Our Jobs
Introduction
Balancing the budget, restoring vital city services and improving our quality of life in San José all depend on the strength of our local economy. And the best way to broaden prosperity here is to create more high-wage jobs, so that our residents can invest in their communities and so we can expand our tax base to create the revenue we need to achieve our goals. [Read More]
1. Small Is Beautiful
Small, often immigrant-led businesses remain a traditional pathway out of poverty for thousands of San José residents. Supporting the growth of small business shouldn’t cost a great deal, as long as we employ innovative approaches and work with willing private-sector partners. [Read More]
2. Confronting the Bureaucratic Leviathan of Permitting
Owners of small businesses routinely grumble about the thousands of dollars and months of delay caused by red tape at City Hall. By tracking every permit application and launching an “Open Data” platform, we can vastly improve the speed of giving new businesses the green light. [Read More]
3. “Next-Shoring” Manufacturing: A Plan for Revitalizing Manufacturing in San José
Manufacturing jobs lift the standards of thousands of residents who may lack the formal education necessary in other parts of our economy. Newer industrial buildings appear in great demand, but high vacancy rates in older facilities tell us about the missed opportunities for creating jobs and new tax revenue throughout the city. We can help revive manufacturing by making it less expensive to rehabilitate those older buildings for important uses such as manufacturing, research, and development. [Read More]
4. Making Our Airport a Jobs Engine: Dynamic Pricing
Thousands of taxi drivers, hotel workers, and restaurant servers depend on airport activity in order to make a living, and every new flight can inject tens of millions of dollars into the local economy. By employing a regional “Congestion Pricing” approach to airport fees with Oakland and San Francisco, San José can capture more flights and substantially more economic benefit. [Read More]
5. Our Toughest-to-Employ: From Homeless to Hopeful
Downtown Streets Team offers an example of a “work-first” model for the homeless that could be expanded throughout the city, relying on fees and advertising revenues from local companies and retailers. By engaging work-ready homeless with tasks that bring broad benefits to the community, we can provide a pathway for hundreds of homeless back to self-sufficiency. [Read More]
6. Leveraging Libraries and Community Centers as Job Training Centers
Services from cash-pinched job-training programs like Work2Future can be better delivered through specially trained staff in our libraries and community centers. By incorporating sophisticated software at City computer portals, we can create skills-building and job-training centers that can vastly improve opportunities for job seekers. [Read More]
A Tale of Two Valleys: The Hourglass Economy
Statistics have their limitations. On the one hand, they tell us that Silicon Valley has emerged splendidly from the Great Recession. The unemployment rate for the San José metro area — which includes cities like Sunnyvale and Santa Clara — dropped to 5.8% in December of 2013, and local tech companies can’t find enough engineers to fill their cubicles. Corporate expansion and hiring have boosted commercial rent rates in towns across the Valley and local home prices have rebounded sharply.
Yet, little has been said, or written, about the relatively timid performance of San José’s economy throughout this recovery. High unemployment lingers in the Valley’s largest city, which typically warms more slowly than its wealthier suburbs. Among San José residents lacking a college degree — the great majority of our adults — unemployment exceeds 9%. In many Central San José and the East Side neighborhoods, double-digit unemployment remains the norm. One Northside neighbor of mine has searched earnestly for a desk job since his workplace injury caused his job loss in 2010, and his family struggles to live on food stamps, his worker’s compensation benefits and his wife’s part-time jobs.
Even among the employed, economists frequently use the term “hourglass economy” to describe our shrinking middle class over the last quarter-century. Amid skyrocketing stock market valuations, and growing affluence among the tech and professional elite, a burgeoning underclass of residents struggles to pay rent and our middle class has shrunk.
This widening divide reinforces racial and ethnic disparities, even in a region that many would consider less segregated than most. Through the early part of this recovery, per capita income levels among the highest-income groups (white and Asian-American) grew between 2.4% and 5.6% between 2010 and 2012, while it decreased for Latinos and African-Americans by roughly the same percentages (2% to 5%). Per capita incomes for whites in Silicon Valley now exceed that of Latinos by a factor of three ($62,374 compared to $19,049), with no evidence of any narrowing of this inequity.1
Our underemployed and unemployed neighbors feel their own struggles most acutely, but not exclusively. Parents with multiple jobs leave kids relegated to a latchkey existence. Entire neighborhoods struggle. Crime, homelessness and a host of other urban challenges become increasingly intractable. An underemployed populace cannot provide a tax base to support services from police to libraries. The entire city suffers.
THE SKILLS GAP
How can so many people simply miss the burgeoning recovery that has so ignited the rest of the Valley? The “skills gap” provides the best explanation: the gulf has widened between economic opportunity and the ability of the workforce to benefit from that opportunity. When the County’s unemployment exceeded 9% in November of 2011, over threequarters of the Valley’s employers still reported that they had difficulty finding skilled workers to fill their vacant positions.2 The Great Recession reduced incomes for Silicon Valley residents with less than a high school diploma by 19.6%, for high school graduates by 15%, but for college graduates by less than 3%.3 As we recover from that painful period, those with higher education and skills have seen their incomes rebound far more than the rest of us.
If the skills gap shapes the contours of today’s hourglass economy, what can a mayor do about it? While education and workforce training ultimately offer the long-term solution to that problem, cities don’t play much of a role in either. San José and other cities rely on the federal government for a declining share of scarce workforce training dollars, and we rely on school districts and the state to run our public education system.
