The following transcript is provided for your convenience, but does not represent the official record of this meeting. The transcript is provided by the firm that provides closed captioning services to the City. Because this service is created in real-time as the meeting progresses, it may contain errors and gaps, but is nevertheless very helpful in determining the gist of what occurred during this meeting.

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City of San José City Council meeting.

>> Mayor Liccardo: Good afternoon everyone! We'll call the meeting to order for the

afternoon of may 15th, 2018. Today's innovation of invocation will be delivered by be Corina

Herrera Loera and, Gerard Loera.

>> Councilmember Carrasco: Thank you, they are from new fire, as Ms. Thesos and

descendants of the community. Working to perpetuate the healing aspect of the cultures on

behalf of past presently and future generations. They further this work professionally, working

with Santa Clara County probation, the Mayor's Gang Prevention Task Force, the washou

tribes, native Taniff and the natives of Santa Clara County. Corina and Gerardo will be

presenting a traditional blessing. Thank you for being here.

>> Good afternoon, relatives, my wife offers the celebration of life, to the masculine energy, to

the them nine energy, to the south to our children, to the north those who have gone on in our

elder community, all of the spirits from above, all the spirits below, and each one of us, here

today, and all of those that we represent. Make it a special thanks today to Vice Mayor

Carrasco, for extending the invitation for us to be here in this way. With that we perform this

as someone mentioned earlier, this ritual, this gesture in appreciation and out of respect for all

those that came before us, especially the indigenous nations that consider this to be their

home lands, like the Muwekma Ohlone. It's really important to us, we want to bring about an

awareness and the importance of acknowledging the first nations of this land, especially in this

way, any kind of political event, any community-facing event, for us to begin to truly be a

community and a culture of atonement, of forgiveness, of love, first nation people who to this

day continue to suffer at the hands of mainstream society. Grateful to the city council here for

all of their efforts to be the voice of our community, especially our marginalized communities.

People who are struggling to maintain their homes today, our elder community in particular,

and this being mental health awareness month, I definitely want to put out a good thought and

intention towards those that are suffering with mental health illnesses. And a special thought

towards all of us who continue to serve our community in these ways, continue to serve these

different facets of our community. We all come in here not only with the servitude that we

bring to the table but in addition, with our own struggles each and every one of us, the way

we've began this here gesture is a way of acknowledging that. Everything that we stand for,

everything that we represent, and in respect of that and at this time we want to offer a

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ceremonial song. Sometimes words just get in the way. Words oftentimes only create more

misunderstandings. And so sometimes it's best to just sit with that good feeling. That good

vibration. Tune into what it is that we understand collectively as a community. With this song

that we're about to offer in our traditional ways as indigenous people, strong is extremely

important. We can talk all day, all night, but when we can come together with an intention of

goodness, an intention of change for the betterment towards those who have yet to come and

in respect to those who we represent that we truly find that union. I invite you all, as we offer

this song, obviously inviting our civic leaders here to tune in to why it is that you're here today.

What it is that you represent, the communities that you care for and love. And it's in that love

that we will find true change, true peace and understanding for ourselves and those we

represent. [¶ Singing ¶ ] [¶ Singing ¶ ]

>> Thank you. And especially thank you to the city council here for always supporting our

efforts to continue to bring that healing to our community. With that, thank you. [applause]

>> Mayor Liccardo: Thank you both. [applause]

>> Mayor Liccardo: Thank you both for being here. Now let's all rise for the pledge of

allegiance. [ pledge of allegiance ]

>> Mayor Liccardo: Thank you. We have three ceremonial items this afternoon. First i'll ask

Councilmember Arenas to join me at the podium to proclaim may 2018 as mental health

awareness month in the City of San José.

>> Councilmember Arenas: Good afternoon everyone. May is mental health awareness

month. It was created to open up conversations about mental health, an issue that touches all

of us but too often we don't discuss. But today, we are going to talk about it. Especially with

the focus on our youth. One in five people in the U.S. are living with mental health illness, but

often do not seek help because of stigmas created around seeking treatment. According to

the American psychological association, 15 million of our youth could be diagnosed with

mental health conditions. So it's important for a person and our youth for adults and children

to receive individual therapy for us to have peer-assisted programs, for families to be educated

about the needs of children, and adults in each stage of development. It's important for

community to be supportive, for systems to be coordinated and for schools to have an

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environment of understanding and support. We all know that a life full of love, compassion,

trust and understanding will greatly impact a child so they can build on these steppingstones to

have a productive lifestyle. But many children don't receive this and not fortunate enough. So

it is up to us to contribute, and we will contribute by reducing those stigmas, you can contribute

by becoming an advocate. You can contribute by sharing your story. Simple, simple steps. It

is our responsibility to break down the stigmas that keep those living with mental health issues

from seeking treatment. For those listening I applaud you for seeking that treatment. You're

brave and you're doing the right thing. I also like to applaud Kathy Gomez standing ride next

to me. She's my former superintendent when I served for Evergreen school district for the

development of the Evergreen school district's mental health committee and for breaking down

stigmas for children for internal and external stressors. To live happy prosperous lives. Thank

you Kathy for your leadership on this and for your responsiveness as a board member along

with my colleagues when we were dealing with this very, very grave issue, so thank you so

much.

>> Thank you, Councilmember Arenas. I want to share a little bit about the work that's

happening in Evergreen school district around this topic. We, when Councilmember Arenas

was on our board she was instrumental in moving us to focus on mental health. As a result we

put together a committee that's comprised of 21 individuals who represent the various

stakeholders in our community including students, parents, psychologists, administrators,

teachers, counselors, social workers and classified staff. The group comes together a couple

of times each year to analyze student mental health and survey data and make

recommendations for Board of Trustees for implementation. As a result of our committee's

work our committee has provided staff training in the area of anxiety and street for children,

bullying, and the forging of positive student relationships. We've provided parent workshops to

help parents help their children reduce stress and anxiety. We have expanded our PBIS,

positive business interventional support, created a social emotional working group, to celebrate

girls and boys empowerments, club live, a drug and alcohol prevention at one of our middle

schools partnered with San José police department to have liaisons presents classroom

session at one of our middle schools and we completed a QPR question persuade regimen

and used protocol to link students to ongoing mental health support. The need is great and I'd

like to thank the council for its acknowledgment of this need and it's support for ways to

address that need. [applause]

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>> Councilmember Arenas: So my bad. Would you please hand the proclamation mayor so

we can have May declared as mental health awareness month. Thank you.

>> Mayor Liccardo: All right. Councilmember Arenas, you're staying here I think. Because I

think we're presenting a proclamation for affordable housing week and I see a lot of housers

here in the house. So come on up. Any or all who want to join us come on up. All right.

>> Councilmember Arenas: I like that, is that housers? Housers in the house!

>> Councilmember Arenas: As you all can see we are a force to be reckoned with. We are

an army of housers, mayor I like that. It's a pleasure to recognize affordable housing week

2018, sponsored by Silicon Valley at home from May 11th to May 18th. And as you all know

I'm not going to sing to the choir. You all know that we have an affordable housing crisis and

the last count that we have is 4300 people living without homes in our city. Effective monthly

rent for a two bedroom apartment is now over $2500 a month. Since 2000, San José has

seen an increase in the number of rent burdened households of 59%. And if San José rents

were affordable, our residents could spend as much or have as much as $599 million a year to

spend in our community, if they didn't have to spend it all on rent. Be that's a major, major

amount. So this year's theme is it's time for yes. So #it's time for yes. We had 28 scheduled

events, so the affordable housing week, in the affordable housing week, we had 28 scheduled

events and the week is scheduled to bring our diverse community together, educate and

engage, activate and unite around affordable housing issues. This year's theme is like I said,

#it's time for yes. About a collective action, how we can respond to the affordable housing

crisis to build more housing to create a more vibrant and equitable Silicon Valley. I want to

highlight a couple of events. The annual policy luncheon on Friday afternoon, homeless

candidates forum for district 4 board of supervisors race on Wednesday evening, briefing on

current legislation in Sacramento, a discussion for what's indemnity for 827, legislation for high

density near transit, Thursday afternoon at the San José Masonic center. And lastly, a serious

of hot issues, the challenges of gentrification and displacement on Thursday. And how to get

supportive housing built on Friday. We're going to wrap it all up in one week. How about it.

With the army behind me we have our work cut out for us, thank you so much everybody for

being here, for all the work you've done to house our San José residents and I'd love to have

our mayor give this proclamation over to one of our service providers. Kevin Zwick, Kevin I'm

so sorry, before you step up to the podium I just want to recognize some of the folks who are

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standing right behind me and it's housing choices Denise hutaway, not the persons but the

agency, law foundation of Silicon Valley, housing trust of Silicon Valley, AARP, San José

trends for housing solutions, Jackie Hefner, destination home Ray Bramson, NIMBY and

SVLG, Nathan and more than that behind me and I apologize for not naming you but Kevin

Zwick please share some words with us. [applause]

>> So each of us gets two minutes right? Good afternoon everyone, I'm Kevin Zwick, I'm

really honored and happy to receive this recognition on behalf of the housing trust Silicon

Valley home, all the groups you just heard, the San José housing department and we thank

City of San José for proclaiming the week of May 11th to the 18th as affordable housing week

and for your leadership and commitment to helping solve the region's affordable housing crisis.

Where do we need an affordable housing week and what are we going to be doing? As you

heard, we're not going to rehash the issues over and over. What we're going to do with

affordable housing week is it gives the community a chance to learn, to help build a movement

and with the crisis deeply impacting thousands of individuals throughout the region as well as

the overall quality of life, thee conversations that are happening during affordable housing

week are more critical than ever. So all of the events are open to the public. Thank you,

Councilmember Arenas for highlighting a couple. Just to reiterate this Friday, is the policy

luncheon. It is a discussion with housing policy leaders who are exploring regional

approaches, that's Friday, may 18th at leverage a.m. At Microsoft Sunnyvale, and Thursday

may 17th, at the San José Masonic center there are two workshops back to back, around state

high density housing and what's happening in Sacramento. So on behalf of all of these

housers and all of you, thank you so much for this proclamation and thank you for your

leadership on affordable housing issues. [applause] [applause]

>> Mayor Liccardo: Okay as we clear the chambers. Have to remember the food the next

time we invite all those guys. Okay. Councilmember Khamis is going to join me at the podium

and we're going to present a proclamation declaring May as older persons month.

Councilmember Khamis. I'll i'll note the snickering from Councilmember Jimenez who one day

very soon will be old.

>> Councilmember Khamis: God willing he'll be old. Thank you mayor, I think this is a very

appropriate, I am the most appropriate person to do this today. We'll get our seniors and our

senior staff, senior services providers down here. Cool, thank you. You guys all have shirts,

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what's up with that? With purpose. I don't know that I have the challenge of naming every one

of you here. Here's why it's prompt. I'm not only the liaison for the senior commission, and on

Friday I will also be joining your ranks as a senior. [applause] So it's obviously been my

pleasure to represent the seniors, on their transportation concerns, nutrition program and

making them all aware of all the tax breaks that they will have, i've also requested briefings for

emergency preparedness with tailored to seniors. As soon as that program gets up and

running. And I want to thank every one of you for working, those who work with and for

seniors every day, and they're all well loved in our community. There's too many of them to

name but I'm going to name a few. Mary O'Meara manager of the senior services who is here,

retired a few months ago, Tracy Gott supervisor for senior services, I didn't see Dominique

Bacoba, Almaden senior advisor, all the other employees who are here to help our seniors day

in and day out. And of course many volunteers who help us out. Jackie, who wants to speak?

>> I simply want to say that on behalf of the 125,000 older Americans who are living here in

San José we're happy to be here today. We're proud to take this proclamation and we hope to

see all of you and many of the things that we do throughout the city. Thank you mayor. Thank

you to the city council. And thank you Councilmember Khamis for being with us today. Thank

you. [applause]

>> Mayor Liccardo: Okay on to orders of the day. Does anyone on the council have any

changes to the printed agenda?

>> Move to approve.

>> Mayor Liccardo: There is a motion from Councilmember Rocha. Let's vote. On to the

closed session report.

>> City Attorney Doyle: Yes mayor, council met in closed session today. We were given

authority to file amicus briefs in two cases, one is the United States versus the State of

California. We were given authority to file an amicus on behalf of the State of California. This

is a challenge to SB 54 and other connected legislation. A vote was unanimous with

Councilmember Jimenez, Diep and Peralez not present. Similarly, we were given authority to

file an amicus in the national fair housing alliance versus Ben Carson, et al, this is a case

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challenging the suspension of certain HUD regulations, the council unanimously authorized it,

with councilmembers Diep, Carrasco, Jimenez and Peralez not present.

>> Mayor Liccardo: All right, unless there are any questions we'll move on to the consent

calendar. I'd like to pull the following items. Because we have comments from the public.

Item 2.5, item 2.10, 2.12 and 2.13. Any other items to be pulled? Okay we'll entertain a

motion on the remainder of the items.

>> Councilmember Khamis: Motion to approve.

>> Second.

>> Mayor Liccardo: Let's vote on all the items remaining. All right. So I believe 2.5 is the

council travel report. We have two members of the communities who would like to speak.

Shakir Akim and Mohammed Taleb. I should ask, there are any councilmembers that wanted

to make a report?

>> Yes.

>> Mayor Liccardo: There is one, okay. Come on down we'll hear public comment and then

we'll go on to the --

>> Mayor, could you repeat the items that are being pulled?

>> Mayor Liccardo: 2.5, 2.10, 2.12, 2.13. Was there any other item you wanted to pull?

Okay, great. Hi welcome. Everyone in the community has two minutes to speak.

>> Good afternoon. My name is Shak-ira Hakim. I'm Yemeni-American. I've been work in the

Bay Area and i've been in this area for over 40 years. My question is for Mr. Khamis about his

visit to Saudi Arabia last week. Why do you want to bring businesses to our lovely Bay Area

with your war criminals? Saudi Arabia has been bombing killing Yemeni people for over three

years. Thousands have decide. They are also blocking, blockades in the area. Why did you

visit? Is money and profit more important than embassy life? Do you wish to invest in

bloodshed? Thank you.

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>> Mayor Liccardo: Thank you. Mr. Taleb.

>> Good evening, before I say my spiel, I want to make sure I pronounce your name right.

Councilmember --

>> Mayor Liccardo: It is just a time for you to speak and we'll listen.

>> Okay, sounds good. You know first thing I want to thank everybody who has spoken today.

My name is Mohammed Taleb. One of the founders of the Yemeni Sudan association of the

Bay Area, living in the Bay Area for 20 years, still have family members avoiding missile air

strikes while trapped in Yemen. I wanted to know Councilmember Khamis about your visit to

the kingdom. You shared, the Saudis wanted to have more, in all ravaged by indiscriminate

preventible virus called cholera, has killed countless Yemenis. While 10,000 people mostly

civilians have died to the Saudi led U.S. blockade. Block much needed water, food, fuel and

medical supplies. If it isn't these bombs killing Yemenis it is the famine that's killing elderly,

sick women and children. How can we allow our economy to profit or to contribute to

atrocities. If anything, the respective city council should be drafting language to reject any

further collaborations, we are supporting this war by entertaining these ventures and doing

business with war criminals. I expect you all to agree that profit should not come before

human life. It's a sad state of affairs that I have to tell you that the Yemeni people have to

endure these inhumane conditions during the holy month of Ramadan, which is starting

tomorrow. I ask you to reminisce and to think about where did the kingdom's war in this war in

Yemen come into play during your travels over there, was it even brought up at all? So I urge

you to not support Saudi Arabia's ventures or whatever it may be. Thank you.

>> Mayor Liccardo: Thank you. All right. Councilmember Khamis.

>> Councilmember Khamis: Yes. So first I want to clarify. I don't get to choose who the

United States gets to make friends with, or there are -- I'm a Palestinian. And just yesterday,

50 Palestinian were killed by a U.S. ally while protesting so I'm no stranger to the sensitivities

that you have displayed. But I also know that not talking to people is not understanding one

another. And this is one of the reasons why I went, to understand more about a culture that I

knew nothing of. Even though I am of Middle Eastern descent. I knew little or nothing about

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Saudi Arabia. The culture the more than 100 year business relationship that the kingdom has

with the United States, and quite frankly, if you drive a car, you've done business with the

kingdom of Saudi Arabia. So I return from the kingdom on Wednesday, just in time for rules

committee meeting, by the way. And the kingdom, the delegation was led by former Vice

Mayor Madison Nguyen from the Silicon Valley organization, the person who invited me. Carl

Guardino. And Lawrence Anthony, or Lo Tony who he would like to be called, he's the VC

from Comcast ventures which is affiliated with google ventures and Chris Calder, we were

warmly welcomed when we stepped into Riyad airport. I'm impressed that every sign and

every person spoke English. I didn't need a translator in any way. We were treated very

warmly, not just friendliness but it was 108° every day outside there. So it was a very hot and

arid place. The kingdom of Saudi Arabia is a place where much work needs to be done. But I

found that they were willing to open their doors and begin discussions on important issues. I

know that business isn't the most important issue on some people's minds. But I think

businesses have led the way in many ways to change even U.S. domestic policy on women's

movement, on gay rights. So business is a great way to get your foot in the door and start

making changes. And under the new leadership of a younger generation, I felt that the doors

were looking like they were open, they were definitely opening to our ideas. They asked us a

lot of questions. We began the first morning with a visit to business incubators, where we were

asked if businesses would think of locating their offices in Saudi Arabia, so they not only

wanted to do business with us, they want our businesses to go locate there. We had a private

meeting with ministry of trade and investment and business owners, with the -- their new

kingdom's 2030 vision plan, to diversify their economy. So we had this -- I have a video of it

but it was a big conference write got to speak to a lot of the princes and a lot of the investors.

