as one of inadequate revenues. Although there is plenty of wealth circulating through the regional economy, San Jose as a fiscal entity simply doesn’t capture enough of it. In spite of this, the city’s elected officials in recent years have taken a decidedly lopsided view of its fiscal imbalance, disproportionately going after the cost side of the ledger. This approach reached new levels of intensity under the current mayor, Chuck Reed, who came into office in 2007. Faced with the fallout of the financial crash and the recession, Reed did what many mayors did: laid off personnel, cut programs and services, and instituted pay cuts across the workforce. But then he went several steps further, embarking on the mission that has become his signature: finding ways to make deep, permanent cuts to the retirement benefits of current city workers.