City Hall won’t “solve” the skills gap, at least not without many other partners leading the way. A mayor with vision can work to convene those partners, though. For example, in the next chapter, I propose boosting the educational prospects of thousands of latchkey kids with a broad initiative that broadens opportunities for after-school learning.
Even if those partners — the city, schools, community colleges and workforce training partners — do everything right, we know that’s a long-term challenge, and “in the long run,” economist John Maynard Keynes tells us, “we’re all dead.” So, what do we do in the meantime to expand economic opportunities today?
BROADENING PROSPERITY
Our next mayor must act on a strategy that focuses on better using existing resources, new partnerships and new thinking to assist our unemployed and underemployed residents. We must do so in a context of fiscal scarcity, however. We no longer have a pot of Redevelopment Agency funds to spur job development, and our General Fund carries the burden of a $3 billion unfunded liability in pension and retiree healthcare funds. Any dollars spent on an economic development strategy must return more dollars to the General Fund, or we’ll merely be hastening the layoffs of police and closing of libraries. How can we do this in a time of fiscal constraint? We need to do things differently — to innovate.
1. Small is Beautiful
Young, savvy, hard-working and broke. Those words described Daniel Luna and Jeremy Prader in 2010, when they first conceived of “Cheap Squad,” a low-cost computer repair business on Second Street. Their first “guerrilla marketing” campaign consisted of dumpster-diving for cardboard, which they used to construct 400 signs advertising “cheap computer repair” throughout the Downtown. In 2013, they had 11 employees, revenues quadrupled over 2012 and Luna has started a second company.4
It has become a cliché for every politician with a stained tie and seersucker suit to describe small business as the “backbone of our economy.” Even the worst-dressed politicians are mostly right about this. Reeling in the “big fish” of large corporate headquarters into a city makes for big headlines, but it’s exceedingly rare. Silicon Valley derives 95% of its local job growth from companies scaling in place, not from an influx of new firms. U.S. job growth since 2008 in firms with fewer than 50 employees exceeded that of large companies by ten to one in one study, and by several times in another.5 Self-employment also has boomed as thousands of unemployed have “hung up their own shingle.”6 We best promote job growth by focusing on helping small companies fledge and flourish.
Why else should City Hall focus on small businesses? Because it builds on a key strength of San José’: our great diversity. Almost forty percent of San José’s adult residents were born in a foreign country. Immigrant communities drive small business employment. A November 2008 study by the U.S. Small Business Administration concluded that immigrants are 30 percent more likely to start a business than non-immigrants.
Beyond their obvious economic benefit, the many small, ethnic-focused businesses help to create a longed-for sense of identity for our city, bolstering its vibrancy and variety. In how many other cities can a strolling pedestrian leave a restaurant with a full belly of soba and sushi in the heart of Japantown, and within a couple blocks, also enjoy aromas from Ethiopian, Mexican and Korean restaurants as well?
TRANSFORMING THE RELATIONSHIP BETWEEN SMALL BUSINESS AND CITY HALL
Marcelino Castillo is an amiable family man who started a successful restaurant, Casa Castillo, then-located on the ground floor of the historic Twohey building on First Street. The restaurant sustained a dedicated following as a popular eatery, through recessions, light rail construction and other challenges of doing business Downtown. Castillo became a community leader, co-founding what became the San José Downtown Association in the mid-1980’s. In 2001, the San José Redevelopment Agency decided that it wanted a more glamorous restaurant to occupy a site visible to visitors of the nearby Fairmont Hotel. The Agency arranged to terminate Casa Castillo’s tenure, bringing a higher-end restaurant to fill the space. Feeling betrayed by City Hall, Castro moved on to other work.
Not surprisingly, the “trendier” restaurant, Zing, failed at that site. So did the next restaurant and the one after that. Several of them benefitted from Redevelopment subsidies for facades, new signs and the like. In what became known as the “Curse of Casa Castillo,” Downtown denizens found a sad justice in watching a parade of RDA-supported restaurants fail after the agency booted a homegrown, ethnic business at the same site.7
For too long, the legacy of our past era of redevelopment left the public reading headlines about large public subsidies for sizable corporations like Adobe, Brocade and UA Theaters. To be sure, our large employers are critical for our city’s economic growth, but one reasonably wonders whether scarce public dollars are well-spent if they amount to little more than a rounding error on the balance sheet of a large multinational company. A residual sense emerged that City Hall doesn’t care about its small businesses.
When the state legislature eliminated redevelopment agencies throughout California in 2010, I immediately focused on ways that we could support small businesses without the large “stash” of redevelopment funds that my predecessors enjoyed. In my Downtown district, we’d seen office vacancy levels skyrocket to over 30% during the Great Recession, causing ripple effects felt by every Downtown restaurant, hotel and store. Some failed, while others moved, emphasizing that Downtown’s parking costs compelled them to move to suburban markets, like Santa Clara and Sunnyvale, where office landlords provided free parking for their employees.
I focused on leveraging the resources we still had in our near-broke city. First, we had city-owned public garages. With the exodus of office tenants, we had plenty of vacancies in those parking garages. So, I proposed an incentive for any small or medium-sized employer signing a new lease — or renewing one — in a Downtown office or retail space: free employee parking in a nearby city garage for half the term of the lease.