And we actually then had a big -- maybe you could queue up the video. A big presentation, a

lot bigger than we expected. We can queue up the video here. ¶¶ ¶¶ ¶¶ ¶¶ ¶¶ ¶¶

>> Councilmember Khamis: Thank you. And the very next day we drove a couple of hours

into the desert and had the opportunity to see the world's largest dairy farm. It was one of the

most high tech dairy farms i've ever seen. They don't use antibiotics in their feed. It was air

conditioned facilities for the cows. I thought it was a very impressive facilities. So, you know,

in the same evening we came back and we were presented with a dinner with kingdom's

women equality movement and I got to speak to a lot of the leaders in the women's movement

and I thought their views were excellent. They didn't say that they won the battle, but they

were -- you know they were full of ideas and warrant -- wanted to work hard and they wanted

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us to know that women are now being heard more than ever. But these women were very

accomplished women, doctors, scientists and even the building was owned, the building which

was the tallest building in Riyad was owned by this woman at the table. Statistics, one thing

that impressed me was the fact they wanted our help, they wanted Silicon Valley's help to

measure the happiness of their population. And I thought that that was an interesting question

for them to pose for us. So the visit ended with a very optimistic approach. They wanted to

hear more from us. They wanted to invite us out again and they wanted us to invite more

business leaders to help them manage their country better. And so a lot of the -- a lot of the

discussions were had not about investing here, but about how our society can help improve

theirs. So that's the -- kind of the twist of things. I thought we were going to be there trying to

gain new offices and new businesses here. But they were asking us for help on how to

manage their own country better. So I was glad to be part of the delegation. I thought the

doors are open for discussion of many ideas, and I hope that the more that we open the door,

the more willing that their leaders are going to be to hearing from us. And so I am very happy

to have gone. I'm very happy to have met leaders in the Saudi community, who want to have

better relations, and if that happens from this trip I would consider it a big success. I did try to

get the ministry of trade and economics to locate their new offices in San José, rather than L.A.

because they're still making that mind. And i'll let you know if they change their mind. But that

is the end of my report and I'm here to answer any questions, if any.

>> Mayor Liccardo: Thank you, councilmember. Any questions? Just want to first

acknowledge and thank the members of the community who came identity to give their

heartfelt and passionate statements in support of those who have been traumatized in the war

in Yemen. I just wanted to offer, this is something we did actually discuss before the trip. And

there's no question that in the last three years Yemen has been left with the worst

humanitarian crisis on the planet, according to the United Nations, more than 10,000 people

have been killed. But Saudi Arabia last been responsible for bombing Yemen. Although we

are spending three quarters of a billion dollars of help, there is a series crisis here but I think

we all have some responsibility this this. So I supported the trip because I do think that

communication is ultimate hi important. It is not something that expended any city dollars.

This was entirety privately funded and for that reason seemed to me that certainly

councilmembers are free to take trips, as is appropriate and still consistent with their

responsibilities back here. Any other questions? Comments?

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>> Councilmember Khamis: Motion to approve by the way.

>> Mayor Liccardo: All right on the motion let's vote. Councilmember Nguyen. I'm sorry I

wasn't able to see that.

>> Councilmember T. Nguyen: Thank you, mayor. I really appreciate and admire my

colleague council Johnny Khamis of his balance and calm response and friendly, I appreciate

that a lot. I share your concern and your courage. But I also particularly grateful to the

community members who came to speak out. We need that. We need your voice. And I

mean, there's enough words to describe the pain and difficulty you've been through, as i've

been through, as many of us have been through from out the country. But a lot of medium

either too difficult for them to take on or for other commitments. Which is nor the fact that you

took time and came up and spoke at this forum here. I really admire you. And I want to take

that as example to encourage more people to do so. In a very civil respectful and productive

dialogue so I again, I really thank you for your effort. And I encourage and wish more people

keep doing that. And that -- and now you know why, we all know why America is great. Thank

you and God bless. Thank you.

>> Mayor Liccardo: On the motion then let's vote, 2.5. 2.10 relates to retirement board and

representation on retirement board. Several members of the retirement community would like

to speak, Brad imamura, Brad Jenson and Gary Leninger. If you all could come down, thank

you.

>> Thank you mayor. And good afternoon. Reply name is Brad imamura, I'm retiree of the

City of San José. I was on the Federated retirement board for 12 years. I just want to read

you something really quick. I just got this pamphlet, most of you did from the Secretary of

State. Dear fellow Californians, there is no greater right than the right to vote, America's

democracy thrives when every eligible voter participates. I'm going to refer back to those

sentences. But I'm here to vehemently oppose and hope that we have at least six votes to

oppose the recommendation set forth in the memo that you received from the City Clerk.

Because it's rather unusual because the same recommendation is for that same person that,

on December 13th, 2016, the city council rejected the recommended candidate. That's same

candidate that they are recommending today. So how is that? Is that like a redo? I don't

understand how that is. So I'm really confused by that. So if I can be enlightened by that, and

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I know I only have two minutes, looks like I only have 40 seconds left. So what I'd also like to

say is that the retirees had their opportunity to speak and to vote. We had a legitimate, fair

election, which as you know the city council nullified. So -- and then they came up with this

idea of a committee to recommend. Unfortunately, the committee was made up of three active

employee members. And what's curious to me and troubling is that in what I was told just

recently, the active employee members were having a difficult time of getting someone to

volunteer to represent them. So why are they involved with selecting a retiree when they can't

even select their own active employee member? I don't understand that either. So again, I'm

really here to see if -- can you demonstrate to the public that you're really serious about

managing this retirement fund. If you are, really, search your conscience and if there are at

least six of you that will vote against this, vote for who the retirees voted for. It is not about an

individual, it is about a process and the process you have now is flawed.

>> Mayor Liccardo: Thank you, Mr. Imamura.

>> Mayor and city council approximately 15 years ago there was a change in the retirement

board makeup. At that time there was an outcry to provide the retirees a say, because there

was none on the board. The city council back then this is a promise made to the people

expanded the number of seats from 5 to 7, designating one of these for the retirees.

Eventually there was selection is, board member as the active employees. An election. Now

what's going on here is that this procedure is attempting to deny the retirees the same means

of selection for their board member as the active employees. In reality, without an election, it

actually gives the active employees a third seat. And the retirees zero. Does anybody get

this? When three out of the five members on that review panel, interview panel are active

employees, it automatically makes it a stacked deck. In other words, it becomes rigged. You

get this? Three out of five. Majority. They get to vote again? They are already given two

votes by an election. Why are you denying the retirees, the choice? Why would you deny Mr.

Imamura the selected person, his seat on the retirement board? Why the elected person has

to set out by recusing himself. Does anybody see the insanity of this? Thank you very much

for your time.

>> Mayor Liccardo: Mr. Leninger, Susan de Vincenzi. And Sarah workingham.

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>> I'm here as the retired member of the San José Fred blows retirement system. Your

admission here today, your goal today here is to accept this person, accept for cause. I know

Mr. Castellano. I can read you some of the things from the interview panels, Tony cokeley, I

cannot find as help for you absolutely any cause for rejection from his application for this

panel. What his work as a retiree, his technical skills, work skills. It is time to go on, I hope

you can make this appointment today, thank you.

>> Mayor Liccardo: Welcome.

>> Good afternoon. My name is Susan de Vincenzi. I am a retired city employee. I've known

Jay castellano for quite some time. I represented the retirement boards, I have an idea the

kind of decisions the retirement board members will have to make. I also found that Jay would

understand all those issues. He understands fiduciary obligations, he understands

investments, he understands city procedures. He understands open government rules, he

understands the request for proposal process and one of the most cooperative workers i've

ever met. He always listens to both sides or all three sides if there happen to be more than

two. He does the research needed to make an informed decision and I would recommend that

you go ahead and do this appointment. Thank you.

>> Mayor Liccardo: Thank you. And finally, Debbie, welcome. I'm having a hard time

identifying if anyone is indicating they want to speak. I have a light that's blinking. Is anyone

indicating they want to speak? You do. We'll try and get this worked.

>> I'm Debbie working beton. I'm a City of San José retiree. I was a member of the panel that

chose Jay castellano. I'm confused as to the opinion that the actives are getting a third

representative. The two retirees on the panel myself had 20 years experience working in

retirement services and the other gentleman Tony cokeley was on the board for 16 years. So I

do believe we had the knowledge to know when someone was qualified. And by far, Jay

outshown his abilities, and the other area that he was very well versed was in retiree medical.

Which is a hot button on all sides. So I seriously request that you go with our recommendation

as we followed the rules as presented and we picked the best-qualified candidate. Thank you.

>> Mayor Liccardo: Thank you. All right, Councilmember Rocha.

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>> Councilmember Rocha: Thank you, mayor. I had two questions, as far as the supplemental

and the candidate having to recuse themselves with regard to the lawsuit that's mentioned

correct?

>> City Attorney Doyle: That's correct.

>> Councilmember Rocha: I don't know how often someone from retirement services should

answer this but how often should we have this happen? Every meeting, every item or --

>> City Attorney Doyle: I don't expect it to happen much if at all. We have, as you may

remember, the city council is given the retirement board a full indemnity on this case, so it

really is a City of San José case, city council. And so very little should be going to the

retirement boards on this issue.

>> Councilmember Rocha: Thank you. And then hi a question more for I guess the City

Manager's office. The -- this item being on consent, we typically on appointments not often on

consent except maybe some of the boards and commissions, can you refresh my memory on

which ones we would have an open session and which ones are on consent?

>> Dave Sykes: Was that to me or to the clerk?

>> The Clerk: To me.

>> Dave Sykes: Okay.

>> The Clerk: The municipal code is written in such a way that you can only reject him in the

way he can't serve. You can't object, if you think this guy is more qualified than that guy. It

was more strict than what the code was written so we put it on consent.

>> Councilmember Rocha: Thank you very much.

>> Mayor Liccardo: Other comments or questions or a motion? Motion and second. Let's

vote.all right the motion passes with one dissent. We'll move on to item 2.12. This is an item

that I actually pulled. This relates to our bond. I'm sorry, no, it's 2.12, there are two items. So

15

the staff reports on the safe neighborhood parks and recreation projects, I just had a couple of

questions here and Matt since I guess you're both current Public Works director and formedder

parks guy, you seem well suited for this. The first question really related to the Guadalupe and

fact that the report indicates we've got real constraints on the ability to build, we had greatly

constraints and soccer fields which I think would have been fabulous. We let go of that vision,

moving elsewhere in the city, we hope that's fabulously successful in the Agnews area.

Organizations like spur looking to organize the Guadalupe, the same situation we have, it was

uniquely ironic to me because somebody was asking me why we don't do more with the

Guadalupe park area to build out something for greater amenities. As we were sitting in the

Avia stadium next to 15,000 screaming soccer fans, you think it would be there, concern about

security, by the airport, than the few people running by the Guadalupe. So request we at least

begin the conversation with the state and with the airport land use commission to start to talk

about how we can unbind ourselves from some of these restrictions, at least have those

conversations in advance before somebody jumps in, in advance, saying I'm ready to go fund

something, and is there an opportunity to have that conversation starting now?

>> Matt Cano: Thank you, Matt Cano Public Works director, i've been in lots of discussions

with John Aiken on this. He has been great, he and myself and Nancy Kline from economic

development have already had robust conversation with the Guadalupe river conservancy on

this. We ran into too many poison pills regarding putting soccer fields in the approach zone in

the Guadalupe gardens right now, specifically caltrain state regulations is the ones we could

not overcome. We're going to be coming back to the council after the summer break,

obviously with Angel, to make a new recommendation for a new site for soccer. I agree with

you in order to do something grand and wonderful in the Guadalupe gardens in the future we

need to have that conversation now and finding out what can and can't be done and get

through the biggest hurdles.

>> Mayor Liccardo: Leading the charge in intergovernmental relations, really a question for

you Dave what is it the best way to get it on Benna's work plan or whoever it is, is that work

plan coming back to us any time soon?

>> Dave Sykes: I'm not sure the time frame from that but certainly we can take input right

now and discuss what the best strategy to move that forward would be.

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>> Mayor Liccardo: Thanks Dave. Question about the library bond, I know we've got about

$5.9 million left. I see Jill is here, great. I know you guys are doing lots of thinking about how

best to use that money, there is a lot of rehab that needs to be done in the older libraries. My

question is would it be a bond eligible expenditure to use that on I.T., particularly if we were to

use it in a strategic way for other projects we might have around fiber for example.

>> Jill Bourne: Yeah, this is Jill Bourne city librarian. The overarching question about the

eligible bond dollars is that we do have a total between the total that is supposed to occur

between the fiscal year and the one remaining, about $6.9 million. We did assessments of all

our existing facilities osee what might be bond eligible sort of upkeep work and we wanted to

get that off the top to make sure we're maintaining our facilities. The second tier that we're

actually looking at is the three buildings that were not either renovated or improved through the

bond program. And that's Alviso, bibliotecha and King library. Taking connectivity into

neighborhoods that experience barriers to access. We haven't done a separate scan for

specifically for I.T. projects alone. That is something that we could look at.

>> Mayor Liccardo: Okay, thank you I appreciate just considering them. I know that you've

obviously got a lot of priorities to juggle and the 5.9 million isn't going to be enough to handle

all those. Given the fact we are thinking about how we might make investments in broadband

in this city, it would be great, I think certain libraries are well quipped at this point but we still

have a few to go, right?

>> Jill Bourne: That's correct, we're transitioning them a gigabit per each. The timing is good

because we just completed the assessments and we're planning to do our community

engagement process and planning. Because now we'll actually have a time line for having the

dollars in hand.

>> Mayor Liccardo: Great, thanks Jill. Okay Councilmember Arenas.

>> Councilmember Arenas: Thank you mayor. I just wanted to get a bit of a clarification

about where we are in the process of paying off the parks bond. I want to know how long

taxpayers will be paying for this.

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>> Matt Cano: Thank you. I'll have to follow up with you, I don't have that off the top of my

head.

>> Councilmember Arenas: Thank you.

>> Mayor Liccardo: Other questions, Councilmember Jimenez.

>> Councilmember Jimenez: Matt thank you for the information. The 14.9 million that's going

to be left over after we build out Arcadia, that remaining amount is going to go to the soccer

complex. Do we anticipate that's going to be enough to build something out?

>> Matt Cano: Yes, we anticipate right now that we'll have enough to build out a soccer

complex. The 14.9 million, the conveyance moneys that have been added, we're evaluating

where we go and come back in probably the August and September time frame and in

collaboration with Angel and Nancy, we'll have a recommendation how to fully fund the project

when we come back without adding any new money.

>> Councilmember Jimenez: I'm not sure if you are willing or able to share some of the

thoughts as to where this would even go in the city. There's been a lot of discussion over the

years with regard to putting some fields out by Avia stadium and --

>> Matt Cano: The original site we approved several years ago was to put four fields in a row

right next to Avia stadium. That is still an option, although we have been in discussions about

whether there would be a better use of that site. That is one option, we own that property and

we can go back to the bids that we had ready to go a few years back. We are also looking at

the Agnews site we purchased from the state of California in district 4. Administrative sites,

golf course, counties properties and private property and we'll be coming back with our

recommendation after the summer break on where we think the best alternative is.

>> Councilmember Jimenez: Okay. When you are evaluating those alternatives is it more

just proximity to location in the city, centrality or space or a combination?

>> Matt Cano: It is a combination. First and foremost can we fit in at least four fields for the

sites and can we afford to built it? The conversation has changed but the most recent goal

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was to build a four field complex, big enough to hold tournaments. That's the minimum size

we want to build. Can we afford it? Can we get the property control to be able to do it are

three primary affects and then additionally, as central as possible to as many residents as

possible.

>> Councilmember Jimenez: Given some of the sites you discussed, one, the fairgrounds, I

know the county is going back and forth what to do with that property. The Agnews, is that

going to require discussion with Santa Clara Valley be school district?

>> Matt Cano: No, we own the front half they own the back half and we are absolutely free

and clear to do what we want there and use both properties in the future but it doesn't need

their approval. They've been great to work with.

>> Councilmember Jimenez: Are we evaluating, trying to find a location what parts of the city

maybe have a good amount of open space or soccer fields available as opposed to different

sections of the city, is there any that you all can follow to help guide some of that?

>> Matt Cano: For the location of this soccer complex it would be nice to look at where our

soccer field deficits are and place it in that location. Right now I don't think we really have that

luxury. The number of sites where we could actually fit a 74 field complex are pretty limited,

pretty slim. It's down to a few potential locations if we wanted to deliver on that commitment of

at least four fields.

>> Councilmember Jimenez: Okay, thank you very much.

>> Mayor Liccardo: Mr. Beakman.

>> Hi. For this issue, what I would like to talk about, hopefully it's related to safe neighborhood

parks. I had to gather up my courage to come down here, and as part of a safe neighborhood

park process, overall, Mr. Angel Rios has been working on how to make the park ranger

program a more positive program. And it's just given me a lot of hope for what's possible in

San José at this time and how we can all strive as a community to work towards more positive

ideas. And that's through parks department. And they've been doing some really nice stuff

and I just wanted to thank you. And I really hope we can all coordinate together to work on this

19

kind of thing together. And about the library funding, I'm a bit concerned about the RFID

process still. I hope you can learn how to possibly keep, be very aware of working with that

stuff and to build it so librarians necessarily don't have to be around it all the time, so much.

As what maybe is happening right now. I hope you can be aware of that and make changes if

you can. Thank you.

>> Mayor Liccardo: Thank you. All right is there a motion on this one?

>> Move for approval.

>> Mayor Liccardo: Let's vote.

>> The Clerk: I didn't hear a second.

