San Jose Mayor Reed warns of city layoffs, offers hope for recovery Wednesday, January 14, 2009 By John Woolfolk, San Jose Mercury News San Jose Mayor Chuck Reed cited progress in growing the local economy in hard times, but his third state-of-the-city speech Tuesday morning also delivered sobering news. "Regrettably, we are having to prepare for layoffs," Reed said. "We will have a general fund budget shortfall of more than $60 million." Though Reed was vague about the timing of the city's first job cuts since the early 1990s — the deficit he cited is in the upcoming budget year that begins in July — layoff notices are already being sent to dozens of planning, building and code enforcement employees. With real estate prices collapsing and lending frozen amid an economic meltdown, applications for building permits have slowed to a trickle. In a department where permit fees drive revenue, the sudden slowdown is forcing layoffs to maintain a balanced budget, City Manager Debra Figone said. The city council is expected to approve the "budgetary correction" Jan. 27, she said. Employees have received notices warning their jobs may be cut by the end of February and Planning Director Joe Horwedel has been meeting Tuesday and Wednesday with affected employees. City spokesman Tom Manheim said 28 positions are being eliminated but that 20 of those workers have seniority rights that would allow them to remain with the city by bumping less-senior employees in the department. City officials are unsure how many people will be out of work when the dust settles, but they said an unspecified number of additional layoffs are expected later this year. Reed said the shortfall is three times the size of last year's deficit, is more than the entire budget for parks, recreation and neighborhood services and is more than double the budget for the city's libraries. In addition, the city still has a $500 million maintenance backlog for roads and other infrastructure. The economic downturn isn't entirely to blame, Reed said. New libraries, community centers, parks and fire stations built after voter-approved bond measures early this decade have increased the city's staffing and maintenance costs, he said. And city personnel costs have grown too fast, Reed said, echoing concerns he has raised consistently since taking office. "Our personnel costs are increasing by over 6 percent this year," Reed said, thanking those city employee unions that have agreed to more modest increases next year and urging the rest to do the same. "That rate of growth is not sustainable." Councilmen Pete Constant and Pierluigi Oliverio, who have been the mayor's allies on controlling spending, praised his speech for its candor about the city's financial problems. "It's good to be upfront with the community about this serious issue," Constant said. "We have a lot of problems. But as the mayor said, we have a lot of opportunities." Despite the economic gloom tucked into the middle of his speech, Reed devoted much of his half-hour talk at the San Jose McEnery Convention Center to reciting achievements and offering encouraging words about the city's future. "San Jose and Silicon Valley have survived many economic downturns," Reed said. "Our ability to innovate has pulled us out of economic slumps and made us stronger." And parrying criticism that his miserly budget policies had helped spur a wave of violent crime that cost San Jose its coveted "safest big city" title, Reed cited progress in tamping down gang activity he noted had been simmering before he took office. He said his efforts to boost funding for gang prevention for the first time since 1999 and to add officers to the force have paid off with a 20-percent reduction in gang violence last year and a reduced murder rate. "Even with those improvements," Reed said, "we still aren't done. We still have too much violence and too many property crimes." Reed did not mention that he was largely prodded into hiring more cops and spending more on gang prevention by Councilwoman Nora Campos, who had criticized his commitment to public safety. Afterward, she seemed irked by the omission. "I pressured him, helped him realize that public safety is a priority," Campos said. "They had to redirect our resources midterm. I'm hoping we don't have to do that again." Campos also suggested the mayor seemed to take credit for advances in bringing BART to San Jose and for environmental initiatives that had been in the works since before he became mayor in 2007. The mayor did, however, thank various people eight times during his speech, including Silicon Valley Leadership Group Chief Executive Carl Guardino for his work on securing voter approval for a BART extension, and high-tech CEOs for bringing solar and other technology companies to San Jose. "It was a great recap of the year's achievements," Oliverio said. "As mayor, he's supposed to inspire us. But he was sobering with the fiscal gap, which is immense."   Contact John Woolfolk at jwoolfolk@mercurynews.com or (408) 975-9346.