The City Council approved the measure and the impact has been palpable: over the next thirty months, we’ve seen 161 employers sign new leases — nearly all of them businesses with fewer than 10 employees — filling over half a million square feet of office vacancy. Collectively, those employers brought over 1,000 jobs to Downtown San José, many of them from other cities. Admittedly, the tailwinds of a rebounding economy helped enormously, but more than a few tenants reported that the incentive made a difference in their location decision.
Second, we also had authority over land use — permits, zoning and the rest. I recognized that ground floor vacancy — with storefront vacancy rates approaching 40% during the worst of the recession — was killing the Downtown. Nonetheless, the city restricted ground-floor uses to anything other than retail, preventing many other interested businesses from locating there. While an appropriate policy in good times, retail was shrinking dramatically throughout the U.S., and those restrictions left Downtown looking and feeling like a ghost town.
I proposed eliminating those constraints, and Council’s approval opened opportunities to bring new non-retail employers that sought a ground-floor Downtown address. Among them: NextSpace, a co-working site on San Fernando Street that provides office space to small businesses, freelancers and self-employed entrepreneurs seeking a more social environment. NextSpace filled to capacity within months and now looks to expand. Another prized ground-floor tenant, TechShop, opened a facility on San Carlos Street with high-tech tools for tech entrepreneurs, engineers, tinkerers, industrial artists, students and anyone else who wants to use a metal laser cutter or CAD software to give their latest idea a physical form. Not surprisingly, business ideas spawn from TechShop’s members routinely and we hope to keep many of those new ventures in San José.
By transforming City Hall’s relationship with small businesses, we can refocus our economic development efforts to boost jobs and living standards in San José. As the examples above illustrate, two basic principles should guide city policy: first, do no harm. Second, we don’t need large publicly-funded subsidies to boost businesses, but we do need to leverage our existing assets more effectively.
STARTUP SAN JOSE: ENABLING ENTREPRENEURSHIP IN VACANT STOREFRONTS
This economic recovery has filled many of our malls, from Eastridge to Oakridge to Santana Row and Valley Fair, making them vibrant centers of commercial activity. Those highly-desirable locations typically command high rents that Macy’s and Gap can pay but largely exclude local entrepreneurs looking to launch a small business there.
In contrast to our bustling malls, we continue to see high rates of vacancy in storefronts in many neighborhood business districts and the Downtown, where ground-floor retail vacancy exceeded 30% during the recession. Among other locations, Alum Rock Avenue, Evergreen Village Square and Second Street have all struggled to fill vacancies in recent years. In addition to the lost opportunities for employment, income and tax revenue, these storefront vacancies deprive our neighborhoods of street life and vitality. They even make us feel less safe, inviting graffiti, vagrancy and other palpable signs of “broken windows” that invite more predatory crime.
Where malls pose too high a financial barrier to entry, why can’t we encourage more small businesspeople to fill these empty spaces? It turns out that the hurdles are pretty high in many of those spaces, as well. The heavy costs of doing business in the Valley, particularly in wages and rents, create enough barriers for fledgling entrepreneurs already. Filling empty storefronts also requires costly processes for tenant improvements, permits and approvals — particularly in older buildings that must be “brought up to code” during renovations — that can often burden a small restaurateur or software startup with a bill running in the tens of thousands of dollars.
In early 2013, along with dozens of creative entrepreneurs in organizations like San José Made and NextSpace, I launched an initiative, called “Startup San José,” focused on lowering the barriers for those seeking to launch their small business in San José. We started with a proposal to offer to waive city permit fees for a simple tenant improvement in those empty storefronts where the landlord also agreed to reduce the asking price for a lease. In that way, we could lower the barriers to enter the market for a cash-strapped small business owner. We obtained Council approval in June of 2013, and the pilot project is currently in progress — and as we assess its effectiveness, we’ll make needed modifications.8
“Startup San José” also challenges the community, through online initiatives and events to offer simple, low-cost ideas that would help City Hall leverage the creative entrepreneurial talent and energy in San José to fill empty storefronts and jumpstart small businesses. Since that time, we’ve pushed additional efforts to provide wireless “boosters” — donated by Ruckus Wireless — to pipe our free outdoor Wi-Fi service to customers and employees inside Downtown businesses. We’ve proposed to improve the visibility of starting businesses’ websites on search engines like Google and Bing by providing inbound links to the city’s public website. As discussed in the next section, I’ve pushed to launch a viable “open data” platform, to make bureaucratic permitting processes more responsive to small businesses. As mayor, “Startup San José” will represent City Hall’s new open-source culture: crowdsourcing our innovative community’s best ideas for broadening opportunity and expanding middle class jobs in San José.
2. Confronting the Bureaucratic Leviathan: Permitting
The most frequent complaint that I hear from business owners and managers relates to the challenges of getting permits or development approvals from our labyrinthine city departments. One (sadly, not untypical) retailer, who I’ll call “John,” told me his horror story: his building and occupancy permits took six months longer than projected, during which time the City lost his architect’s plans, he received conflicting mandates from two inspectors from different City departments about the same problem, and his application was “handed off” to three different building officials, so he never knew who to call to try to hasten the process. John complained to me that he lacked the resources to hire consultants to navigate the Kafkaesque city bureaucracy, like big developers do.
This routine would seem comical, if it weren’t for the fact that several prospective employees couldn’t begin receiving paychecks until John could open his doors. It certainly wasn’t funny to John, either, since he still had to pay rent for the space throughout the bureaucratic delay. Worst of all, it’s a story told to me routinely by small business owners.