>> Mayor Liccardo: Councilmember Davis. All right and finally, 2.13, thank you aural for

answering the questions. Item 2.13, actions related to the annual in lieu report. I pulled this

item, Matt thank you for hanging around. I also want to thank deputy director Mike Lu for his

work, deeply involved in this and sad to see him moving on. But this is something that has

vexed me from the day I came to City Hall many years ago, that state law seems to confine us

to putting little pots of money, little amounts of money into pots, that we can absolutely never

spend any way improve the quality of life in our neighborhoods until magically we can get

enough contributions in one particular block or perhaps it's a few blocks to be able to actually

do any undergrounding. And I recognize that there are nexus restrictions here under state law,

seems to be the definition of a Kafkaesque conundrum from the state. I'm sure these projects

only get more applicanted. I see here the full funding of all of these projects is 2040 because

we can't find a date that would really reflect -- which means these will not get funded, if we are

waiting for 5,000 or $10,000 at a time to get to a seven-figure amount. I think this is the time to

tell the legislature this is broken. I think it is government code 66001. And I guess I'm once

again coming to you guys with the question, can we get this on a priority list somehow for

advocacy with Sacramento? It seems like the folks who are in building trades for example

should be strongly aligned with us on this, because people will actually get work and will

actually be able to improve neighborhoods. There will the city's association will be aligned with

us to pull these buckets of money together, to get this built. Is there any reason why you guys

are aware of why we wouldn't advocate in Sacramento to try to get this changes in some way?

20

>> Matt Cano: As I'm looking, I would agree with you, there is a number of small pots and it

takes a lot of work administratively to continue to track these pots. Before I finish answering

these questions, I want to know whether Sal or Rick would like to contribute --

>> City Attorney Doyle: There is a limitation with respect to Supreme Court cases, the so-

called Nolan Dolan line with respect to nexus. There is probably something we could do and

should do and we probably could get back to the council with a recommendation if you want us

to go there.

>> Mayor Liccardo: Yeah, I appreciate what you're saying Rick. So if there are legal

constraints I get it. It would be nice if we could just get a state statute that says if it's within

spitting distance it's close enough so that way we can pull money together and actually make

something happen.

>> Dave Sykes: Mr. Mayor if I could just Public Works I was curious, when does the

undergrounding master plan come back to council?

>> Mayor, this is Sal Kumar, Public Works, engineer. The work plan went a couple of weeks

ago.

>> Dave Sykes: What you're seeing here is an annual in the fee report, we actually bring to

council a master plan for the undergrounding program. It's really within that program where

there's a better tracking the dollars coming in, how we are using them under 20 A or 20 B

undergrounding. Let's see through the legislative process an opportunity to have some work

done that would open the door free up kind of how we can use some of these moneys.

>> Mayor Liccardo: Okay, I appreciate that, I appreciate there may be legal constraints, but

one would think politically they would be aligned to get these projects moving. And I'm just

thinking about what the cost escalation must be for a lot of these construction projects while

this money sits in many cases for probably decades. It would be great to see something

happen, let me know if I can be of any help. Any questions or a motion? Or not.

21

>> Councilmember Carrasco: You need this to be approved tip? Anything else? Motion to

approve?

>> Mayor Liccardo: I guess do you need direction from us?

>> Dave Sykes: I think we're fine, yes.

>> Mayor Liccardo: Great, on the motion let's vote. All right we're on to the regular agenda.

Thanks guys. Okay, report of the City Manager.

>> Dave Sykes: Thank you, mayor. I have no report today.

>> Mayor Liccardo: I have labor negotiations update. Is there an item or just on the agenda?

No. We're going to go on to 3.3 which is a public hearing on the proposed operating and

capital budgets and the proposed fees and charges report. I have no cards from the public.

This is not a very lively hearing. Do we have a motion to --

>> City Attorney Doyle: You have to have a motion to close it, this is a public hearing on the

fees and charges. People have their opportunity to speak.

>> Mayor Liccardo: All right, we'll entertain a motion.

>> Councilmember Jones: So moved.

>> Second.

>> Mayor Liccardo: Let's vote. All right item 3.4, action he related to the annual development

in lieu fee report.

>> Dave Sykes: That item was renumbered to 2.13.

>> Mayor Liccardo: Just trying to understand, it happens to appear on two locations, 6.1 is an

award of a construction contract on the street sealing project.

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>> Motion to approve.

>> Mayor Liccardo: Is there a second?

>> Second.

>> Mayor Liccardo: Councilmember Jones.

>> Councilmember Jones: Yes, I just had just one question, don't know who -- I see Jim up

there coming down. So Jim, looking at the memo and the engineer's estimate was 7.4 million.

And all of the bids were significantly over the estimate. And I was just wondering what was

driving those additional costs.

>> Jim Ortbal: Yes, Councilmember Jones, Jim Ortbal director of transportation. What drove

the cost is the striping. Essentially only one striping contractor in the Bay Area put bids in.

Each of the paving companies the prime contractors that submitted bids only had one striping

subcontractor and there's an absolute shortage in the Bay Area for the striping and there's a

significant amount of work. That is clearly where the escalation over the engineer's estimate

occurred from. I will mention to the council and to you Councilmember Jones is we intend to

revoke some of those items and do a significant portion of that in-house and expect to gain

pretty significant savings from what we're asking you to award here. So we mentioned that in

the memorandum that we expect to revoke those items and we can do it more efficiently and

less costly, through our in-house process. And we're prepared to do that. We think we will

bring this cost down, we said about $1 million but we've kind of completed that process and we

expect to get about $2 million in savings.

>> Councilmember Jones: So for future bids, it sounds like the striping contractor issue is

going to be an ongoing issue. Is there a plan to be able to provide that service in house or

identify other contractors that can do the service or how are we going to approach that?

>> Jim Ortbal: Yes so great questions. We will contemplate that. We're going to see how

that goes bringing this in house. It's a concentrated period of work, as you all know. When

streets get paved to getting restriped there's that period of time when everybody wants it done

immediately. So it's kind of a high intensity, high volume short time frame volume of work.

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That's why we haven't done it in house over the years. As prices are rising and competition

doesn't seem to be had in the subcontracting area we're challenged and we're absolutely

going to make the in-house approach work this summer and we're going to assess for next

year whether we want to bring more of that and do more of that on an in-house basis. This

year we also put out kind of annal option on the type of paint material that could be used,

hoping that would get us lower prices. But all of the bid items came in on kind of the higher

priced paint material as well. So that didn't yield the result that we were hoping for this

summer so we'll absolutely be evaluating it through the summer and as we develop our

projects next fall we'll be looking for ways to try ocontrol that cost. It's a big concern for us and

we're very focused on it.

>> Councilmember Jones: Thank you very much Jim.

>> Mayor Liccardo: Councilmember Khamis. Nope, okay I'm sorry. Councilmember

Jimenez.

>> Councilmember Jimenez: Jim, I might have asked you this from the past but I'm going to

ask you because I don't recall. District 2 projects, especially Blossom Hill road which is a main

thoroughfare and needs, you know it's crumbling. So are we expecting early July or --

>> Jim Ortbal: So the construction for this contract if approved today will start in June and it

will run through October. And we will work with the contractor, I think we have about 70 miles

of streets in this contract, quite a large one. We will work with them in terms of scheduling out

the specific streets, kind of by week and by month. And when we have that, as I mentioneded

previously, we will be notifying, we will be putting out information what's coming on a biweekly

basis so the community is aware of what's coming and the community in those streets will get

notified by the contractor before the work starts. June to October we don't have a specific date

on each street at this point in time. We'll develop that with the contractor during the

preconstruction process.

>> Councilmember Jimenez: Cool. The other question I had is specific to the Blossom Hill

road, Monterey road, including ramps, is that the area near Monterey road? If you go Blossom

Hill road was it east towards 101, you would encounter certain ramps --

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>> Jim Ortbal: That's correct, yep.

>> Councilmember Jimenez: Okay, cool. Thank you, appreciate it.

>> Mayor Liccardo: Councilmember Arenas.

>> Councilmember Arenas: I just want to echo some of the same sentiment Councilmember

Jones had in terms of the contractors. I see they're driving 39 almost 40% over the engineer's

bid. And I know that you said that there was going to be some internal uptick in terms of

striping. But from what I see from the memo I think it was like a million, right? It was only

goods to reduce it busy a mill. And this -- I don't know if a million, how much that reduces the

39% overage. But I'm really happy to know that you're going to focus on increasing the

striping capacity internally. I think that's a great plan. We've seen our subcontractors maybe

because they're so busy, make some huge mistakes especially on Silver Creek valley road

where there wasn't enough space for the cars and people were just -- it was crazy. I know that

we were doing that to narrow, so that cars could go slower and it could be safer. But it just

caused some really -- some chaos. So I think there was an opportunity there for us to grow

and do you think that is increasing capacity would save us a million starting now but at the end

of this project do you think it would save us even more than a million?

>> Jim Ortbal: The estimate when we were putting the memorandum together

Councilmember Arenas, our conservative estimate of the savings we'd achieve through two

different cost reduction strategies, one was bringing the purchase of the materials in house

and the labor, the actual application being done by our in-house markings team and evaluating

the amount of striping particularly in the protected bike lane areas where they are hind

delineators, parked cars or other features that don't expose the bike riders to car traffic. And

so we made a determination that we need less striping in those areas particularly given the

price that we were dealing with. Those two strategies, when we put the memorandum together

our conservative estimate was about $1 million the savings. We've been working diligently in

the past three weeks since we finalized the memorandum and our estimate is close to $2

million in savings. That would bring the total amount we would expect to expend on the

contract, including the in-house work, about 8.5 million, a million dollars over, the engineers

estimate not the 40% over or 10.5 million. We will ultimately get savings, plug that back into

the program, and expanded in house markings capacity, our ability to do that on an ongoing

25

basis will really be tested and we can see is that kind of a more effective from a coffers

standpoint and can we sustain that level of work. So we're -- our markings team is actually

very excited to kind of take this on. We feel like we can do a grade job here and kind of

mitigate some of the impacts of just not having a competitive striping subcontract industry in

the Bay Area.so many agencies doing so much work, only one subcontractor put bids in with

all the 75 companies that put in the kind of paving contracts.

>> Councilmember Arenas: They were all the common --

>> Jim Ortbal: So we think this is the right way to go for this contract and we will definitely be

assessing how we want to approach this on an ongoing basis in the future.

>> Councilmember Arenas: I'd be interested in seeing how that would happen about seems

like more opportunity for families to be employed, more local workers to be employed, so that's

great news, thank you.

>> Mayor Liccardo: Other questions? All right Jim, I just wanted to throw out a wild pitch to

you. Recognizing, I appreciate how you saw that clearly, within the bidding, for this one

subcategory, you had estimates I think 114% over the engineer's estimate, the bid was 114%

higher, whereas the asphalt sealing was 11% under. And if we have a world in which we have

a measure B that gets through courts process and SB 1 gets through the voter process in

November, we can actually say we have a reliable stream of street pavement money, it seems

to me that the cost escalation we're dealing with may not be purely a factor of the economy but

also of index graphics. I'm sure we hear the union saying it's a contractors that are taking

really high profits and the contractors saying we can't find labor and labor gets more

expensive, I'm guessing they're both right. If it's time that we have a steady stream of dollars

that we know won't vary with the budget, is it time for us to think about is it cheaper for us to

just do that in-house and i've never said that before and in public about a city function that

we've been traditionally outsourcing. But I'm just starting to wonder as we see really sharp

cost escalations, perhaps not today because we know we don't have these reliable sources yet

and we don't want to hire a bunch of people and have to lay them off in the next recession.

But a month or two from now is that worth talk being about?

26

>> Jim Ortbal: Absolutely mayor. The moment we saw these bid prices coming in that's

something we immediately thought about. In the short term we're doing that with kind of time

limited positions and we're working with the budget office and getting overstrength positions

that will last throughout this building season. We'll assess this to see on an ongoing basis

does this make sense, can we sustain it in labor and materials point of view, but can we

consistently over time really have a competitive price in our marketing team? Our marketing

team did a great job. That is a team that went through competition pilot program the city did in

the early 2000s and we fared very competitively in that process. Over the years we've been

effective and efficient in that area. We'll make sure we can do it in a sustainable and cost

efficient basis so we will do that.

>> Mayor Liccardo: Are we into the paving and sealing?

>> Jim Ortbal: The paving and ceiling, we have evaluated that, and the major streets were

always done primarily with contractorring. We did evaluation on that, we found the equipment

that it would take, the intensity of the work just the -- than just the significance of the work we

felt like the contractualing approach on the paving side has been probably the most effective

and efficient way to go. The repair program that is something we think we could be more

competitive on and we're developing some of that now if these source he are sustained in the

long term. That's not the largest of our contracts but it is a niche where we think we can be

more cost-effective of getting to streets that need you know some repair work, not the final

repair or final fix but making them serviceable safe and in better condition, that is an area

where we are having our in house teams look at very closely. And probably we'll be doing

some type of program this year on that to test them out. We like to see the results and make

decision on an ongoing basis.

>> Mayor Liccardo: Thanks Jim. Councilmember Nguyen.

>> Councilmember T. Nguyen: Thank you, mayor. I don't know whether this is the

appropriate time because this is a one part one minor part of your transportation repair

elements. I appreciate in district 7 we had on the list, I saw only two, small streams on my

staff. I understand you are constrained preliminaried budget and staff. But I would like to --

you are reminding me, our times is from rural county road that left over and somehow it never

made to the list, the little street on Roberts avenue in front of Walmart somehow it never made

27

our list. And it's rightly so. It was less traveled road before, but now turns out it's more urban

because of the two major senior complex, people used that road from Walmart to little Saigon.

This old street that may make the list of attention like you might have?

>> Councilmember I think it was on Roberts road not too long ago. My sense is it is in our

pavement maintenance network. It doesn't have sidewalk and curb and gutter on one side of it

so it's not a fully improved street. That is a somewhat different issue than would it northbound

the regular cycle of maintenance. I'll verify, I believe it is in our pavement network database

and would come up on a normal cycle like other streets. If it's a neighborhood street though it

would be kind of in the neighborhood pavement maintenance zones kind of process. I'll take a

look at that and follow up with you in your office on where that fits in the overall scheme of the

program.

>> Councilmember T. Nguyen: I appreciate that. On the sidewalks development, that would

be a separate category different from --

>> Jim Ortbal: That's right, part of the sidewalk gaps which there are those across our city

and this would really need to find a funding source. The pavement maintenance program does

deal with the pavement surfaces and the curb ramps. Not actual installation of --

>> Councilmember T. Nguyen: Contact me off line on that subject.

>> Jim Ortbal: Happy to do that.

>> Mayor Liccardo: All right other questions? We have a motion, is that right? Okay let's

vote. Thanks Jim. All right, moving on now to I think we convene the Successor Agency to the

Redevelopment Agency. We'll take on first 9.1 which is termination of retirement plan of the

former Redevelopment Agency of the City of San José. Councilmember Rocha.

>> Councilmember Rocha: Thank you, mayor. I had a couple of questions. Let me pull up

the document. So there's no presentation on this, and I did check with the City Attorney as a

former agency employee so I had no conflict of interest, but since I'm divestof these plans I'm

free the ask questions. I'm looking mainly at -- i'll jump to the end of this, I'm trying to get an

understanding of really at the end of the day, why we are eliminating the positions and moving

28

them in-house. And there really isn't a statement as to the justification for that. It's well

documented the budget deficit that we have and the workload we have and here we have an

opportunity to use some of these dollars to fund employees to do some of the work on

whatever is remaining but then we're going to eliminate those position he and have city staff

and I assume get reimbursed. I'm curious to understand the reasoning behind that.

>> Dave Sykes: It will start with me. Some of these have been involved with the process

longer than I have. This really represents a continuous kind of wind-down of the successor

agency activities. I'm not really familiar with the numbers of staff that have been reduced over

the last five to six years. This particular budget period I think the oversight board really was

interested in seeing that wind-down continue to a point where we could dispose of as many

properties as possible, and do the administrative reductions as much as possible, prior to the

conversion to the county wide oversight board process. So that's going to be starting up in --

on July 1st. So as the council is probably familiar, there will no longer be a city oversight

board. It will go to a county oversight board. I think it was important that we put forward a

credible administrative budget that really reflected the workload remaining. And so the

administration, the city administration had already been absorbing that workload. I think a

great deal of the work had been absorbed into the finance department. And the primary goal

that Richard was working on as the managing director was really on the property sales

process. And proud of the fact that Richard and the team have done a good job of really

meeting our obligations on disposing of the final properties. There's only a few more left to be

disposed of. And so really as Richard and Julia as the chief financial officer looked at the

budget for this year, determined we're at a point where we could fold the remaining work into

the city administration. We did request a budget, to do that, because you're right, those costs

are reimbursable. And the oversight board ultimately approved that administrative budget, for

us to make that transition, coinciding with the transition of the elimination of the city oversight

board.

>> Councilmember Rocha: Okay so --

>> City Attorney Doyle: And i'll just chime in that the Successor Agency law contemplates

that the hiring of staff for wind-down as you may, really is to focus on the financial accounting,

disposal of real property. You're not in the redevelopment business anymore, you're not doing

any development, any kind of that sort. So it's a very -- for somebody who's been working with

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this since 2012, when redevelopment was dissolved and working with the oversight board,

each year, every six months quite frankly, when we go through the ROPS process and

administrative cost, I'm looking at Julia she's the one who has to prepare the documents, the

budgets have been questioned. And asking about staff cost and what's anticipated. And I

think as Dave indicated in the next round, they expect a real -- and for good reason a very

limited staff. There will be some real estate work, some accounting work, obviously the bonds

are going to be paid off but those are I think going to be largely self -- you're going to work on

those on an annual basis and limited basis and it's limited at this point.

>> Councilmember Rocha: Thank you both. When you talk about remaining staff and

remaining work and remaining budget but we're taking an action and it's just this one sentence,

that city staff has been integrating the remaining work efforts, city positions and this is really

the whole gist of I guess eliminating what's remaining of the staff and the work. But there's

really no background or information that tells me how many employees there are, maybe I

missed it, forgive me, how many employees are remaining, what they are doing, budgets

implication, where is the direction from the Successor Agency asking us to do that. If there's a

limited amount of work and it's going to be wrapped up in one year, I'm wondering why we

have to and we absolutely don't have to. It's at our discretion.