How do we “fix” this? As we see throughout the private sector, technological innovation can improve transparency and accountability. You can’t fix what you can’t measure, and we hadn’t been doing a very good job of measuring any individual’s performance in City Hall. In July of 2013, joined by my colleague, Councilmember Johnny Khamis, we proposed two important steps toward a solution: deploying tracking software and creating an “open data” platform.
TRACKING EVERY PERMIT APPLICATION
Tracking software is hardly novel technology. We’ve seen RFID tags commonly used in warehouses for inventory management for many years, for example. As a result, if somebody orders a package from Fed Ex, they can track the item from its warehouse in Guangdong until it lands on their doorstep, yet if they submit a permit application to City Hall, it disappears into a bureaucratic black hole, not to emerge for months. So, we needed to implement readily available technology to identify the desk on which every applicant’s file rests in City Hall, for how long and for what purpose.
Aggregating that same “tracking” data does something more: by recording the paths of thousands of such applications through the City Hall bureaucracy, we can identify and quantify the delays at each stage of the process. We can isolate “choke points” and inefficiencies. We increase the accountability of city staff for their individual performance. With data, a good manager can improve the process by promoting and rewarding high performers, better training staff who struggle to keep up, automating ministerial tasks and focusing resources on problem areas.
OPEN DATA
We can further improve the process by releasing all of that data to the public. Specifically, I’ve called for launching a more robust “open data” platform, whereby the city provides a website for free download of all of the data — with personal identifying information appropriately redacted — that the city collects. Open data platforms have enabled innovative software developers in other cities to create smartphone applications to accomplish a host of helpful tasks, from identifying open parking spaces, to warning diners of restaurants with frequent health code violations, to informing transit riders of the arrival time of the next bus.
By hosting a “hack-a-thon” for civic-minded app developers in San José, we can unleash their innovative skills to create software to improve our permitting process. This could give San José business customers ample warning to set reasonable expectations based on the average, expected duration for the approval of each specific type of permit. It could provide applicants with “real-time” information about the permit status, and who to call if it appears “stuck,” as well as which supervisor has responsibility for that part of the process. App developers might also find innovative ways to streamline processes, including automating them using web-based tools that eliminate a trip to City Hall.
San José has no shortage of civic-minded app developers — including many bright college students — who want to make our city a better place and who can “beta-test” a potentially successful smartphone app using San José as their laboratory. By unleashing their creativity, we can improve the ways that our city serves its residents and boost our local economy.
3. “Next-Shoring” Manufacturing: A Plan for Revitalizing Manufacturing in San José
Manufacturing has long provided a pathway to the middle class for millions of Americans lacking advanced education. Electronic technicians and machinists can earn $100,000 annually with a high school diploma, far more than similarly-skilled workers could earn in the faster-growing service sector. Economists have long attributed a portion of the much-maligned “hollowing out” of the U.S. middle class to the decline in the American manufacturing sector, which employed 19.6 million Americans in 1979 but only about 11 million today.
In the popular media, one reads much of a hopeful trend of “re-shoring” in manufacturing that — spurred by rising wages and fuel prices in Asia — will bring jobs that will boost the fortunes of thousands of still-struggling U.S. families. A more accurate term for the trend, some experts would argue, is “next-shoring”: manufacturers over the next decade will become increasingly driven to locate close to demand, key suppliers, product design processes and engineering functions.9 To the extent that those functions are already located in Silicon Valley, we should position ourselves for growth in manufacturing. A 2012 Boston Consulting Group report suggests that as much as 30% of America’s current imports from China could be produced domestically by 2020.
Yet even with this expected growth, few expect manufacturers to flock to high-cost cities like San José to mass-produce cheap, simple widgets. Rather, San José must exploit its advantages in high value-added manufacturing. Local manufacturers like Solar Junction — the maker of the world’s most efficient concentrated photovoltaic cells — excel by marrying innovative technologies with the region’s exceptional educational and business ecosystem, enabling the company to move rapidly from prototype to product.
Surprisingly, San José still has a more manufacturing-intensive economy than nearly any other major American city, with more than 17% of our job base in manufacturing, a rate twice that of the rest of California. Recent arrivals in San José — like Bestronics, Vitron, Vander-Bend and Zoll — increasingly want to locate manufacturing operations near design, research and engineering activities, to hasten the feedback loop that spurs innovation. In the last year alone, the California Employment Development Department reported that the South Bay added over 6,700 manufacturing jobs, about one out of every six jobs added during 2013.10
How can San José ride this wave of next-shoring to even more tech manufacturing jobs? By focusing on three essentials: sites, space and skills.
SITES
Having sufficient industrial land available matters, as does its location. As co-chair of the task force that updated San José’s General Plan in 2011, we successfully held the line against prior decades’ conversion of hundreds of acres of job-rich industrial land to housing. Instead, we focused denser residential growth along transit corridors. We must resist the powerful political and economic forces that have eroded similarly well-intentioned general plans in the past by preserving scarce industrial land.
SPACE
Second, manufacturers need increasingly scarce industrial space, with modern buildings capable of handling high power demands, extensive wireless infrastructure and sophisticated equipment. The evidence suggests that there exists an enormous pent-up demand for industrial buildings constructed in the last decade, a period in which very few buildings were actually constructed. Of the 40 industrial buildings in North San José/Industrial Business Park area built since 2001, vacancy hovers below 1% of the 2.4 million square feet. The remaining 47 million square feet of industrial space in that area averages 30 years in age, and its vacancy rate exceeds 11%. Among the 8.6 million square feet of industrial buildings in Edenvale and South San José, the vacancy rate in older industrial buildings exceeds 19%.11
Consider the lost opportunity of this “slack” capacity in older industrial buildings: about 6.5 million empty square feet, if properly upgraded, could be providing the site for thousands of blue-collar, middle-wage jobs. Particularly now, with tech booming and skyrocketing leasing costs throughout the Valley, we need to seize the opportunity to leverage this resource by rapidly facilitating the retrofit of these older industrial buildings for modern manufacturing, research and development. Doing so could benefit the city in multiple ways. Thousands of mostly blue-collar jobs would emerge. Increased property valuation generated by the installation or upgrade of large industrial equipment would generate revenues for the city and other local governments to improve San José schools, roads and the police.
A widely-broadcast incentive program could go a long way to market our industrial areas to prospective employers. What kind of incentive? Rather than dumping public dollars on the laps of corporate investors, City Hall must cut fees and red tape and simply get out of the way. Here’s my plan:
INCENTIVIZING REHABILITATION OF INDUSTRIAL BUILDINGS
First, we should waive permit fees for any rehabilitation of older industrial buildings in the city, so long as the industrial tenant has signed a lease to expand within or move into San José. Any foregone fee revenue — which is typically not more than a few thousand dollars — will be rapidly recovered by taxpayers in the form of recurring property tax revenue resulting from the property investment. We should also relieve these industrial rehabilitation projects of the heavy traffic impact fees on new industrial and office development in North San José, as we have with large corporate campus projects.
Next, the city should publicly commit to issue every permit for the rehabilitation of an older industrial or research and development building within 45 days of application. We already accelerate similar projects using the Special Tenant Improvement and Industrial Tool Installation programs, but we require business customers to pay a much higher fee to do so. We should publicly commit to a specific timeline to provide the convincing messaging to prospective employers to assure them that they can get those factories running in time to get their products to market.
Finally, we can commit to help equipment-buying manufacturers apply for a recent state sales tax exemption incentive, which became effective in July of 2013. Other local incentive programs, such as the Foreign Trade Zone deferral of custom duties and “use-tax-sharing” under the existing Business Cooperation Program should also be advertised.
Taken together, all of these efforts could send a clear signal to manufacturers to locate their facilities here without allowing corporations to benefit at taxpayers’ expense.12
SKILLS
We should also focus on skills. Manufacturing today involves complex tools requiring technologically skilled operators, managers and technicians. In recent surveys, local manufacturers increasingly lament the skills deficit in our blue-collar workforce. We can better leverage existing partnerships like Work2Future to support highly targeted job retraining for veterans and older tech workers.
The City can also connect our community colleges to industry, creating skill-building pipelines through internships and entry-level opportunities. On several occasions as a councilmember, I’ve played the role of “matchmaker” in helping to connect tech executives to local colleges to spur conversation about how we could leverage our educational institutions to deliver skills-building directly to the corporate campus or manufacturing plant. Mayors, of course, have a particular advantage in forging those relationships; as mayor, I’d elevate the priority of “matchmaking” between our colleges and our employers. These kinds of partnerships can provide students with a clear path to employment, and help boost flagging public college budgets.
By focusing upon sites, space and skills, we can boost San José’s manufacturing base, revive dozens of underutilized warehouses and industrial sites and restore the wages and dignity of thousands of our unemployed neighbors.
4. Making our Airport a Jobs Engine: Dynamic Pricing
Through the last two recessions, Mineta San José International Airport (SJC) has seen a steep plunge in flight and passenger volume. Although San Francisco (SFO) has always boasted more passenger air traffic than SJC, the Great Recession and its aftermath have only exacerbated this disparity. SFO added 7 million passengers since 2008, to a total of 44.3 million in 2012. Meanwhile, SJC’s passenger count actually declined, losing 1.4 million passengers to settle at 8.3 million.13 Even with a strong uptick in the last eighteen months — we’ve just recently surpassed the 9 million threshold — passenger counts in San José remain roughly 20% lower than their peak in 2001.
Why should people care about declining passenger volume at San José’s airport?
Passenger counts have a direct impact on the living standards of employees in entry-level and low/moderate-skill jobs in San José since many hotel workers, waiters, cooks, taxi-drivers and airport employees all depend on air traffic at SJC for their livelihoods. The lack of accessible routes and connections also reduces SJC’s attractiveness as a transportation hub for job-producing companies that might choose to locate in or near San José. The many manufacturers, shippers and warehousing companies that employ thousands of blue-collar residents, for example, often rely on spare space in the fuselage of passenger commercial jets for their cargo transport. This connection places a premium on boosting air traffic on key routes to keep those employers growing in San José. For these reasons, a single major international route, such as SJC to Tokyo — can have economic impacts on San José running in the tens of millions of dollars.
So, why do passengers seem to be fleeing San José? The drop in passenger volume has little to do with the choice that passengers are making. Planes flying from SJC routinely bear passenger “loads” of 90% or more, among the most crowded planes in the nation. There’s plenty of pent-up passenger demand in San José. Rather, the drop results from the decisions airlines make about where to allocate their planes, or more technically, their “routes.”
For example, for much of the last several years, SFO has had about three dozen daily direct flights to New York City and SJC had only one. Not one dozen, one flight. In August of 2012, more than a third of the passengers on those 36 SFO flights drove from their homes in the San José metro area at least 45 minutes away. Indeed, with a passenger count five times that of San José; SFO directly serves a city with a 20% smaller population and a county with half the population of Santa Clara County.