>> Dave Sykes: I think it's worth stepping back here and look what the council is approving

today. And that is termination of the retirement plans. This is work that was started back in

July of 2017. So what the council is approving today is kind of that final process. We have

included in a staff report context what the administrative budget was approved by the oversight

board. That budget process does not come to the Successor Agency for approval. It goes

from the oversight board as I understand it to the Department of Finance. Julia maybe you can

help me with that part of the process.

>> Julia Cooper: Yes, the oversight board approves the budget which has to happen and

February 1st of this year for the next fiscal year. That process has already taken place. But

since the city administrative -- there's city staff and there's reimbursements staff that comes

there is a SARA budget that will be presented to the SARA board in June, that is a mirror

image of what the oversight board and the Department of Finance have already approved. So

that's scheduled to come forward in June.

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>> Councilmember Rocha: Okay, thank you. Again I'm just looking at -- when you say what

this action is, part of this is in the analysis is other main work efforts will be in city -- effective [

Reading ]ite getting the impression we're eliminating the remaining four positions. Is that

coming in the foregoing direction? A budget action not a policy action?

>> Dave Sykes: Right but --

>> Councilmember Rocha: But you're going to come to me in the budget and say you already

approved this.

>> Julia Cooper: The Successor Agency board has no approval process of the administrative

budget of the Successor Agency. That's an authority that's delegated to the oversight board

and the Department of Finance. That is just an administrative action, flowing into the City's

budget to pay or the those administrative costs. The Successor Agency board if I'm correct

Rick, has no approval process to determine how much administrative budget gets paid for out

of development funds to pay for the ongoing wind down and administration of the outstanding

debt.

>> The City Manager is the executive director of the Successor Agency. These are all

administrative functions, what can be folded into the functions, what can be folded down into

the work, Tom Murtha of misoffice does some of the wind down work, but with the last real

estate sales, the end of it, hopefully some real estate work that will be absorbed by the real

estate department of OED.

>> Councilmember Rocha: I appreciate all that explanation but what you're explaining to me

is how this is going to happen and what's going to happen, not why we are doing this. I'm not

hearing the justification to eliminate these four employees.

>> Julia Cooper: I can't express how tenacious the board has been to eliminate -- absolutely

tenacious --

>> Councilmember Rocha: What is that? I don't have that in front of me when I'm making this

decision.

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>> Julia Cooper: So when we looked at the administrative budget and determined how much

work effort still needed to be done, most of it as Rick pointed out, is paying what few

administrative invoices are still in place and administering the $1.6 billion debt portfolio that

exists and a few real estate transactions left. A few contracts that are left. Really not a whole

body of work. That is then being allocated to bits and pieces much different finance folks

within if department, and bits and pieces in the city attorney's office and a little in the City

Manager's office. That's a bit of the bulk that's left. I can send to you --

>> Councilmember Rocha: That's the operational answer but not the --

>> Dave Sykes: What the oversight board approved in terms of the administrative budget was

the elimination of 2.5 ftes, 2.55. One FTE managing director,.75 ftes of contract finance

manager and .80 ftes of a payroll account executive admin. Those were the 2.55 positions

that were reduced as part of the admin budget process. There is another SARA position that

was basically off the books for lack of a better way of describing it.

>> Councilmember Rocha: So they made the decision?

>> Dave Sykes: Yeah and I think --

>> Councilmember Rocha: Part of the authority is with you, not --

>> Dave Sykes: It is confusing to me as well. But what the oversight board has the authority

to approve the budget for the next year, not the executive manager. The executive manager

makes recommendations, just like I would to the council as a City Manager. And so the

oversight board, this is the budget that they approved, as I mentioned earlier it was important

that we put forward a credible budget. There was a tremendous amount of scrutiny and

pressure to perform as much of the wind down as we could, until we transition over to the

county oversight board. I will note that even with the budget that we proposed, the county

members of the oversight board still were not satisfied with the level of reduction that we

proposed and there was a motion on the floor to do further reduction. Fortunately we put

together such a credible budget the other members of the taxing entity felt that was sound and

that motion was withdrawn actually and another motion came forward for approval of the

proposed budget.

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>> Councilmember Rocha: So what does it approve the one that was approved that you just

mentioned?

>> Dave Sykes: There was position reductions --

>> Councilmember Rocha: You talk about the 2.55, what is left?

>> Dave Sykes: There will be no SARA positions left, there is a budgets for work conducted

by the administration, some of the work will be done in Julia's shop, Rick's shop and some in

Real Estate.

>> Councilmember Rocha: The budget you submitted didn't have any employees staying

under the redevelopment --

>> Dave Sykes: That's correct.

>> Councilmember Rocha: The budget you submitted did not -- it included reimbursements at

this point?

>> Dave Sykes: That's correct.

>> Councilmember Rocha: There was great scrutiny on the reimbursements?

>> Dave Sykes: It's hard to describe the scrutiny the team has gone through over the past

few years to attempt to get the administrative budget approved year in and year out and the

expectations for reduction from the oversight board I believe were crystal clear.

>> Councilmember Rocha: Okay, as far as our role in this budget we have no role in that

budget that was submitted?

>> Dave Sykes: i'll let Julia and Rick try to explain the frustrating role that the city council has.

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>> Julia Cooper: So we will be bringing, I think it's June 12th, basically the administrative

budget. So it's basically, will be an acknowledgment of the recognition of revenue that will

come from the Successor Agency to essentially pay for staff folks that are in the various

departments in the organization that will be supporting the final kind of administrative activities

associated with the Redevelopment Agency.

>> City Attorney Doyle: So in essence when you approve the city's budget you'll approve

whatever ftes are necessary to do SARA work. And then the reimbursements come from the

Successor Agency. That is the city council's role, the oversight board has approval whether

they want to approve this stuff. Up until this past year we weren't getting paid for any of this

work because there were shortfalls and finally good times, the tax revenues were coming in.

In combination with the bond refunding.

>> Councilmember Rocha: Thank you. And I do understand a good majority of what you're

telling me and it's somewhat a little bit remedial but I'm still left with the budget you submitted

here, there was no council role, you're going to give it to me post, and you've what i've seen

happen over and over again which is everybody get to the point of where you've already voted

on this, I don't know why you're questioning this today. My question is we have no role in that

budget that you submitted for approval, there is no council check in and --

>> City Attorney Doyle: Not direct. What we're saying councilmember is there's no direct

role?

>> Councilmember Rocha: Okay, thank you. That could have been a lot clearer 15 minutes

ago, I appreciate that. All right, well I guess I'm trying to understand a lot more implications in

this action than just the one we're talking about in terms of the retirement funds and I'm

completely supportive of that. But this item in here and i've used this phrase before, tucked in

there that I think sounds kind of significant, not to everybody but to me it does and obviously I

have a personal issue, with that I'm going to stop the questions, thank you.

>> Mayor Liccardo: Councilmember Arenas.

>> Councilmember Arenas: Thank you. So this seems very cloudy to me. And I'm trying to

follow this. It cements like it seems like the cart before the horse, before somebody is let go,

34

say I'm let go tomorrow, you're going to tell me first we're going to cut off your retirement then

you're going to be laid off, or fired. And I feel like this is what is happening. Because I don't

know what's happening to those employees. Those employees will -- we will approve the

positions of those employees in the June 12th budget is what I heard you say.

>> Dave Sykes: i'll do my best, i'll ask Richard to come down so he can help with the --

>> Councilmember Arenas: I almost want a presentation, I captain follow, I don't seem to be

able to put my finger on it, I can't follow it. I just don't get it. I don't get why we're ending the

retirements. And only ending 2.55 employees. But there's four employees mentioned in the

report. So if you could help me that would be great.

>> Dave Sykes: i'll need help on some of this. So the process in terms of the e-terminating

the retirement plans started back in July of 2017. I know this process in the role of the

Successor Agency can be frustrating, I know the council has expressed those frustrations ton

property sales. There are a couple of property sales on the agenda today. In the past the

council has been frustrated in the fact that its role has been limited by quasi administrative, you

have to approve it, if you don't it doesn't matter.

>> Councilmember Arenas: Right.

>> Dave Sykes: Unfortunately that's kind of the role that we're in and I know how

uncomfortable that is and how different that is than the council role. It's off to the Department

of Finance, and it's the ability to approve or disapprove it. In Rick's words it would be limited or

nonexistent.

>> Councilmember Arenas: Sure.

>> Dave Sykes: If we want to get to the root of the issue, our objective in termination of the

retirement plans, we started the process almost a year ago. You'll see in the staff report that I

think there's been many letters that have gone out originally from Richard and myself and now

the human resource department's been doing those. And so we wanted to make sure that

people had a lot of time to make the adjustments. Because most of the impacts of this are

people that have left the agency. We included the information around the remaining positions

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just so the council understand what's going on. We have people that are still employed by us,

it is their livelihood, and we want the council to know that the be role of the council very

minimal. The remaining employees with two of them we have options to be able to place them

directly into the city workforce because of their level. With the other two employees they'll

need to adhere to our civil service process but we are working to see if we can place all of the

remaining staff members into the city organization, which would be wonderful if we could do

that. It is outside the council's purview but goes beyond had a the council is looking at today.

But I appreciate the frustration and certainly the concern about the welfare of the employees.

>> Councilmember Arenas: And thank you for clarifying that. I think for me that is the biggest

concern because this is their livelihood and they have been here since probably the beginning

of this I'm assuming right? So someone who has been working for Successor Agency or

redevelopment consume.

>> Dave Sykes: i'll clarify, all the employees who went through the Redevelopment Agency

went through some sort of severance project and were rehired to work for the Successor

Agency. I think Richard's done a very good job of communicating with the staff and the wind-

down has been gradual so Richard has been communicating that at some point we're going to

need to do a complete wind-down. So I feel confident that the staff have been pretty well

informed. Certainly through this process that we're going through right now I have personally

sat down with each staff member just to make sure they understood kind of what was

happening. And also to make sure that they understood that their work has been valued and

thirdly to make sure that thy they understood that if we can we would like to see them placed in

a city organization.

>> Councilmember Arenas: Thank you. That's where my concern was coming from, one it is

cloudy, it wasn't in redevelopment like Don was, so I don't have that institutional knowledge.

But I was concerned about the employees, the four that were mentioned in the report and then

it got a little confusing when there was only 2.55 that will be in the budget in June. But I'm

guessing this will go administratively to all the positions that you said would take on some of

the duty or the duties that these four folks are downing now correct? So that when google or

anybody -- or any other work gets done with some of the redevelopment properties, your team

or folks from your team will take that on?

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>> Dave Sykes: So let me just help. The reason there's kind of a discrepancies between four

human beings and 2.55 is that only one of those four ftes was a full time FTE in Sara and

that's the managing director, that's Richard. There are two additional employees that work for

ripped that are not completely full time. And haven't been for this entire year, they went down

to a semi full time status. And there's a fourth off the books not funded through this process.

>> Councilmember Arenas: Okay. But it sounds like from here on, we will take care of it

internally once the staff members, these four staff folks --

>> Dave Sykes: The way we have the budget situated we have funding for, our intention is for

Richard to stay on, and help with continued transition of the real estate assets. The other two

ftes or portions of, we're working with them to see if there's an opportunity for them to find

employment in the city organization.

>> Councilmember Arenas: Wonderful, that's all I was concerned about as we are losing

institutional knowledge is a concern especially in this area, it is to me so very complicated, so

having those four folks or as many of them stay on board as possible, in another capacity or at

least helping with transitions, thank you for clarifying that, those are my questions.

>> Mayor Liccardo: Other questions? Okay and so in terms of the remaining employees,

working under Richard, I understand Richard will be moving into the city, I think in real estate if

I'm not mistaken, for remaining two employees, they've been made aware of how they can

come into other positions at City Hall with the hundreds of vacancies we have.

>> Dave Sykes: Right, there is a process they'll need to go through, to conform to the civil

service requirements but we have a point of contact in HR that will kind of help facilitate that.

Richard, it's up to Richard to decide how he wants to move forward in terms of accepting the

offer that's been presented to him.

>> Mayor Liccardo: Okay, and so we can't just move employees into other positions without

going through this civil services process is that right?

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>> City Attorney Doyle: With Richard you can. Because he's unclassified. With the other two

they'd have to go through the classified service there is a process. But as Dave indicated, HR

is going to walk them through it.

>> Mayor Liccardo: I believe they understand what's ahead of them. Is there a motion on this

item?

>> Councilmember Jones: So moved.

>> Mayor Liccardo: Let's vote. All right item 9.2 is the purchase and sale agreement for the

property at 525 South Market Street. I don't believe we have any presentation on this one.

>> Move to approve.

>> Councilmember Jones: Second.

>> Mayor Liccardo: Can I just ask a question? I don't know if this would be Richard or --

there's a similar purchase price for 92 and 93. Could we just -- I couldn't really get it from the

reports. How big are these sites? And just to understand in terms of --

>> Richard Keit: I'm sorry you're referring to both sites?

>> Mayor Liccardo: Both 9.2 and 9.3. It's a $2.6 million, contemplated on 9.2 right?

>> Richard Keit: This one's interesting because it's ground lease, this is the core

development affordable housing project that's been developed for years. And as the board

report says, has given agency revenue over the years. And the county had it -- wanted to buy

it on the direct sale process. And they put in the bid, and they did do an appraisal and we

evaluated the appraisal. And I believe it's in the range of fair market value for a ground lease.

>> Mayor Liccardo: Okay. Do you happen to know what the acreage is?

>> Richard Keit: I don't.

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>> Mayor Liccardo: Or square footage?

>> Richard Keit: Sometimes I put it in the memo.

>> Mayor Liccardo: I'm trying to compare, we've got similar prices but --

>> Richard Keit: I can get back to you certainly in the size. It's in my long range property

management plan which I don't have with me.

>> Mayor Liccardo: Did the county articulate what the public purpose was for the requisition?

>> Richard Keit: I'm sorry what was the question?

>> Mayor Liccardo: I'm sure the county has to articulate the public purpose, did they

articulate what it was?

>> Richard Keit: They always say there's a public purpose, I don't know other than there's a

source of revenue, there is still a $5 million loan out on it, it's paid down with the revenue

payments.

>> City Attorney Doyle: This always goes to the board of supervisors for approval, the staff

memo always references that the county executive is determined that it's in the public's

interest to acquire the property and the board accepts that and approves it.

>> Mayor Liccardo: I understand they're not probing terribly deeply, the question is really if

this is about cash flow, have we done the math to understand whether or not the city should

have been bidding on this as well, since it's in our downtown.

>> Richard Keit: I don't know.

>> Dave Sykes: Maybe Richard can review for us the process. So early-on, I think all

government entities had the opportunity to submit a request for lack of a better term, to do a

direct bid on some of the properties. And so the county responded in the affirmative on that

and the city didn't. So it would have been quite a while ago that we would have had to do that.

39

Probably a couple of years ago I want to say. So for whatever reason the county made that

decision and the oversight board approved it.

>> Richard Keit: We took all properties available to the city, the county and the two

nonprofits, the fire museum and the stage.

>> Mayor Liccardo: Councilmember Rocha.

>> Councilmember Rocha: I'm good mayor, thank you.

>> Mayor Liccardo: Okay. Any other questions? Let's vote. Councilmember Jimenez.

>> Councilmember Jimenez: Yes, along the mayor's point because that is one of the things I

thought, it's in our downtown so the county is going to be on our property. What if we reject

this, what if it doesn't pass, does that give us the opportunity to go back and evaluate whether

this is something the city wants to take on?

>> Richard Keit: Technically it goes back to what Dave and Rick are saying. The oversight

board approved this and I don't know what would happen. We would have to take it back to

the oversight board. They followed the direct sale process that the stage can the fire museum,

the city has on several properties for affordable housing. So they have met all the criteria. It's

a bit speculative in my opinion, but they met the criteria to acquire the property.

>> Councilmember Jimenez: So is there -- so I understand that, but is there a policy that we

can review so that -- or something? I'm just curious as to how we, to the extent we're

preventing something to happen that we don't want to happen, especially if it happened

several years ago as the City Manager stated, is there a mechanism or better point in time

where we can insert ourselves to be more competitive and speak up for these properties --

>> City Attorney Doyle: It's a little late.

>> Councilmember Jimenez: For the future.

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>> City Attorney Doyle: There's not much future in terms of -- what was adopted was a long

range property management plan that had to be approved by both the oversight board and the

governor's Department of Finance. That was a fairly long arduous process and as Richard

indicated, gave different government entities the first option to acquire. The city took a few.

The county has opted to and expressed interest and opted to buy a few interests and

nonprofits too. There are a few to be disposed of. I don't think there's more than a handful of

properties left to be disposed of right Richard?

>> This is the last two direct sales, the stage and the county property. The county has taken

the Hilton down, we've taken Balbach, and the Hoffman Via Monte area for affordable housing.

>> Councilmember Jimenez: So part of the challenge for me is to understand the long range

property management plan. I read that, I didn't have a chance to go into the weeds on that

particular policy. But I was just thinking that maybe it was properties that were identified to be

sold, not necessarily properties that have already sort of been sort of picked out and chosen,

and sort of --

>> City Attorney Doyle: We're implementing the plan and we're almost 90% through it.

There's a couple of solicitations remaining.

>> Councilmember Jimenez: All right, thanks.