Incredibly, SFO’s gains over San José have accelerated during a time in which every economic indicator would suggest that the airlines should add flights to San José (SJC); SJC offers substantially lower costs in fees and charges than SFO, it has a far superior on-time performance for flights than the delay-stricken SFO and dozens of Silicon Valley’s CEOs convened by the Silicon Valley Leadership Group have unequivocally demanded more flights at SJC.
In the face of all of these factors — most importantly, the huge pent up demand in Silicon Valley for more flights — why would airlines refuse to increase routes to San José? Many industry experts concede that airlines possess something of a “herd mentality.” That is, rather than trying to compete for passengers by locating in underserved cities like San José, they will dedicate resources fighting for market share on the high-visibility routes against their established competitors. Airlines know that passengers want easy scheduling with many connecting flight options, and they’re more likely to get those connections in SFO than SJC. Airlines would also prefer to prey on competitors’ business than create their own because the latter involves greater risk. This herd mentality merely reinforces disparities between cities: the “rich” airports (like SFO) get richer and the “poor” airports (like SJC) get poorer.
THE POWER OF PRICING
How can we solve this conundrum? Dynamic pricing. In the private sector, we know that price for any good or service fluctuates with demand. What if we employed the same approach to public sector services like airport landing fees?
To be sure, the public sector has traditionally relied on flat fees that don’t respond to demand because nobody likes telling residents that they can’t predict what they’ll pay for a remodeling permit or a library card.
Those are good reasons for flat fees, flat rates and flat prices, to be sure. But circumstances exist where people — and companies — would willingly pay a fluctuating rate for a scarce public service. The fees and charges that airports impose on airlines, however, don’t change responsively to congestion or traffic levels. That’s the problem.
If the price of an airline’s use of an airport changes based on the airport’s congestion levels, then we can encourage carriers to provide service that more adequately responds to demand. Airlines will boost routes to less congested airports in Oakland and San José if a regional authority increases landing fees at SFO as congestion peaks and lowers fees at Oakland or San José. Our Bay Area freeway congestion would benefit as well, since millions of fewer trips need to be taken on Highways 280 or 101 for an hour to get passengers to a plane.
This approach would require a mayor who would take regional leadership among our peer cities.14 The three regional airports — SFO, SJC and Oakland — would need to sign an agreement creating a “congestion pricing” regime to alter their airline charges based on the traffic loads at each airport.
Why would San Francisco agree to such an arrangement, which would impose higher fees on their airline carriers? Simply, they could keep the money. That is, SFO can collect — and keep — all of the fees generated from the charge. They could also shed many of their shorter domestic routes to SJC and Oakland, making room for more lucrative international flights.
Implementing this regional model would require some lobbying of Congress and the Federal Aviation Administration by Bay Area mayors. We would need federal authority to expand the small number of airport agencies possessing what is known as “slot control” — the ability to control routes to manage congestion levels — beyond the current slate of autonomous airports in New York City and Washington, D.C.
By obtaining regional concurrence and federal approval, we can use dynamic pricing to incentivize airlines to craft routes that will better serve San José and more efficiently serve the entire Bay Area. In more concrete terms, we can see a boost to the employment prospects and wages of thousands of workers in San José taxis, restaurants, hotels and entertainment venues.
Even with seemingly obscure regulations — such as flight fee structures — innovation can have widespread benefits for local workers who depending on growing flight traffic.
5. Our Toughest-to-Employ: From Homeless to Hopeful
In chapter 2, I described the extraordinary efforts of Eileen Richardson and the Downtown Streets Team in providing a “work-first” approach to battling homelessness. By engaging with homeless living in our creeks, they’ve moved dozens into permanent housing by employing them to clean the very creeks they once lived in.
This “work-first” approach offers a promising model for expansion to better address the fast-growing scale of our homeless population. While mental illness or drug addiction may pose a barrier to work for many homeless, we know that thousands can work if they can overcome lesser obstacles.
So, I’ve explored how we can expand on Downtown Streets Team’s reach. The only constraint is resources. For example, a company or affluent neighborhood, frustrated with trash, vandalism or other blight could pay a fee to the Streets Team to come into their community to clean up. With more fees, DST could expand its scale and provide more homeless with a pathway to self-sufficiency.
This month, we’re launching an effort to beautify San José with what I call the “San José Gateways” initiative. Organizations like Goodwill and the Streets Team have a mission to give a “second chance” for employment to hard-to-hire homeless, parolees and others. With their clients, they can provide the means to cleaning, scrubbing and planting in long-blighted corners of our city, while enabling clients to rebuild their work history and self-confidence. “San José Gateways” will operate around several freeway off-ramps, beautifying them with flowers, routine maintenance, shrubs and murals, welcoming thousands of San José’s visitors, workers and residents each day. If this model works, we can expand it to address other areas in need of cleaning and scrubbing throughout every neighborhood in San José.
Cleaning trash, planting trees and flowers and painting murals can transform how we — and others — view our own city. Simply, aesthetics matter. Is this a city worth investing in? Is this a city on the ascent or on a decline? The image of San José is shaped by every encounter, and providing encounters that convey a strong appearance to residents and visitors — particularly to those job creators deciding where and how they’ll invest their dollars — can cumulatively affect how and where we choose to invest our time, resources and energy.