>> Mayor Liccardo: If I can articulate where my concern was around the price. As you look at

this parcel, 9.2 and 9.3 because they are similar prices. I just find it remarkable that on this

one I know Val bridge did the appraisal, we've seen this before it is always favorable with the

county for the garage under the 88, they missed the property by a factor of 4. Now they have

got a price of 2.6 million and somehow it compares to a 2.3 million price that we have on the

next property. And the next one has a designation, public quasipublic. Which nobody can

make a dollar off and spinning off cash. It is astounding to me that these appraisals,

particularly one firm, with a relationship to county, always seem to be bizarrely high or in this

case absurdly low and we just have to swallow it and I don't get it. So I mean looking back on

this I wish we could rewind the clock three or four years and start challenging these valuations.

Because I don't think the public's being well served in this way. There's clearly something

wrong here. But i'll get off my soapbox now. Councilmember Khamis.

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>> Councilmember Khamis: Yes, as you know, i've been told in the past I couldn't vote no on

the thing but I decided to vote no anyway.

>> City Attorney Doyle: You can vote whatever way, but the oversight board has the ultimate

authority.

>> Councilmember Khamis: I understand that. When the county rejected our bid for the

parking lot, so i'll be voting no again today just to keep my record straight.

>> Mayor Liccardo: Other questions? Okay. There is a motion, is that right? All right, here

we go. All right, barely passes. And don't think I didn't seriously consider voting no. All right.

Item 9.3. Approval of purchase and sale of the San José State tight, 490 first street. Jerry

Stranges is here. Jerry, welcome.

>> Thank you, Mr. Mayor, members of the council, I'm here today speaking on behalf of the

board of directors of the San José stage company. I've been on the board for 35 years and let

me tell you, this is a big step today. Want to extend sincere thanks to the mayor's office and to

all of you up here for considering this. Would ask you to support Councilmember Raul Peralez

memo and a special thanks orichard Keit who has gotten us through this two or three year

ordeal, i've never been involved with a more difficult project than the Sara board in dealing with

this issue. So this is a good first step. We're hoping to maintain our presence as the heart and

soul of the sofa district downtown, and want to be there another 35 years. So thank you very

much.

>> Mayor Liccardo: Thank you Jerry. Bob Leninger.

>> Thank you, Mr. Mayor, members of the council. Speaking not as a retiree in the

association but as a retired executive director of the San José Redevelopment Agency for 27

years, in fact on these two projects I was the guy who purchased the property and negotiated

the deal with San José stage and David Neil.

>> Mayor Liccardo: What did you pay Bob?

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>> Might be worth a little bit more than that giving market we have now. I'd like to see what

the projected rents were used to come to a value myself, that's another story. I've seen your

frustration. I've only learned a long time ago about the Successor Agency board, we could

have some empty seats, we could have voted 7-4, I would have voted for the project itself.

Highest and best use, not necessarily the best use for this property, I have talked to the county

and I believe that's the way they're approaching it. The value gets skewed in terms of what is

supportable, what is, is, but I think of the remaining properties, this convention center

expansion site, I don't know how we do it, whether it's a political solution, or what it is, but that

needs to be property that does not get sold for the same kind of criteria for whatever they may

be thinking is supportable there. I don't know if we use our zoning authority, general plan

authority or just get involved in making the right offer to get that property. But if there was ever

a project in the downtown master plan that speaks to what it is we are trying to accomplish with

this downtown it's that convention center. And that needs to be reserved by the city for that

expansion. And it looks like they really tied your hands under the state successor oversight

board. But there needs to be some investigation and some power brought to bear to make

that happen. And the only thing I can do to support the council in those efforts or the staff

certainly willing to do so and I support the San José stage as well.

>> Mayor Liccardo: Thanks Bob. Thanks for buying the land. Councilmember Rocha.

>> Councilmember Rocha: Thank you, mayor. There's no staff presentation.

>> Mayor Liccardo: No.

>> Councilmember Rocha: i'll move Councilmember Peralez's memorandum. And then I did

have one question. When you would expect to come back to the council with the final

agreement.

>> Richard Keit: Come back to the council for what?

>> Councilmember Rocha: Isn't there the terms?

>> Richard Keit: That is city side we would be coming back in June before the break.

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>> Councilmember Rocha: Which city, City Manager's office or --

>> Richard Keit: Office of Economic Development.

>> Councilmember Rocha: What type of agreement is going to be before us?

>> City Attorney Doyle: Probably a loan agreement. This is the agreement for purchase and

sale of the property. The Successor Agency is selling the property to the stage. The stage

has so many days to get financing so one of the proposals that's being negotiated is, a loan

agreement and I think there's other sources of financing too.

>> Councilmember Rocha: It would be a loan agreement that would come back before the

council?

>> City Attorney Doyle: Yes I think in June.

>> Councilmember Rocha: Is there a timing on the budget?

>> City Attorney Doyle: I think they're given 90 days --

>> Richard Keit: 120. Are.

>> City Attorney Doyle: 120 days.

>> Councilmember Rocha: Getting back before the break would be pivotal for them?

>> City Attorney Doyle: I think so. -and staff is okay with the time line?

>> City Attorney Doyle: Nancy is shaking her head up and down, yes.

>> Mayor Liccardo: I just want to report I got information from Ru on our team about the

comparable acreage, so San José stage is about a third of the size of this parcel we just voted

on. So just to add emphasis, San José stage is .44 acres, the market gateway project is 1.22

acres, roughly the same price. Market gateway is three times the size, generating actual

44

revenue and they debt the same price as a parcel the third of the size that under the decision

designation cannot generate any revenue, for the nonprofit staple company. That's pretty

remark.

>> City Attorney Doyle: Mayor, i've given up trying to figure out appraisals. I will note that the

prior property is subject to a ground lease that goes to 2026. While the stage has a clear title,

there is an encumbrance, the ground lease. I don't begin to figure how appraisers come one

numbers.

>> Mayor Liccardo: I understand. We have a motion, let's vote. All right, so the meeting of

the Successor Agency to the Redevelopment Agency is now adjourned. Now we need to

adjourn to the financing authority, actions related to the bonds on the Hayes mansion. And

Julia you're not presenting, are you? No, okay. We'll entertain a motion or questions.

Councilmember Jimenez.

>> Councilmember Jimenez: Julia, I just had a question. The sense I get from this is trying to

maintain the status quo, pending the potential sale of the mansion, is --

>> Julia Cooper: So as not to yell across the chambers, yes. And the fee is going up a little

bit on one of the bond issues but that's it.

>> Councilmember Jimenez: All right, okay cool, thanks.

>> Mayor Liccardo: Councilmember Khamis.

>> Councilmember Khamis: Yes, I'm just -- why are we doing this at all? I mean aren't these

bonds in existence already?

>> Julia Cooper: They're a private placement a bank loan with U.S. bank. The agreement

expires in early June and so we have to extend that. So this extends it another six months and

then we can extend it another six months after that administratively.

>> Councilmember Khamis: These aren't long term bonds --

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>> Julia Cooper: We put them as a private placement but they are variable mode just private

placement with U.S. bank not sold in the open market as a public offering.

>> Councilmember Khamis: I imagine the interest rate is moving against us.

>> Julia Cooper: Yes it is still lower than fixed rate debt and gives us the property to get rid of

the bonds as soon as we sell the property.

>> Councilmember Khamis: Thank you.

>> Mayor Liccardo: There's a motion, any comments? Lets vote.

>> Mayor Liccardo: Thank you Julia, on open forum we have Blair beakman followed by Ray

Perez.

>> Open forum. I guess I just wanted to thank you. I'm mellowing out in how to talk about the

big belly project I'm going through. I'm learning to talk to the VTA and they have an important

role in this project. I'm learning to talk with councilperson Carrasco about this project. There

might be time, we're starting to learn how to create a public policy process, what is exactly the

public policy process. I'm hoping with councilperson Carrasco and her chief of staff learning to

help me that you can be open, if they have questions to you about this process. It's my feeling

that you're going to have an important part in how to talk about the big belly in Downtown San

José and at Tasman. It may be a VTA responsibility in the end, but I think you can add some

very valuable input and important part of this process that I hope you can help Councilmember

Carrasco and myself with. That's about it. I'm meeting the VTA and so I'm learning to talk with

them more. And I guess I don't have quite anything else to add. Keep up the positive, keep up

the good ship lollipop and it can help in San José in 2018, and good luck in that work. And

trying to develop that. Thank you.

>> Mayor Liccardo: Thank you sir. Is Mr. Perez.

>> Good afternoon mayor, council persons. I congratulate Mr. Mayor for great job for the fixing

the streets, you know, the $543 million, I mean, it's going to be short but I believe so, strong

belief it is going to be well spended. SB 1, the will for California state, is the first quarter is

46

worth $503 million. Probably $2 billion for fixing also all the cities. But looking at that,

watching especially in the old bay shore parkway, it was a really, really good job. I seen you

know what, all the workers doing a really good job. And the best effort to making good.

Different areas, the more priority, I believe if we encourage all the people to get going, with this

kind of job to fixing the streets, San José is a very large city, very large city, it really is a great

job you're doing, congratulations everyone. Thank you very much.

>> Mayor Liccardo: We're now going to move our meeting next door to the wing. We're going

to adjourn the joint meeting with the retirement boards. So I guess I need to adjourn here is

that right Rick? All right this meeting's adjourned. Meeting next door.

>> The Clerk: We need minimum of 17 minutes to set up.

>> Mayor Liccardo: Okay then smoke 'em -- oh you can't say that anymore. On the City Hall

campus. Okay. Next door. [ Recess ]

>> Mayor Liccardo: The board members we took a bit longer than hoped, that's not unusual

but I know since many of you do other things for a living than sit in long council meetings that

is particularly of inconvenience to you. We thank you all for your board service and we thank

you for joining us. Should we begin with introduction from other chairs?

>> Vincent Sunzeri: Sure. Would you like me to join? Vince sunzeri, chair of the Police and

Fire board. Andrew Gardanier,.

>> Nick Muyo.

>> Drew Lanza: Drew Lanza. The man in the middle.

>> Jeremy Evnine: . I'm Jeremy Evnine, public member on Police and Fire.

>> Ghia Griarte: Ghia Griarte, public woman on Police and Fire board.

>> Mayor Liccardo: Thank you Ghia. Lots of councilmembers.

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>> Councilmember Carrasco: Magdalena Carrasco.

>> Councilmember Davis: Dev Davis.

>> Councilmember T. Nguyen: District 7.

>> Councilmember Arenas: District 8, civil arenas.

>> Councilmember Jones: Chappie Jones,.

>> Councilmember Khamis: Johnny Khamis, district 10.

>> Mayor Liccardo: The folks will be introduced throughout the presence. Roberto.

>> Roberto Pena: Roberto Penna, office of retirement services working with the boards.

>> Mayor Liccardo: And Dave.

>> Dave Sykes: Dave Sykes, City Manager.

>> City Attorney Doyle: Rick Doyle, City Attorney.

>> Harvey Leiderman: Good afternoon, Harvey Leiderman. Fiduciary counsel for the boards.

>> Mayor Liccardo: Go on with the presentation.

>> Roberto Pena: Would you like me to do it from here?

>> Mayor Liccardo: Whatever is more comfortable.

>> Roberto Pena: i'll go to the front if you don't mind.

>> Roberto Pena: Good afternoon, everyone, Roberto pena, CEO of the boards. We

appreciate you taking the time this afternoon to be here with us and we want to thank city

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council for working with both boards to set up what I believe is the first ever joint meeting of the

boards with the city council. So thank you. So my presenting is pretty -- presentation is pretty

straightforward. It is a short presentation, as woe go through slides, if you have any questions,

please feel free to ask them. Let me make sure I know where I'm going. All right. I went to

the wrong place right away.

>> Mayor Liccardo: While you're loading this, maybe I should ask the members of the

retirement boards to ask you to join us today. It became apparent through conversations in

weeks and months there really hadn't been enough communication between the boards and

council to understand your perspective, understanding directly from board members I think

would be helpful for us, and obviously, we know we have a very distinct settle of

responsibilities that have nothing to did with telling you what to do but we certainly need to

know what you are doing to do our jobs well. So that's why we're here. Roberto I think you're

all loaded up is that right?

>> Roberto Pena: Yes I am mayor. Thank you. My short presentation is just to give you a

sense of what the board does. The first slide just shows the -- both boards, they're comprised

of on the right-hand side, Police and Fire board, comprised of nine members. On the left-hand

side you have the Federated board comprised of seven members. The numbers on the top of

331 is obviously, on Federated you have as you see, two active employees, and one retired

employee and then you have four public members. The one is that one of those trustees is

actually interviewed by the Federated board. In fact they are going to be interviewing one of

the active members, representatives at the board meeting this coming June to make a

recommendation to the city council. As the city council, you actually appoint all 16 board

members to the respective boards, the same goes for Police and Fire. You have an active

police officer, active firefighter, a retired police officer, retired firefighter, and the remainder

public members. They come before the board to be interviewed and the board makes a

selection of, through that interview and recommend appointment to the city council. The

trustee duties obviously all the trustees for both boards have fiduciary responsibilities, I won't

go into those specific legal duties. Council is a lot more eloquent and have a lot more legal

background to explain those. I tell you what was important the go over the general duties for

the trustees. Their responsibility solely on behalf of the plan members and the beneficiaries.

They are also responsible for administering the plan for exclusive purpose of timely delivering

the promised benefits for all the plan members and their beneficiaries. The third bullet point is

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one that is a lot easier said than done. Is to prudently invest the funds of the plan and to

diversify the assets in order to minimize risk, maximize return, thereby minimizing employee

contributions. To prudently invest the funds and have an investment portfolio that is diversified

to the point that it minimizes the risk and maximizes the return, with the hopes of minimizing

employee contribution. That is a challenging proposition, one of the reasons we are here this

afternoon is so we can hear from the plan sponsor in this case the City and County, your views

in terms of risk tolerance for investment portfolio. The fourth bullet point to provide actual

services in order to insure competence of plans. For the municipal code state and federal

laws. Both boards are comprised of different committees. Just as the city council does have

their committees, the investment committee is responsible for working on the investment

issues of the plans, and working with the investment staff, and the consultants. The audit and

risk committee obviously is twofold. On the one hand the audit committee makes sure that

work with the external financial -- external CPA, we hired a senior auditor a couple of years

ago, we have an audit review by the committee, most repeat we started implementing a risk

management system for the investments, but also we do have a risk approach to the

operations and anything related to an audit and risk is the purview of this committee. The third

committee is the governance committee, many of you know some of the background how this

new board's compositions came to be. And a lot of that had to do with governance work that

was initiated by the city and eventually developed by both boards which actually brought to

friction the measure G that was recently passed in 2014. The last committee, disability

committee that's committee that works currently on determining the disability applications by

the members, and lastly is the joint personnel committee that was recently established in 2015

after the implementation of measure G which is the last slide of the presentation. Measure G

was actually approved by the electorate and became effective December 19, 2014. The goal

was to provide administrative autonomy for both boards, the ability to hire their own counsel

and it also requires that the city council approve the entire aggregate expense of the operation.

18.1 provides the board with the appointment, as you know both boards get to hire or fire and

appoint the CEO and the CIO and they jointly manage both the CEO and CIO of the plans,

which is the reason why they set up the joint with committee, and that section also provides

that the staff of the office of retirement services reports to the CEO. This actually is the last

slide of the presentation. Again, the goal with my presentation was to provide the city council

with a basic understanding of what are the basic duties of the members. I'm happy to address

any questions or comments.

50

>> Mayor Liccardo: The question of the duties really directed by the council, I suspect board

members already have a pretty good knowledge ever those. All right let's keep forging ahead.

Thanks Roberto.

>> Roberto Pena: Thank you.

>> Prabhu Palani: Good afternoon, everyone Prabhu Palani CIO. I completed two months on

the job, this last week. I was asked to give an overview of the program, keeping it fairly high

level and would be happy to take questions. So let's start with our investment objectives. Our

number 1 objective is to make sure that we are able to satisfy the obligations of the plan, which

is to pay our beneficiaries. And that we do that in a prudent risk-control manner. We take a

reasonable amount of risk, and there will be a presentation after this on investment risk which

will be interesting to you. We don't take too much risk but we take enough risk to meet our

investment objectives. We have a second objective which is more internal which is to make

sure the investment plan the actual investment program beats a policy benchmark. And that is

to judge the performance of the investment program itself. So we run a fairly sophisticated

investment program. At ORS. Why should it be sophisticated? Why not put all your money in

treasury bills which is the safest most liquid asset in the world? Or why not put all your money

in stocks? Now, if we did invest 100% of your assets, of the plan's assets in treasury bills, for

example if we had started at the start of the bull market in 2010, all the way until the end of

2017, the return would have been 20 basis points. So that's not an option. What if we put all

the money in the stock market? That is a question we could get. If we had done that at the

height of the bull market in 2000, through 2008, the following eight years, the plan would have

returned a negative 180 basis points. Which is why we diversify the portfolio, right? We can't

put money all in bonds or stocks, which is why we have a afairly sophisticated portfolio. There

is another interesting chart which shows what is it take to earn 7.5%, right? In 1995 you could

have been 100% in bonds and earn 7 and a half percent. The standard shows the fluctuation

of returns from year to year. With a 6% risk you could have actually earned 7.5%. We are in

an era of falling interest rates as you all know. So fast forward ten years in 2005, you could

have only put 52% of your portfolio in bonds. Right? And the rest, the other 48, would have

had to be in a mix of equity and real estate. Fast forward to 2015 in order to earn that same

7.5%, you have to have bonds. Now it becomes a more sophisticated investment program, a

mixture of U.S. stocks and real estate and private equity. What do we do? So our plans, so

we have two plans that we manage, the Federated plan and the Police and Fire pension plan.

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And our return target is 6 and 7/8, which is the actuarial assumed rate of return. And in order

to achieve that there are two distinction plans with different funding levels and so we have

different risk levels. On the Federated side you can see that 28% of the portfolio is in global

equity, and 9:% in private equity. So that's roughly 37% of the program in equity. And then

there's another 33% of the portfolio that's in bonds, mixed assets, private debt and absolute

return strategies. On the Police and Fire side similar but higher allocation to equity, a total of

42% equity, 28% in fixed income and a mix of absolute return, real assets and private debt.

How have these plans done since the year 2010, along with -- compared to the discount rate?

So this chart shows if you look at the Fed discount rate history in 2010 it was 7.95% and over

time it's been slowly dropping down. And at the end of last year it was 6 and 7/8 which is

where it is now. The national median is 7.25%. As you can see in this chart five of the eight

years the plan actually exceeded its actuarial rate of return. And with Police and Fire similar

story. In 2010, the plan started at 7.75% and slowly came down, currently it's at 6 and 7/8.

Five of the eight years the plan has exceeded the planned rate of return of 6 and 7/8. This is a

simple high level overview of what the plan is, a mix of is assets how the plan has done. I'm

happy to take questions either now or after the risk presentation. Questions?

>> Councilmember T. Nguyen: Quick question mayor?

>> Mayor Liccardo: Councilmember Nguyen.

>> Councilmember T. Nguyen: Data 2008, why don't we have more recent data? Update

dated? Like what if we invested in --

>> Prabhu Palani: If we invested 100%, yes.

>> Councilmember T. Nguyen: Why we stop 2008? That was ten years ago.

>> Prabhu Palani: Right, just to show from 2000 was the end of the bull market. And then it

went all the way to 2008. And then equity started rising again. Just to show that depending

when you pick the time frame period, stocks can do really bad as can bonds. If we are able to

time the market we can take advantage of those turning points. But unfortunately we're not

able to time the market.

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>> Councilmember T. Nguyen: Data up until now?

>> Prabhu Palani: Yes, yes, of course.

>> Mayor Liccardo: Other questions? I guess just turning to the I think the last frame or the

penultimate frame, I know the questions always arise, whenever you pick a particular duration,

why did you pick that duration, as opposed to something else? And I guess part of the

challenge we know is that, I know if you went a little further back you would be in the middle of

the great recession. But also since that time, it's not just whether or not we hit or mitts -- miss

but the magnitude of the hit or miss. Magnitude over this duration I'm guessing would be

substantially less than our discount rate?

>> Prabhu Palani: In the last ten years our return was about 4% on average.

>> Mayor Liccardo: Okay. Are there questions? Sure. So are we going on to the

presentation about risk?

>> Roberto Pena: Yes. Mr. Mayor if I may I'm sure he will introduce himself, but Ed Hoffman

is a consultant with Verus, who is the risk consultant for both boards and he has the enterprise

risk tolerance presentation. Just like our presentation, he's the sort of short on slides. He

does have -- includes a lot of slides on the appendix, I encourage the board members and city

council as well and members of the audience as well to comment on the risk tolerance

presence if you have any comments on it.

>> Good afternoon, and Roberto thank you. I'm Ed Hoffman we're Verus the risk investment

more return is always better, let's get that. Because markets are generally viewed as efficient

you can't just get rush without taking risk and we don't have an unlimited capacity to take risk.

We have to know where to take it and that's what we try odo. Summary of work we have done

for each of the boards as looking at risk tolerance of the boards. Understanding the risk

tolerance, if you've had a chance to read the executive summary, it's a quick presentation of

the summary itself. Here you can say the first point is it's really designed to understand the

financial health of the sponsor. The city is the sponsor. And so understanding the financial

health of the sponsor helps us frame how much investment risk each of the plans can take on

their own. And if we understand it, we're in a pretty good position of knowing what is the

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totality of risk, how we can divide that up among the assets, the investments we choose and

correspondingly what investment we expect to generate out of that, after looking at the

forecast of what the markets should be expected to deliver and that can help us deliver an

effective plan to meet the obligations. So I point out here that in the second section here, the

presentation is really considered a framework in two ways. One is that it does actually help us

target some specific numbers. We have those back in the appendix and we can take a look at

those if you like but it helps us get to real tangible numbers that we want to set limits and

manage the plans accordingly. Most importantly number 2 is it creates a communications

framework. In terms of having this discussion here today and taking a look at what we've

looked at initially we can open the dialogue are we looking at the right things, should we be

looking at other things? Are we interpreting it the right way? I'm not an expert in GASB rules

and regulations, we're dealing with publicly available documents and using them to compare

and contrast and help us size the problem and we would naturally appreciate more input on

that. The result we note here under the Police and Fire bullet point is the Police and Fire

retirement plan has gone through this analysis and as a result of it is prepared to accept a

portfolio that has 12% volatility. We'll talk a little bit about what that means but what Prabhu

showed you, that 6% standard deviation is what we call volatility. Same thing, just different

jargon. So we're using that concept to measure the volatility of investment returns. And so in

1995, that was the 6% number. And in 2005, I think that went up into the low teens. And in

2015, that went up to something like 17%. And what we're saying here with a 12% volatility is

through our analysis that we're going to walk through, 17's too high. It's actually more than the

sponsor can handle. But if 12% is used judiciously, it can generate a meaningful return,

capable of helping us hit our target. Similarly, the Federated plan is going through a similar

analysis and currently their portfolio is also designed to accept around oel% volatility. And the

last bullet point is one we like to reinforce but I think it's well-known and worthy of reinforcing is

the fiduciary duties need to be honored. The fiduciary duties to the retirement boards is to the

retirees, that's where the buck stops. Similarly, city council responsible for the fiduciary duties

to the city. And to its taxpayers. And so while there is clearly a linkage between the sponsor,

the city and the retirement plans, the roles and responsibilities of the boards are different. And

so we just want to acknowledge that. Turning ahead one page, this is framework that we use

to help us think about this complex problem in a fairly simple way. And the schematic on the

right-hand side says risk tolerance at the top. We think about any entity's ability and

willingness to accept risk and willingness is in a way framed what is our collective personal

approach to risk. What feels good, what feels bad, what of those metrics do they put us on

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that spectrum? Ability is more of the constraint. Understanding where do you run into

problems, if things get really bad how do we survive those stormy weathers? So we want to

frame our ability and willingness to make sure they're in sync. We don't want to have

willingness beyond our ability. We would be naive, we don't want to have so far below our

ability that we are defensive or protective to a fault. We want to get those to a harmony and

thinking pragmatically in a real way. The next slide outlines, a peer group, where we stand up

relative to other public pension plans in other cities. Here we have created a peer group that

consists of the four largest cities in California aside from San José, those would be Fresno,

Los Angeles, San Diego and San Francisco. And four cities outside of California that have

similar characteristics, high growth, retirement plan that is similar to state or multiemployer

system and comprehensive size, Dallas, San Antonio, Denver, Seattle. And the second point

is, how do we use the peer group? Are we using it in a meaningful way in terms of the city and

its pension? We'll show you what we've done with it, and open discussion about how critically

we could look at the peer group. Credit rating agencies, like Moody's, S&P and Fitch, basically

perform an editing furnishings. Their independent professional association he that do this for a

living when they are underwriting debt and they generally assign a grade. Each city with its

Moody's grade, noting that San José have a grade of A capital A lower case A 1. AAA is the

highest. Let's see how it compares to the other comparables cities, Dallas is A-1, that would

be a couple grades below, Denver is AAA, seat is as well so those are a notch higher than San

José, Fresno A-3 the lowest of the group, Los Angeles, San Antonio, San Diego and San

Francisco, so right in line with San Francisco, in terms of Moody's rating on us. Each of the

credit rating agencies have a stable outlook. Not only is the current grade double A 1 for

Moody's but they don't anticipate that changing. They're not giving an outlook that is in any

way unstable. We also add into this table funded ratios of their pension plans. Actuarial value

of assets, population size, government revenues and revenues per capita. You get a sense

are these apples to apples comparisons or richer or poorer or what have you for funding ratios.

Generally speaking we think they're in the realm and worthy of consideration. So back in the

appendix in pages 9 through 18, there's all sorts of detail that we pulled in terms of

comparisons to these cities and comparisons over time to show how San José is positioned

financially, to understand its financial strength. And so those are all back there. And then

summarized here and on the following page we then take these characteristics and draw them

all together. Page 6 highlights the strengths, where is San José strong. We point to credit

rating first, top two rating from each of the three rating agencies, strong balance sheet, total

assets of the San José balance sheet are 1.7 times its liability. And oh by the way the

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liabilities include pension obligations so they are in there. That's good. Good demographics

and trends, .7 annualize id population growth. We like those shifting in those manners.

Forecasted General Fund growth, the General Fund puts together a five year projection,

maybe you've seen this on the web, the other special funds do not do the forecasting, it's not

available to us but the General Fund does. The General Fund represents almost half of the

city budget. The General Fund is showing a growth in revenue that is greater than the growth

in expenses. The growth in revenue is negative 8%, declining but expenses are declining by

2.5%, net net that's improving situation. The history has a history of improving net activity.

Net activity is like net income. 4.2% compound annual growth rate of revenues over the past

five years versus 2.6% annualized expense rates, over those six years, and a favorable

economic horizon, San José is benefiting there that. A diversified employment base, there is a

lot of education health services and other industries here. Global tech sector hub and a broad

domestic economic growth. Then the next page highlights some of the challenges that we've

seen. And so here we see obviously at the top, funded status. So Police and Fire at 77%,

funded, Federated right around 50% funded. The interest on the unfunded liability. Unfunded

liability Ual, normal cost of 38.5%. What that's saying is the cost of the interest on the

unfunded liability is just 2.5% lower than the normal cost of the pension itself. In other words

that unfunded liability is pretty expensive. We don't want to see that grow. We want to play

smart defense. When the markets goes down, the unfunded liability grows and that interest

cost goes up. Growth of contributions 31% of fiscal year end 2020 General Fund revenues.

So contributions are expected to increase in terms of paying off the pension liability. The city

continues to run a deficit so since 2012 cumulative change in that position has been a negative

$894 million. So each year, while the revenues are projected to grow and the expenses are

actually projected to decline, and the expenses are projected to decline more, the net effect

though is still that the city is running on a deficit. Relative size of the pension obligation,

combined actuarial assumed liabilities across the two plans have grown from 3.3 to 5.5 times

government revenues and the employees ability to pay. We highlights this because this is the

high cost of living area. So the participants in the plans definitely face a challenge in terms of

their own personal ability to meet their retirement expectations combined with the plan. So

then Then as I mentioned we get into the appendix and there are a number of great slides

here. These can get into quite a bit of detail. But to giver you a sense of what we looked at,

we looked at the long term obligation of the plan and see what source he there are. Look at the

outstanding debt of the at this time city, relatively to the assessed property, San José looks

great, debt to annual revenues looks great against peer group. Debt service cost, payment of

56

principal and interest, many of us can think about that as our ability to pay the mortgage,

principal and interest and how that compares to our revenues and again the city looks strong

compared to its peers, not as strong as others but strong against the median and the average.

Here we get into some him analysis of how the pension obligations have grown over time. The

liabilities versus governmental revenues. On the right-hand side, this compared to peers

highlights not only how that number ends up, in terms of liabilities compared to governmental

revenues, you'll see on the right-hand side San José at 5.5. Meaning our liabilities are 5.5

times our revenue. But also importantly that's a function of the discount rates of the pension

plan. Using a discount race of 6.875, increases our liabilities. Dallas at 7.25% for their Police

and Fire or 7.75% for employees retirement system, those have lower assumed rates of return

and therefore their liabilities are lower. That's an important component to the analysis and so

we highlight for each of the peers. Liabilities to annual payroll is a similar metric, comparing

the liabilities against the payroll of the city. Contributions versus General Fund revenues,

economic and demographic statistics showing some of the trends I said earlier, in general

we're seeing increase in population, decreasing employment rate, the diversification ever

employment across industries, projected General Fund financials, and projected contributions

and retirement expenses. Then more detail. I'd like to conclude with these last three slides

then. These are actuarial projections that we took a look at, to better understand that if

everything goes according to plan, and of course nothing ever goes according to plan but it

gives us something as a starting point. What happens to the pension plan in terms of the

actuarial liabilities, the growth in assets, the contributions from members, and from the city,

and how does this project over time? This is the baseline projection, and you can see in the

bottom in the year 2027, that the actuarial liability grows, and this is just Police and Fire plan,

grows to approximately 5.9 billion and the assets are growing to 5.4 billion which leads us to a

91% funded ratio which is significantly better than the top line where we see a 77% funded

ratio. We see the contributions from the members and from the city, the contribution rates, the

normal cost and the interest cost. And we said okay that's great, that's our baseline. What

happens though, if we have a significant draw down? A 2008 event that the market drops so

significantly that the assets drop by 25%? What is the burden on the city? That is what this

helps us to understand. We have three boxes highlighted in original, orange-ish noting that in

2023 the funded ratio will drop to 61%. This is assuming that we have the 25% decline in

assets in 2018 and then thereafter an increase of 6.875. We hit our actuarial assumption

every year thereafter. And the funded ratio because of the way it's phased in using actuarial

assumptions it doesn't bottom until 2023. And that's why the 61% guidelines precipitously until

57

2023 then it starts to increase. Similarly, the analysis allowed us to stay a look at contributions

from the city. How high will they get under this scenario? And in the year 2026 they reach

about $335 million. That's noticeably up from where we are today, the top line at 164 million.

And then the interest cost was the last number we wanted to take a look at because the

interest burden itself can be fairly significant. How that tops out at 147.5. So this was

instrumental in us taking a look at where we thought the plan could tolerate risk. So this

scenario isn't anything anyone wants to endure. The question is can it be endured, if this were

to happen does the city go bankrupt? Is there something more significant than just the

pension plan? This is not great, this is not favorable this isn't what we want but if this did

happen we would be able to survive. We think a 61% funded rate is still survivable. Interest

cost of 147.5 is survivable, so we outlined those as the three constraints. And we were able to

work that back into the investment program overall to reach the 12% volatility and say okay the

investment program when we look at it in this perspective of the sponsor we can draw these

numbers back, in a variety of other presentations to get to an investment program that has a

12% volatility that we can use to hit our actuarial assumed rate of return. So let me pause

there. This is just Moody's and S&P credit ratings, and happy to answer any questions.

>> Mayor Liccardo: Okay, thank you for presentation. Questions. Councilmember Davis.

>> Councilmember Davis: Thank you, mayor. Can we go back to slide 27 where it's the

baseline actuarial. So I'm noticing that the city contribution he increase until 2026. And then it

declines by a lot in 2027. Can you explain why those contributions are continuing to go up

every year until through 2026?

>> Yes. It's actually, it is going up to 2026, but the main components are tier 1 and tier 2

Police and Fire retirement plan as the payments continue into the plan and as time rolls on

there's the modeling of the people who retire and eventually pass away. There is a mortality

component to those tier 1. While tier 2 grows in importance and tier 2 has a different benefit

calculation to it. So there's that component. There's the general improvement of the financial

situation, in terms of these going to pay the unfunded liability, and the unfunded liability

becoming smaller there's that component. I think those are the two main ones. There might

be a third one that's escaping me right now.

58

>> Roberto Pena: Councilmember Davis, the big drop 2027, I believe this has to do with the

fact that at some point, the -- and this just to make sure, this is just for Police and Fire.

>> Correct.

>> Roberto Pena: Yes. They many years ago, the board had an open amortization period

and then they decided to decrease that amortization and make it close ended. I believe the big

chunk, for that year I believe that's the reason.

>> Councilmember Davis: So does that mean we will have paid off our unfunded liability by

that time?

>> Roberto Pena: The unfunded liability that was actually created at that particular point

where there was a chunk of unfunded and amortized it over so many years. I think it was 15

years or maybe in 2012, I'm not completely sure. But yes, after that there have been other

liabilities have been created so that's why we're still having that sizable contribution. But that's

the main reason why the big chunk is paid off by that time.

>> Councilmember Davis: Do we consider the 88.8%, the 91.1% generally funded? You

don't want to generally try to be 100% funded. Is that considered fully funded?

>> Roberto Pena: Depends what you consider fully funded. Generally 100% is a fully funded

plan. But of course that means there's enough assets to cover the liabilities at that particular

point in time. Of course workers continue to accrue benefits, and after that day it's not fully

funded. From that standpoint, 100% means that's a decision about what kind of funding ratio

the boards are comfortable with, it's a decision that we haven't really entertained at this point

because there is nothing we're going to have to worry about for the foreseeable future.

>> Councilmember Davis: Got it.

>> Roberto Pena: But at some point in the future it will be deliberated in the public.

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>> Drew Lanza: There are 27 knobs on the wall and one knob is a smoothing knob that says

let's not go from 80% to 50% in one year, that's kind of loonie. We've talked to the actuary

about that and we'll start working on that.

>> Councilmember Davis: Thank you.

>> Mayor Liccardo: All right Councilmember Khamis.

>> Councilmember Khamis: Thank you for your presentation. On slide number 2 as the

Police and Fire board is prepared to accept the 12% volatility, 12% volatility does that mean if

the investment go down about 12% you're going to throw out all the investments? What does

it actually mean as far as actionable -- what are we prepared to do if the portfolio sinks 12%?

>> Thank you, grit question. So the 12% volatility is the standard deviation of returns that one

would expect two-thirds of the time. So two-thirds of the time we would expect returns to be

within plus or minus 1 standard deviation. Meaning that if the returns of the portfolio are up

12% or down 12%, that's normal. The things we're concerned about, so if it was down 12%,

what would you do? Probably nothing. In fact that might create some great buying

opportunities and opportunities to rebalance the portfolio into the assets that have decreased

more than the 12%. So that would actually be built in as normal. It also helps us frame what is

abnormal. And we think about that in terms of two standard deviation events. And we say that

if it's reasonable to expect the markets could do gown 12% in any one year with pretty

reasonable probability, they could also go down two standard deviations, 24, 25%, that would

be remarkable, that would be a 2008 event, one in 100 years, one in 20 years event. In that

situation what would you do? Again you probably would do knock because your portfolio is

probably well positioned at that point to recover. So the historical behavioral bias is to chase

performance and sell out of stocks in March 2009, bad decision, that's when you wanted to be

buying stocks in March 2009. So we put these policies and guidelines in place to help us

prevent ourselves from ourselves. We build that in and we say that helps put the guardrails in

place to know what we're doing. Now you can play around with that and think about where

you're allocating risk within those bands and within your portfolio and that's where you can get

into more judicial rebalancing and targeting of investment opportunities.