Ample evidence supports the notion that aesthetics matter. When the Knight Foundation asked residents in 26 U.S. cities were asked what attached them most to their city, “aesthetics” consistently ranked among the top three responses in every city — ahead of schools, job opportunities and even public safety. Those cities that ranked highly on these “soft” measures of affinity consistently recorded higher growth in economic output — measured by local GDP — than the other cities.15
Assuming we agree on the importance of improving the “first impression” of San José at these key entryways, where will we find the money? I’ve reached out to several companies interested in leasing a 4’ x 4’ sign at each freeway off-ramp offering a simple message: “Welcome to San José — brought to you by Acme Co.” For approximately $10,000 annually, we can fund a single crew to clean, paint, weed and beautify each site for a year. Companies paying those fees benefit from the exposure to thousands of captive eyeballs entering the city via any freeway off-ramp each day and their employees see a physical manifestation of the good they’re doing in our community with every morning commute. So far, five employers have agreed to sign on — Cisco, Ernst & Young, Garden City Construction, TiVO and Wells Fargo — and more have expressed an interest in joining in after we launch this effort publicly.
The “innovation” offered by Downtown Streets Team is hardly a new one: it’s a simple focus on the restorative power and promise of hard work. More complicated solutions will be needed for many homeless individuals, but it never hurts to start by helping those we can, when we can.
6. Leveraging our Libraries and Community Centers as Employment Centers
During the worst of the economic recession a half-decade ago, former Library Director Jane Light became renowned for her innovative approach to leveraging very scarce resources to expand access to city libraries in our community. Finding that one out of every four adults used our city libraries to look for a job, Light sought opportunity in crisis; she focused library resources on job-hunters, with librarians dedicating a share of their time to assisting job searches via computer. Library patronage grew, and other cities began to catch on as well.16
We’ve seen federal funding for a city-affiliated job training program called “Work2Future” slashed in recent years — ironically, at the very time when we most need job training and technical assistance with everything from resume writing to job searching to applying for certification programs likely to yield jobs. With the severe cuts, Work2Future has been “spun off” as a non-profit organization and has pushed forward against an enormous headwind to provide critical job search and training opportunities to many residents. Due to limited resources, its reach, scope and impact are greatly constrained, not least of which because many of our residents have never heard of it.
Light’s “pivot” is instructive. We could push farther and make every library — and perhaps every community center with a publicly accessible computer — a mini-“Work2Future” center. This approach would create a network of easily accessible locations where residents could obtain not only job search assistance, but also online training for the skills, certification and fluency they’ll need for their next job.
The tools needed to make this vision come to life consist of relatively lowcost software and a few computers. As Salman Khan, the creator of Khan Academy, showed that sophisticated educational software can provide a low-cost — and in many cases, a completely free — means for residents to learn skills ranging from accounting to English-as-a-second-language to software coding. Online testing and grading can provide certifications for users to add to their resumes and boost their job prospects.
The City of San José already has access to over 1,500 free licenses for online training software by Metrix, an expansive learning management system. With over 7,000 classes to choose from — ranging from project management certification to word processing — this software could enable hundreds of residents to learn critical job skills in multiple languages. The only cost to the city: the operation and maintenance of existing public computers. Depending on budget and resident need, the city could pass along the cost of any additional software licenses to new users for as little as $60 per person for access to 7,000 classes.
With a concerted partnership and a relatively small commitment of resources, we can do much more for our unemployed and underemployed residents. By cross-training librarians and librarian assistants to meaningfully assist job seekers and skill-seekers, we could also provide a pathway for promotion, better earnings and improved career skills. Indeed, by becoming employment resource specialists, our own library staff could boost their incomes and skills — a worthwhile consideration in light of the substantial cuts to their wages in recent years.17
Most importantly, by distributing these services throughout the community — particularly in our neediest neighborhoods, we can better ensure that the information reaches the people who need it. Bilingual staff in a local library seem far more accessible and familiar to residents than a formal government bureaucracy. For those with Internet access at home, we can ensure that anyone with a library card can use training software remotely, through a cloud-based service. Our residents will have greater access to the information they need to boost skills and opportunities.
Of course, these ideas are neither entirely new, nor mine alone. Los Angeles, for example, recently piloted an effort to use its public libraries as a mechanism to help adults receive high school diplomas.18 Here in San José, Jane Light’s successor, Library Director Jill Bourne, appears to share her predecessor’s penchant for innovation, and has already begun to dip her toe in this water. She recently hired a division manager to boost self-directed, computer-aided learning, for employment and after-school youth education. One of her librarians, Kim Nguyen, recently launched a unique economic skills-building program called “Sew What?” at the Biblioteca Latinoamericana, which serves the predominately Spanish-speaking neighborhood in Washington. By providing her library patrons with access to donated sewing machines, sewing lessons and financial literacy classes, the program seeks to help residents launch cottage businesses to help boost their incomes.
A vision that encompasses a more focused and broadly marketed effort could go a long way here. A geographically-distributed approach for job training and search services could vastly improve the career prospects for thousands of our residents, all at a relatively low cost. When considering the aggregate social, educational and economic impact of such a program, it seems well worth the investment.
SAN JOSE’S PLACE IN THE SILICON VALLEY ECONOMY
All of the initiatives that I’ve discussed above can be implemented within our budget and can collectively broaden opportunities for thousands of our residents. That’s critically important for our next mayor as we grapple with a Valley in which the gap between the “haves” and “have nots” has widened — even during a period of economic recovery.