>> Mayor Liccardo: Question. Other questions, Councilmember Davis?

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>> Councilmember Davis: Because we have two separate boards and we have just the

baseline projections for Police and Fire, is -- and I don't remember if this has been discussed

in the Federated meeting -- who is looking at the total contributions for city and whether or not

the projections for Police and Fire and Federated are going up at the same time, and we hit

some major crest where the City's contributions are just enormous in 2026, on both plans, or is

there -- is there any coordination between the two plans to kind of smooth out the contributions

for the city?

>> There is. If we take a look at page 18, this has both the Police and Fire and Federated

contributions on the left-hand side, and the separate document looking at the same type of

analysis, you can see what they are. And so that's how they line up.

>> Councilmember Davis: Thank you.

>> There is a difference there, because the General Fund projections use slightly different

assumptions in terms of the discounting of the annual payment.

>> Councilmember Davis: Thank you.

>> Mayor Liccardo: Other questions? I was hoping to follow up on a couple of the items that

were presented. And I really appreciate the presentation. I'm sorry I had to run out for a

moment for an urgent matter. But but I had heard -- I am trying to understand how the board is

using this. Is this for the purpose of helping to shape the investment strategy?

>> Yes. So it's to first understand the big picture in terms of the ability to accept the risk. So

going back to that initial schematic. And then recognizing that we have a limited risk budget

and so how do we want to use it. This helps us answer the top line question what does that

total risk budget allow us and then it allows us to drill deeper. The other item that my firm

provides to the board is helping to construct risk smartly.

>> Mayor Liccardo: As we think about the variables and I appreciate that you took sort of a

worst case scenario a one year loss of 25% around recalculated the numbers. There are

certainly other variations, or variables I should say, which are probably more likely maybe even

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certain. I'm guessing at some point in the next year or two or more one or both of the boards

are going to reduce the discount rate. And I'm just wondering if there was some sensitivity

analysis as to what happens as we push the number closer to 6 and certainly open to any

board member comments as well. I'd understand, I know our cost go up but understanding

how much is helpful.

>> So setting the discount rate is certainly something that probably ties closer to the boards

and the actuary than my work directly. What I can point to you on slide 12, for example it's in

other places in the presentation as well, is what the discount rates are for peer groups. And

you can see that San José is actually on the lower end. Except for San Diego on this page

San José at the lowest. This is important though from what we're doing because as we

generate a portfolio capable of meeting a 6.785 rate, the 12% that we're at lines up well with

this. So from that perspective --

>> Mayor Liccardo: I'm sorry the 12% --

>> The 12% volatility.

>> Mayor Liccardo: Okay.

>> Lines up well with this rate of return.

>> Mayor Liccardo: When you say 12% is that the standard deviation?

>> Yes. So from this analysis I wouldn't necessarily conclude that the discount rate needs to

lower. That's a separate discussion and decision obviously with the board and the actuary and

others involved. But this alone would tell me two things. One thing is that generally low

compared to peers ton assumed rate and a reasonable place to be in -- on the assumes rate

and oreasonable place to be in today's environment.

>> Mayor Liccardo: If somebody wants to jump in I'm certainly like to hear.

>> Drew Lanza: Mr. Mayor, on the pension fund, I think we'd sit down and talk about past

events like 2008 and what happened in 2000, 2001, and we would look at how that would

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impact San José and maybe the comparable cities and we check through ten of those and you

guys would say we would be okay there, Oh my God that would kill us right? Doing that we

would get calibration for risk. Every city is different. Every city in 2008, Los Angeles would get

different from San José because they are different, different number of employees differently

tax base so on. We would pick that risk from you and then from there the rest become

somewhat automatic, where we generate a portfolio that matches that risk. There is a return

that matches that risk, we have some creativity in that, and then we're there and that sets a

discount rate. Counselman Leiderman who does a lot of systems --

>> Mayor Liccardo: I think you're right.

>> That would be a really interesting exercise. When I think about San José, San José has a

lot of correlation to venture capital, to the equity markets. Like the economic health of the city

is actually quite tightly bound in with the performance of a lot of the underlying assets that

make up the portfolio. And that would -- and understanding the interplay between economic

health of the city and the assets that are in the portfolio, I think, would be a pretty radical like, I

don't know that anybody actually does this exercise but would be a very enlightening exercise.

>> Mayor Liccardo: Yes and by that are you referring to the correlation to our fiscal health?

>> Correlation to fiscal health, absolutely.

>> Mayor Liccardo: I am certain that is a very reasonable assumption to make and very tree

true probably when you are referring to the county. Much more challenging when you make

that comparison to the city. Because our revenues simply don't vary that much with the boom

in the valley. And in fact we're running a deficit this year. In for proof. And I guess maybe if I

could go back a couple of slides I might be able to illustrate this, slide 5 revenue per capita and

I think that's a really reasonable number to look at when you are trying to compare fiscal health

of cities or at least the potential for being able to afford shocks in various ways. But what's

important the keep in mind is two things. One is, we're the highest labor cost of any city

outside of San Francisco on this list, right? And it just so happens that San Francisco's

revenue per capita is four and a half times, probably higher, it's historic, I understand San

Francisco has a $10 billion General Fund which blows everyone's mind. We also have the

lowest employee count of any major city. That is the, the most thinly staffed City Hall of any

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major city. It's correlated obviously with labor costs and we know it last something to do with

retirement costs as well. It is $200,000 to put a police officer on the street in part because of

unfunded liabilities that are attached to at least a tier 1 police officer. So when we talk about

revenue per capita first even if revenues did rise commensurate with the economy, we don't

benefit quite as much and having the same revenue per capita say or being in the ballpark of

Dallas, San Antonio or San Diego, those are all cities that can employ a lot more staff and

provide a lot more services for that same revenue per capita. The other issue we have is, we

have the worst jobs-housing balance of any major city in the country. Recall those cities are

producing an enormous amount of capital, whether it's google who is not yet here, Apple in

Cupertino, those are cities outside our city, those are all companies outside our city limits, we

are the bedroom community for the rest of the valley, we have about three quarters of a job for

every employed resident. That is a dramatically lower number than you'd find for any other big

city and certainly much lower than any of the surrounding cities. So all that is to say that we

just don't rebound the way Silicon Valley does. And obviously we're trying hard to change that,

as we bring employment into the city but we have a long way to go. We know that Silicon

Valley is operating in a bit of a whip saw economically. We tend to get the bottom end of that

whip saw but not necessarily the upswing. Sorry to depress everybody on that. So if you guys

all want a drink early, I understand, it's now happy hour. I'll try make my last couple of

questions quick. The one reason why I asked about the purpose of this is, I'd heard rumors

and I know these are just murmurs and nobody is -- this is not official or anything. But that

there may have been some interest in looking at pension obligation bonds because of the

discussion on debt. Is that a fair question to ask? Is that something folks have been

discussing?

>> Sure, yes. I mean, you say city has a strong balance sheet. You have a significant

unfunded liabilities. It would seem that would be an option that someone would put on the

table at some point.

>> Stephen Brennan: If I could add also, maybe take things one step back and then get to

that question. When we talk about expected returns and returns, I think there is kind of at a

very basic level you take a look at three buckets. One of those buckets is how much risk can

the city take, the risk assets that are more volatile, the more we can expect to have a higher

return number. Having an option big draw down with high volatility high return assets, allows

us to stay more Rick and pursue greater long term returns. It is a tool that would be useful to

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know can we use it to what extent can we use it but part of the broader question and one of the

areas where the council can really help us in terms of conveying, we're willing to take there

much risk if we can reasonably expect it will get us this much more return. Which of course

marines less money everybody has to contribute over the long term. Unfortunately it comes at

the price of the volatility. In that could you take a 20% down year? Can you take a 30% down

year? How far down can you go and would you be willing to use financial tools such as a bond

offering if you got in that situation? But that is one area that I think board would find value in

your opinion of understanding what your risk profile is. How much volatility can you withstand

in the focus of trying to gain more return. Treasury bonds are paying 3%. That's not going to

get us anywhere where we need to get. Our CIO pointed out in the past you could get bonds

with no volatility.

>> Mayor Liccardo: That would be a happy world.

>> Stephen Brennan: Unfortunately, this is one of the worst return environments we've had.

Methods you use to long term predict the direction of U.S. stocks that are reliable show this

currents market U.S. stocks priced akin to 1999-2000, which produced negative returns over

an extended period of time. So we have to also operate in the understanding that even if we

are willing to embrace more Rick, it doesn't mean a higher return in the past. This happens to

be a bad hand we've dealt, which is why that funded rate is going down. The third aspect is

strategy, stick to a strategy, stick to it and execute it. I would say on that note, is my personal

opinion, when I have a client with my firm in one hour I can explain what our strategy is. And

it's going to be the same strategy three years from now, four years from now. Councilmember

Khamis offered us an vice pick a strategy and stick with it, I very much agree with that. I think

you have everyone right to ask us what is our strategy, sit down understand it and then expect

two years three years four years that strategy you can look at what's happening, it's

understandable to you and still being executed. We're working on being able to document that

and show that. My term ends in November I'm hoping to have that documented so we can

hand that to you. If I don't or if we do, I strongly recommend you every once that while say

what is the strategy, explain it to me and I want to see you guys sticking to it. But I would say

those are really what's going to drive returns are those three buckets. How much risk can you

take, what's the current return environment and what is your strategy and what can we

reasonably expect from your strategy. The more we buy risk assets, the more uncertainty,

more volatility. If you are just buying treasury, you know what you're going to get, walking

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away giving you just the things to focus on, understand the risk environment, understand and

convey what your risk profile is and hold a gun to our heads, and make us convey a strategy to

you that we can stick to that we can articulate that we can document and it doesn't change two

or three years when you come back.

>> Mayor Liccardo: Right.

>> Stephen Brennan: That is obviously a strong conviction of mine from the private sector.

But you have ever right to expect that. But in return we have ever right to say to you what is

your risk profile. If we have that 20% draw down if you say you're okay with it, it's up to us to

give you a strategy we can stick to and as much as you can convey the risk profile that is going

to be acceptable to this city we can build a strategy around. That's what you can walk away

with.

>> Mayor Liccardo: Thank you, I appreciate that perspective. I'd like to articulate on the

subject of risk. I'm hesitant osay this because I know that it's a difficult tight ropes that folks

are walking on both boards right now. We know we don't want you chasing returns, at the

same time we recognize there are rely challenges with mature plans, and particularly plans

that are really so imbalanced as ours given the number of employees relative to the number of

retirees. At the same time I have conveyed to some members of your board that during some

of the good days, I wish we were taking more risk, of course it's always easy to say that during

the good times, I'm mindful of that. I know the recession is going to happen eventually, too.

But as we think about taking on debt, or risk tolerance I guess it comes back to the same issue

about fiscal condition, and I just would want to warn folks as you look for example at slide 9 or

also reflected in text on slide 6, the general sense that we have a relatively low debt profile, it

is certainly an accurate one but I'd just remind everyone what you know already which is

liabilities are not just debt. And in this city we also have a very large unfunded capital

replacement and maintenance hole. On the order of more than $1 billion and I won't recite the

most recent number but I know it was just given to us a couple of days ago in the budget

session. So one of the reasons why we have been so conservative about debt is because

we've been trying to really tighten our belt to fix what we have before we start building more

stuff that we can't take care of. And so that's why you see a relatively consist debt profile but

we also have a very large liability on that side too. All these are challenges we inherited

collectively. You've inherited a bad investment history. We've inhated that. If we are serious

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about entertaining things like pension obligation bonds, I know they are controversial, it didn't

go well for Stockton or Oakland or some areas that have tried it. I asked the questions, just

wanted to make sure folks are aware that there are other liabilities that we are particularly

concerned about. And I guess again, this would be a question really for the boards, anyone

who would like to jump in. As we think about certainly we've heard with you about the rate of

return assumption, we know there are other assumptions that can significantly affect how

much we need to contribute and what these lines look like over the next ten years and I'm

thinking about the amortization periods, the rate of return periods, anyone who wants to be

bound by their annals what is likely over the next couple of years whether there would be

significant changes in those assumptions, based on your actuaries or externally?

>> Maybe I can add a little bit before the board members chime in and just in terms of the

analysis we did. We asked the actuary to not move any of the assumptions. So that we could

see what that worst case scenario looks like knowing that we would have the ability to lessen it

through changes to the assumptions. So I think you're asking a very valid question. We

purposely kind of ring-fenced the analysis from getting here because it really opens up a lot of

scenarios where we could think of a lot of things.

>> Mayor Liccardo: You have to have the assumption that things stay where they are

because otherwise you would be stuck in a mess of conclusions. I appreciate why you need to

do it that way.

>> Michael Armstrong: I think from an actuarial standpoint, my assumptions are conservative.

We are concerned that we don't want to use long long periods for smoothing. So there's sort

of a hard core kind of honesty from my sense on a lot of the actuarial assumptions. And I sort

of benchmark that the society of actuaries at a blue ribbon panel and I sort of matched up what

we did with what -- and they're a pretty tough bunch and we matched up really quite well. So

from a Police and Fire --

>> Mayor Liccardo: Thanks Michael.

>> Vincent Sunzeri: Happy to comment on that. We've had conversations around the various

levers we had available. We had an offsite last month on this discussion entirely around Rick.

And in fact our view has been by lowering the discount rate we're using more realistic

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assumptions which is good. We know that requires greater contributions into the plan. And

our desire is to try and knock down that unfunded liability as quickly as possible. One of the

other tools we have in doing that is shortening that amortization schedule around we have a

fairly short amortization schedule.

>> Mayor Liccardo: Is that 16 years?

>> Vincent Sunzeri: We're currently at I believe 15 years.

>> Roberto Pena: I think on average it is a little less than that actually. Because we have

amortizations for unfunded liability and actual gain and losses. When you combine all those

levers I think you average to less than 15. But I believe it is either 15 or 16 right now for any

actuarial gain or loss on unfunded liability, yes.

>> Vincent Sunzeri: So Councilmember Davis when you asked about the change in numbers

in 2027, that is a significant factor because the unfunded liability is knocked down

considerably. It's a large part of the contribution on an ongoing basis. It is like carrying a

mortgage that you don't want to incur that interest cost. That lever gives us room if we have a

difficult market environment and that environment impacts cities. Revenues. To go back, and

to consider, might future expected returns be higher from equity markets if we have a return?

Would we potentially consider increasing the assumed return going forward? Might we

possibly extend the amortization schedule? So that way the pressure on the City's income

statement on an ongoing basis isn't as painful. So we've thought about that. As a way to look

at it, we haven't set a specific policy in place but we're definitely aware of that.

>> Mayor Liccardo: Okay, the thanks Vince.

>> Drew Lanza: As another long time member, reply instinct that probably Vince is right.

Pension obligation bonds is the bad part of San José but also the good part of San José.

Might we extend the amortization schedule? That way the pressure on the city's income

statement on an ongoing basis isn't as painful.

>>> so, we thought about that as a way to look at it. We haven't set a specific policy in place,

but we're definitely aware of that.

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>> thanks.

>> as another long-time member, this is great, mr. Mayor. My intuition tells me vince is right.

If we continue to talk to you, you put all these things as pension obligation bonds, you can say

this is the bad part of san José. It's also the good part of san José. The statistics you quote

can be flipped to our advantage. If we do that, there is some stability at 7%. Steven says we

can -- we can take more risk if you're cognizant of why. You say, gulp, okay, let's do that.

Risk has a pejorative to it. As steven said, volatility can be good.

>> right.

>> Plus or minus -- so, i think we're trying to get at how much risk is san José willing to take.

To be honest, i think based on what happened in 2008 based on earlier measure b, we

assumed san José was risk averse. It's not clear listening to you today that's not really true.

>> i would say on the discount rate, it's my opinion, but i think it's an educated opinion, we

probably have more substantive conversation as round that than most boards and most

pension funds do. We have seen a trend of others following us, that as we've gone lower,

others after a year or two started to follow going low, too. I think that reflects the return

environment. All of our consultants are telling us that the current number is meetable and

doable. I have a personal interest in taking those models and beating them up a bit and

getting real confidence in them. That's something mostly pension funds don't do. But right

now everybody is telling us that's a realistic number and a lot of the higher numbers reflect

concerns that were entirely about getting a realistic number by other funds and that as they try

to get closer to reality we're seeing the numbers come down also, calpers, they're number is

coming down, too.

>> which is certainly overdue. Thank you. I just had one question on slide number 6 -- i'm

sorry, did anyone else have a question?

>> i have a question about the peer groups. Is there a number on actual rates of return?

>> actual rates of return?

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>> yes.

>> Performance of each plan has rankings in it so those were compared against other public

funds of certain asset size. So, yes, acutely aware of those.

>> do you know off the top of your head or do you have access to that information where, like

you say, dallas or some of the other peer cities, how they've been doing over, say, the last ten

years?

>> i don't have that with me today, but yes, they are downloadable from their websites so it's

easy to compile.

>> my second question was on your slide 28 with the 25% draw down. You could have also

presented a slide with a 25% increase as well, so my question is, if we're going to look at the

potential down sides and the costs associated with that, we have good years as well. So, why

haven't we seen or why aren't we seeing a slide that would show, you know, a positive

movement in the market, or even --

>> i like your thinking. [ laughter ]

>> i'd like --

>> i was going to take it one step further, a more realistic slide, markets go up and down every

year. A slide that shows 25% draw down in, say, 2019 in a 25% increase in 2025, a more

realistic view of how markets go up, markets go down.

>> great point. So, we augment this kind of analysis when we're looking at the portfolio

construction and we put them through -- so when we're looking at different portfolio miktses

and we're considering should we overweight this asset class or that asset class, we run it

through historical scenarios and point specific scenarios where we say what if just the dollar

collapsed or equity markets collapsed or rates rose. We run it through scenarios to see what

happens to the performance of the plan. When we get our hands on what the performance of

the plan looks like, knowing what these look like in a baseline and 25% draw down, we can

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start getting our arms around what's that mean in these kinds of situations in terms of

contributions, et cetera, and all the other metrics here. And then if there is particular need like

in this case, then we can run that analysis through what the actuarials' models say to come

back with this. It's a multi step process. We did it with a situation in the baseline with a 25%

draw down to show who it looks like in a bad, worst case scenario. Anything above that, we're

happy it's all good news. Those tend to be shorter discussions for some reason.

>> yeah, thank you. That was the question i had.

>> there is actually kind of a pretty serious answer to that. To some extent you are carrying a

very large insurance policy against markets screwing up or us screwing up or somebody

screwing up. The insurance pays when your house burns down. You don't get it and pay

when it doesn't burn down. If insurance becomes sufficiently large, we learn about the

solvency and/or sustainability of the city as you alluded to other cities. So, we aren't inherently

pessimistic people, but when we come to the table and think about that, we brimg our -- we

bring our insurance hats.

>> i don't know, roberto, i don't know how many years it's been 4%. We structure this portfolio

to minimize loss, but we've also minimized the potential up side. And we're rolling with a 4%

rate of return with, you know, a, what is it? 6.875 target. So, structurally we're set up for

failure. So -- not necessarily, though. Building on trusty lands, if we have a noticeable market

gain well above our assumption, if we have a 25% gain when we're only expecting 7, one of

the tools available is to say now we can take on less risk. Now we can dial back the risk, we

can dial back the return expectation going forward there by lessening the cost of the insurance

policy. So the insurance policy, quote-unquote insurance policy the city is providing to

retirement plans is really designed around that. You can effectively dee-risk the plan. What if

we were fully funded, 120% funded or something like that what could we do then? We could

feasibly say what if we lowered the assumed rate to 3%, how does our funding look now? If

we're able to lower it to 3% and be content with where that puts us, we can invest in portfolio of

treasuries 3%. Now the risk is di minimis. Everyone is meeting their expectations. The

insurance policy, then, is quite cheap.

>> i do think you're absolutely right, councilmember. You're saying -- my notion of prudent risk

generates a higher return than mine does. I think it's up to you to tell us what that is. And if

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you're right -- i hope you are right -- we can dial up -- like he said, risk and return are tied

together inexorably. Is the genesis of this meeting.

>> i would also add that looking back over the past few years, what has been driving returns?

Well, you can't really put it on the environment. The environment has been good for risk

assets and stocks. You have to look at the other two buckets. There's maybe been less

clarity than should be what the risk profile of the fund is over time and how much to embrace

risk year in and year out. The strategy hasn't been as clear and consistent as it could be but i

would keep focusing on those three buckets and go back to what has the strategy been and

what is the risk profile. One place we can make progress is defining -- we're completely

comfortable with that 20% draw down. There is volatility around that and fat tail events where

that could be 25, 30 once in a lifetime. We're comfortable with this. If we had a more

consistent understanding what our risk profile was, i think you would have seen better returns.

I think that is something that can improve going forward.

>> thank you. Councilmember jones? Okay. I just want to -- before i go to vince, i share

certainly councilmember jones' sentiments during times we weren't seeing great returns, but,

you know, this would be the last time, this moment would not be the last moment let's go jump

in risky p.e. Ratios, very interest bonds, et cetera. I know you never can time this market, but i

can appreciate why this wouldn't be exactly that moment. Vince?

>> i think it is valuable to go back in history and look to see why we are positioned the way

we're positioned. In this slide deck which was so valuable for our board, on 13, was one of the

key things our board had been looking at quite sometime. It had to do with the liabilities to

payroll. It is the highest in the state. And what that essentially means is we are much more

vulnerable to downside than other systems would be. And when we talk about contributions

going up for the city and the percentage of the budget that is going to pay for the normal. If we

experience large downside, this would aggravate that. It would magnify it in a significant

manner. So, we chose to move to a more de-risked portfolio. The reason we're sitting in this

room today were the outputs of the city auditor's effort. And it showcased the fact that san

José, or i should say spotlighted that san José had some lower returns than other systems and

had questions around that. Well, the fact is what risk we choose to take with asset allocation is

going to drive our return, plain and simple. So, if we were going to drive that risk higher, we

wanted to know this is where the discussion on the debt side of the ledger things came. Not

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the income statement in terms of what contributions are as a percentage of the budget, but

where is the city's tolerance for if we do drive up risk to achieve the hire return that the city

auditor was spotlighting, would the city be willing to stopgap it on the balance sheet side?

What i'm sensing here is there is not necessarily the temperament to assume that. If i'm

wrong, i'd like to know that. But i think that's part of the challenge for us, is how far did we

geun-hyer rates of return without, as drew says, an insurance policy in place.

>> i think that's a really great point. I'm newer to the board. In some of our board meetings i

was asking what's our risk appetite. I was please when had we brought bar is on board. The

first question they ask, what's your risk appetite? You're young, there are things that influence

the profile. I had a professor once who would give us these big kwrtsz quarters. He would say

flip the quarter. Let's make a bet, heads i win, tails you win. If you only have $100 in your

bank account, you're going to to think about that 50% vastly differently than if you had $10,000

in your account. We don't know precisely what the risk budget is. It takes the boards and

other constituents to help guide us. If you want to play that professor's case study out a little

bit more, if i know i have $100 coming next week in my paycheck, i think differently about the

$100 bet i'm going to make on that given day. Whether it's in pension bonds or tax receipts or

how benefits might be structured the next 5, 10, 15, 20 years, all of that influences the work we

do and we don't have a complete picture of that.

>> in the interest of transparency, though, here, i do want to say if you look at us versus our

peer group, you have to take a look at the possibility that some of the strategies we've done

versus our peer group detracted from return. So, i would encourage the council to again insist

that clear strategies are articulated, it's measurable and monitored. It is an important piece

here. I think some strides have been made there. There is one point where this team was

very under staffed and there wasn't the pieces in place to put it together, a good strategy. But i

think that's one thing i would urge you to do, is hold us accountable. Not to outperforming or

under performing, or putting up certain returns year in, year out, but being able to articulate a

strategy, execute it, and be able to measure it and understand it because i do think a better job

can be done in that area also.

>> yeah, i appreciate now you have ciu on board. That will go a long way. Thank you for that.

Someone wanted to jump in on this side. Make sure i didn't -- okay. Councilmember jimenez?

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>> just a question. I'm a fairly new councilmember. What i'm curious about and everything i've

heard is historically how has the city council articulated that risk, what we're sort of -- appetite

for risk? So, i don't quite understand that. I feel like there's maybe this break in

communication or maybe it's just the way things are structured that don't allow for that back

and forth, but i'm just curious as to how --

>> i'll take a stab at this. We had many councilmembers who sat on the board. We came to

the conclusion it was a bad idea. We certainly have members who provide communication,

but not to vote. We thought it would be best, like you see around us in this room, people who

are -- have great resumes who have done this in the private sector who understand these

issues far greater depth than any of us will, being independent members of the board along

with members of our employee groups. So, that is really how the communication happened. I

don't know we've ever had one of these joint meetings before. I can tell you during the time of

the crash '8 and '9, there was enough communication through what mayor reid and others

were saying. Clearly indicated the board needed to put the brakes on risk. And again, it's

2020 hindsight. It was a bad time to get out of stocks, but we had just suffered some pretty

steep drops.

>> so, does the current structure prevent us from having a more formal process in which the

city council can articulate that risk or --

>> i'm very open to suggestions from either group about how best we can do this in a way

that's efficient for your time and also provides you with some clarity about our views and

obviously gives because frankly you all see more than we do since you're in the industry.

Councilmember jimenez, do you have any suggestion or --

>> no, i don't. I don't have a suggestion. Certainly going around the room, it's very clear and

apparent we have a group of experts here that i put a lot of my confidence in. But i also sense

in some of the discussion -- to the extent i'm putting words in people's mouths, maybe we need

a little bit more clarity or a little bit more direction, however that may play out as to what the

appetite for risk is. So what i'm thinking is what is that mechanism, that policy direction to the

extent we can do that given the current model, how do we articulate that? Is it through the

press?

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>> i don't know.

>> 140 characters, you get it.

>> so anyone has any ideas as to how that can happen, i'm open for it, but it seems like there

is sort of this, this break -- i don't know if break is the right word -- in communication.

>> let me offer that if we were to be engaged in that kind of communication in any intentional

way, we need to be intentional. That is, we need to take in a lot of information as a council

before we're in a position, i think, where we want to tell the board, hey, here's what we think. I

think we're all getting up to speed. I'm just throwing that out there. Councilmember khamis.

>> thank you. As a former financial advisor, i can tell you you're only as good as the last

recommendation you made if it came out well. [ laughter ]

>> and trying to predict the markets isn't for the faint of heart or isn't for a large organization

because large organizations can't, you know, shift and move fast. They're not computers.

They're not going to do automated computer trading and all the things that stock brokers do

now to keep portfolios finally tuned at all times.

>> and it sounds to me like sergio wants to volunteer to be on the board.

>> i'll serve for five years if he's willing to do it. More power to him.

>> we appreciate the many hours of service.

>> thank you. And i also wanted to correct councilmember jones and his assessment on page

28 of the slide of the 25% draw down. The draw down doesn't mean that the market is down.

In fact, this scenario assumes a 6.785 rate of return. It actually -- all it means is people are

taking more money out than putting in, which is what we've been experiencing after the large

layoffs came into place. So, it did. This scenario is not the most pessimistic scenario you

could look.

>> i'm sorry --

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>> i think we may be conflating the term draw down. Do you want to clarify?

>> yes. An easy way to see that would be under the third column you see the assets at

market value from 3293 dropping to 2446. That is more than a 25% decrease. What it's

saying is the market value of the assets decreased by 25% and we paid out benefit payments

and expenses. So it's more than a 25% draw down there. Most of that is due to the markets.

Aerks owe really? I thought you used the word draw down more people taking out from the

plan than taking in.

>> I'm sorry, draw down is market correction. Portfolio --

>> that's the last time you're going to correct me. [ laughter ]

>> i'll be brave enough to do it once again.

>> no, it won't. All right. I know there was -- yes, thank you.

>> i can think of two or three concrete ways in which we can approach on this risk. We talked

about the eight comparable plans. Wuk look at you as we look across key variables, are you

willing to take more risk than see seattle or los angeles? That's easy, then calibrate ourselves

in that group. The second way we talked about earlier is we can look at you and very

concretely say, okay, let's look at three historical downturns, threat, and let's look at how the

they affect the eight cities, how they might affect san José and calibrate off of that. Finally the

third way, if those work, we can sit down and say san José is its own unique beast. What

would be the right number for us? That one, two, three step we talked about would work.

>> right.

>> you guys know san José. We don't know san José. You guys know san José? I suspect

we put that in front of you, you'd go --

>> it's not so much taking a look at data, a lot of tables, reading through reports after reports.

It's really what you already talked about. In the last session, this is oh, my god too much pain

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moment. Looking at the draw down, what it does to the finances. Saying for the current

board, for future boards, that is just going to be too emotionally too much. At that point we're

going to start saying, you know what, we need a new strategy. In that kind of draw down

environment, if you're looking at the numbers and the discomfort is so high that you just know

even if i could stick with it, other members may not, board members not yet appointed, that's

too high. That's really the biggest thing you can give to us is to kind of give, because of what

this would do to city finances, it is emotional li unpalatable. We can't take that much risk.

>> right. I appreciate all that feedback. It's very helpful. I guess if i could also offer, at least

from my perspective -- and this may come back to a point that councilmember jones was

making earlier. In terms of the risk, we expect you to have i'd like you to have whatever risk

tolerance matches the discount rate you pick. And i wouldn't want is a 6.785 assumption when

we're really much more conservative in our investment. If that means we have to swalwell oi

paint and take a lower discount rate, then we have to take a lower discount rate. But i think

that would probably, saying something i'll probably regret a year from now when we see the

general fund bill. At least in terms of the planning and budgeting and so forth, it would be

helpful, most helpful for us. We know you can't dampen market risks out there. They're real

and alive. I think just having a clear sense of alignment would be helpful.

>>> finally, last question i had was just on item number 6 -- i'm sorry, page number 6. There

was something that -- and the assumptions that you have there, the forecasted general fund

growth in revenues regulartive to the growth and expenses, i don't think i've ever seen this

characterization before about our budget. I just wondered did you get this from our budget

office, or is this based on historical data? Basically this assumes our general fund revenues

are going to drop and our general fund revenues are going to drop even faster, right?

>> so, i'd ask you to turn to page 24 and 25, has the detail behind that. 24, the right hand

number is the 0 negative .8%.

>> is this adjusted for inflation kind of thing? That's just pure raw numbers?

>> pure raw numbers. It happens to be here. [ laughter ]

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>> so, we would take the modified budget column. So, the bottom number there is the 1142,

215. The 2022-23 column casted --

>> you know what i'm seeing here, it's the revenue and carry over from grants from state and

feds. I think you might get a different picture if you zeroed out those numbers. Do you want to

explain?

>> SURE, MARGARET mcgahn, BUDGET DIRECTOR. YOU'RE RIGHT, MAYOR. WHEN

YOU'RE LOOKING AT THESE NUMBERS, WHEN YOU'RE LOOKING AT THE MODIFIED

BUDGET, IT INCLUDES A LOT OF ONE TIME AMOUNT, REBUDGET RESERVES. WHEN

WE HAVE OUR FORECAST -- IF YOU LOOK AT OTHER REVENUE, FOR INSTANCE, THE

LINE ITEM SECOND FROM THE BOTTOM RIGHT ABOVE THE GAS TAX AND YOU LOOK

AT THE BUDGET AT 17 -- LET ME SEE, NOT LIKE I CAN SEE THAT. 17,3 OR ACTUALLY

14,4 AND IT GOES TO 183 MILLION IN THE MODIFIED AND DROPS BACK DOWN.

THAT'S BECAUSE YOU'LL SEE IN THE MODIFIED, YOU HAVE TRANS. THE TAX

REVENUE PARTICIPATION NOTES OF 150 MILLION. THAT'S NOT INCLUDED IN THE

NUMBERS IN THE FORECAST, SO THAT'S PART OF THE MODIFIED BUDGET. SO, YOU

HAVE SOME ONE-TIME things in there. So, it's really hard to compare the modified to the

forecast numbers because you have a lot of one-time items in there that isn't in the forecast

numbers. All the rebudgets, carry over, fund balance. The revenue numbers on here also

don't include all of our revenues. It includes the revenue items but there's transfers and

reimbursements on the other page. If you look at the revenue and expenses on these

attachments, our modified sources and uses will match on a budget. They're a little bit

different. That's why you'll see drops in the revenues and expenditures over time. It's just a

little different presentation, but they are different from our forecast.

>> for apples to apples, we take the numbers above the line item, forfeitures and penalties up,

and you'd have numbers from one year to another relatively reflect our projections that are

consistent. Is that fair to say?

>> yeah, and then also i think if you're looking -- if you just look at the forecast numbers, '18-

'19 on, using '18-'19 as your starting point, that would help, yeah.

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>> the other thing i was alerted to is the fact that expenses would drop and i'm guessing there

may be a similar issue in terms of budget interpretation. I've never seen our expenses drop.

But maybe we want to communicate with you about that to help.

>> the details --

>> appreciate it, wonderful. Okay. Any final questions or comments before we wrap this up?

Yes.

>> i actually have one question for the city auditor who is in the audience and proposed that

we have this joint meeting input. [ laughter ]

>>

>> sharon eriksson, city auditor. I want to thank all of you for having this meeting. Although

you didn't accomplish everything you hoped to accomplish eventually, this is a start. So, this is

the first time i've heard this conversation about risk. The first time i've heard the city talking

about what's happening to the city as a result of these increased contributions, what's

happened to city services, what's happening to the city's budget, what is the city's debt profile,

what are you dealing with in terms of a plan sponsor from people from the board. It's not

something you're going to solve overnight.

>> well said. Thank you, sharon. Do you have anything?

>> no.

>> mr. Mayor?

>> first of all, just the interaction that just took place is the kind of thing that i enjoy about these

meetings because i want to make sure that when we present information in public not only to

the city council but the boards, we have their information. So, we will make sure going forward

as we prepare information from the boards or numbers from the city that we will reach out to

them soonds possible, so we can get the input, we can have accurate information. Also, you

have heard me say the city council staff is always available to speak to the city council

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individually or as a group or stakeholders, any time, anywhere, about anything related to

retirement. I want to make again that offer here today. I think this kind of meeting is very

helpful. I think the city auditor is correct. We're never going to fix this in one meeting, but i

think if we have this meeting on an annual basis, the more we get together, i think the easier

the conversation is going to go and the more information we're going to have to make more

intelligent, informed decisions. Again, i want to thank everyone, and i hope that this is just the

first one of many more meetings. And i will even venture to say i know we have sessions, the

city council does, we're happy to provide a list. In a year we can present investment related

issues for educational purposes so we're happy to do that as well.

>> we'll certainly make room on the agenda as members of your team or board members want

to participate in those kind of presentations. I think it's helpful to bring up the knowledge of the

council about everything you're doing. Okay. Well, thank you all very much. We don't have

any public comment, i don't believe, no cards from the public. With that the meeting is

adjourned. Thank you, everyone. [ adjourned ]