Yet what of the “haves” and “have not” cities within Silicon Valley? That is, a broader question arises about San José’s role in our Silicon Valley economy, given the explosive growth of the suburbs to the northwest of us with the emergence of fast-moving giants like Google, Facebook, LinkedIn and Apple. Ample media attention has been brought to the question of whether the Valley has geographically shifted its focus northward.
My personal view is that much of this hand-wringing is overblown. Before the current crop of companies boomed in our northerly suburbs, earlier generations of great tech companies — bearing names like HP, Intel, Applied Materials and yes, Apple — boomed in those same suburbs. Sand Hill Road and Stanford University have had a magnetic pull — and a prolific “push” — for generations of innovators.
Of course, the emergence of San Francisco as tech center over the last decade raises these questions anew. As we think about job opportunities for our residents, and about the burdens of their long commutes, we need to ask whether San José is resigned to merely being a bedroom community for employees who work for companies on the other end of the 280, 101 or 85 freeways? Are we being “left behind?” Can we pull the center of gravity of the world’s center of innovation back southward?
I address these larger questions in the final chapter about our collective future. Here’s a glimpse of the long-term solution, in my view: if we choose to live up to our role as Silicon Valley’s vibrant urban center, much opportunity awaits us.
1. Joint Venture Silicon Valley, Silicon Valley Index 2014, pgs. 18–19 http://www.jointventure.org/images/stories/pdf/index2014.pdf
2. NOVA Workforce Development (December 15, 2011). Press release: “Silicon Valley in Transition update: Tech Employment Growth to Continue Despite Global Economic Challenges.”
3. Silicon Valley Index 2014, p. 22
4. Silicon Valley Business Journal (May 24, 2013). “Daniel Luna, Jeremy Prader: How we dumpster dived and thrived.”
5. Shane, S. “Small-business job creation better than we think.” San Francisco Chronicle, April 29, 2012.
6. Kotkin, J. “The Rise of The 1099 Economy: More Americans Are Becoming Their Own Bosses.” Forbes, July 25, 2012.
7. Sal Pizarro, “Blackbird Tavern Aims to End the Curse of Castillo,” San José Mercury News, June 22, 2013. http://www.mercurynews.com/sal-pizarro/ci_23514276/pizarro-san-joses-blackbird-tavernaims-break-curse. Today, Marcelino Castillo manages a store at Valley Fair. Only recently was the curse of Castillo broken — appropriately, by a couple of creative, homegrown Downtown residents and veteran businesspeople, Chris Esparza and Brendan Rawson, who launched Blackbird Tavern in the summer of 2013.
A similar RDA-prompted coup of a collection of local ethnic businesses in the Tropicana Shopping Center in the middle of the last decade prompted years of litigation, ultimately forcing the City of San José to pay a large damages award.
8. Initially, City staff sought to restrict the program to businesses other than restaurants, and the City Attorney insisted that the program be limited to “grants” to pay for City fees rather than fee waivers. The response was tepid. City administrators are now appreciating the need to lift those restrictions, and to simplify the implementation of the initiative.
9. See Katy George, Sree Ramaswamy, Lou Rassey, “Next-Shoring: A CEO’s Guide,” McKinsey Quarterly, 2014:1, pp. 27–39.
10. State of California Employment Development Department (April 18, 2014). “San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) (San Benito and Santa Clara Counties): Seasonal gains in leisure and hospitality led month-over job changes.”
11. Jones Lang LaSalle Q2 2013 Market Data, as reported by Chris Burton, “Strengthening Manufacturing in San José,” September 12, 2013.
12. City Hall can also help by providing spaces for demonstration and testing of early-stage technologies. This year, “Prospect SV” will launch, transforming a City-owned warehouses into manufacturing, laboratory, and office space for clean tech manufacturers to develop prototypes. Unlike past RDA-funded incubators, sophisticated partners like Applied Materials and Lawrence Berkeley National Laboratory will drive this effort. We can also expand the use of San José’s streetscapes and buildings as “public laboratories,” to demonstrate local manufacturers’ prototypes, as Transportation Director Hans Larsen has pioneered with LED smart-lights, low-emissions concrete, and electric car-charging stations.
13. Happily, for the first time since the great Recession, we have seen mild rebounds in passenger volume at SJC in 2013, as a result of an effort led by Silicon Valley Leadership Group — a task force on which I’ve served with the Mayor and a dozen Silicon Valley executives — to engage airline decisionmakers with peer-to-peer conversations about where corporations they need routes to serve demand for business travel. Nonetheless, even with new routes to Tokyo, Guadalajara, and other destinations, the passenger growth will not approach anywhere near the levels seen even a decade ago.
14. I have already proposed a congestion pricing approach in my role on the boards of the Regional Airport Planning Committee (RAPC) and the Metropolitan Transportation Commission (MTC). The staff for those agencies are currently analyzing the concept.
15. Knight Foundation, “Soul of the Community 2010” http://www.soulofthecommunity.org
16. Brustein, J. “It Has Computers, Gives Advice and Is Free.” The New York Times, March 25, 2009.
17. Our library employees, by the way, remain among our lowest paid city employees, but are both highly skilled and highly educated. The compensation cuts that have afflicted many other categories of city employees have afflicted them as well, affecting morale and retention.
18. Badger, E. “The L.A. Public Library Is About to Start Offering High School Diplomas.” The Atlantic, January 10, 2014.