What is the current “Business Model” of your city?
Please do the group exercise shown on the day-wise schedule on the class website for Jan 21. Please go over the city financials (links provided) and gather other information from your city website and city chamber of commerce website before you meet during class time as a group on Wednesday 21 4pm-5:30pm. Based on your group discussion and subsequent research that you all agree upon write 3-4 paragraphs to answer each of the four questions shown below in full. Take your time to do a good job on this blog as it is not due until the following class on Jan 26. The work could be shared among the members – each group member and take one or two of the questions below:
Question 1: Provide details about the customer segments: profile, types, numbers, age groups, ethnicity and other relevant information. What are their pain points?
Question 2: How does your city create value for their citizens? How does it engage and collect information to create the value? How does it deliver the value? i.e. Directly, through 3rd parties, outsourcing, non-profits, public facilities etc.
Question 3: a) What are your city’s resources (assets and liabilities) shown on the balance sheet that help create the value? What are the key off-balance sheet resources? b) What are the key activities of your city that creates value for its citizens? Take a look at the income & expense statement. c) Whom does your city partner with to share resources and thereby reduce costs and risks to add value and more services to the citizens? You can often find in the notes to financial statements or on your city’s website.
Question 4: How does your city capture the value? Examine the income statement again to types of revenue it generates to change for the value it creates. Does the city create a triple bottom line? i.e. economic, social and environmental.
Your answers to the above questions will contribute and become the building blocks for your final group presentations where your will propose a new innovative business model with a full proforma income statement and balance sheet for each of your cities. For additional reading read Also read IBM-100-Cities-Benchmark-Study posted at:
http://courses.garwoodcenter.com/2015ugba193i/wp-content/uploads/sites/11/2014/12/Smarter-Faster-Cheaper-IBM-100-Cities-Benchmark-Study.pdf
This will shed more light on the struggles of American Cities.
For all Day 11 Submissions visit google drive link: http://bit.ly/1z9YVDr
San Francisco Business Model Analysis
Equal contribution by Anchal Ahuja, Samuel Choi, Ryan Khalessi, Saundarya Mehra, and Jordan Zola
Question 1: Provide details about the customer segments: profile, types, numbers, age groups, ethnicity and other relevant information. What are their pain points?
The City and County of San Francisco stands as one of the most diverse cities in the United States and the world. The below customer segment analysis on San Francisco will focus on (1) changes in age and population composition, (2) diverse ethnic populations, (3) increasing socio-economic disparities, and (4) other distinct socio-cultural communities. This analysis will conclude with the derived pain points and opportunities for San Francisco to become smarter.
(1) Age and Gender
First, with the rise of Silicon Valley and newly-public tech companies, San Francisco has seen an influx of young workers that now comprise a higher percentage of its nearly 900,000 residents. This rapid youthful immigration has changed the economic, demographic, and cultural composition of San Francisco. Compared to the rest of California, San Francisco has a markedly higher percentage of 25 to 34 year-old young professionals. In 2013, while the state was comprised of 14.4 percent 25 to 34 year-olds, San Francisco alone is comprised of 21.5 percent. Experts believe the latter percentage has since increased. Male and females comprise relatively the same percentage.
(2) Ethnic Composition
Second, San Francisco is ethnically diverse. San Francisco is comprised of 50.3 percent white residents compared to a state average of 62.3 percent. Most notable is the comparison of Asian population numbers in San Francisco compared to the state. California is comprised of 3.5 percent Chinese residents. San Francisco, however, is home to 21.0 percent Chinese residents. Higher percentages of all Asian minority groups are higher in San Francisco than the rest of the state. Moreover, over 38 percent of San Francisco residents are not U.S. citizens. As a whole, San Francisco is primarily (1) White, (2) Chinese, and (3) African American. However, the City has smaller percentages of hundreds of different minority groups as well.
(3) Socio-Economics and Working Demographics
Third, San Francisco has a growing economy and an increasing income disparity. In 2013, San Francisco had a 8.3 percent unemployment rate, markedly lower than the 11.5 percent state unemployment rate. Moreover, San Francisco has higher percentages of residents making both less than $20,000 (5.2 percent statewide versus 6.2 percent in San Francisco) and more than $200,000 than the state as a whole (7.2 percent statewide versus 14.1 percent in San Francisco). This has increasingly led to a higher income disparity and population fragmentation than the rest of the state. Working demographics can also be analyzed through public transportation usage. Specifically, 32.6 percent of San Francisco residents use public transportation compared to a state-wide average of just over 5 percent. Moreover, of those who commute to work, 5.7 percent use “other means,” compared to a state-wide average of 2 percent. These other means include company-provided transportation such as Google Buses.
(4) Other Distinct Socio-Cultural Groups
Fourth, compared to many other cities in the Bay Area, San Francisco has a large population of LGBTQ residents, sex workers, and other distinct socio-cultural groups. These groups are both integrated in San Francisco and are clustered in specific areas (i.e. The Castro, Tenderloin, etc.). As with any identity, these groups contribute to the overall history and culture of the city, but bring individual needs as well. Identifying and addressing needs of all communities is vital to San Francisco’s movement towards becoming a smart city.
San Francisco’s economic success and socio-cultural diversity has led to three main customer pain points derived from their demographic profile: (1) high cost of living, (2) gentrification, and (3) weak public transportation systems. Through basic supply and demand, increasing immigration of young professionals has increased rent prices and overall cost of living in San Francisco. In turn, San Francisco has fallen into the trap of gentrification with risk of eroding its native culture and displacing its long-standing socio-cultural groups. Additionally, with the increasing population of young professionals, San Francisco is unable to meet the increasing demands for public transportation as current systems are both inadequate and aging. Ultimately, for a city to consider itself and be considered smart, it must be able to address its internal issues. To address its demographically derived pain points, San Francisco must incorporate user participation and broad-based issue assessment to further create, capture, and distribute value.
Question 2: How does your city create value for their citizens? How does it engage and collect information to create the value? How does it deliver the value? i.e. Directly, through 3rd parties, outsourcing, non-profits, public facilities etc.
The city and county of San Francisco provides value for its citizens through many public works, as it aims to provide goods and services to all citizens living in and around the city. These value-providing activities include personal and public safety measures, governmental activities, transportation, and public resources. Safety is an obvious necessity for all “customers” of the city, and San Francisco provides this value for the occupants of its municipality through public protection activities, which comprised the majority of city’s expenses for 2014 ($1.23M). This shows how valuable basic safety requirements are for its citizens, who rely on the city to provide these basic means. In addition, value is created for city dwellers through a governing body that makes executive decisions for the city at large, both in regards to business-type activities, which recover all or a significant portion of their costs through user fees and charges, and to governmental activities, which are principally supported by taxes and intergovernmental revenues. The former includes the airport, port, transportation system (including parking), water and power operations, an acute care hospital, a long-term care hospital, and sewer operations, while the latter consists of public protection, public works, transportation and commerce, human welfare and neighborhood development, community health, culture and recreation, general administration and finance, and general City responsibilities. Each of these activities is vital to a growing and constantly dynamic city, and provides the foundation necessary for incorporating technologically “smarter” innovations into the infrastructure.
Public works, transportation, and commerce, along with other business-type activities such as airport, transportation, port, water, power, hospitals, sewer, and market funds, are simple yet vitally important ways that the city of San Francisco provides value to its citizens, as these are all public goods that individuals or the private sector would be less effective at coordinating. By controlling the infrastructural aspects of the city, the government gives its community members the ability to work, live, and travel throughout the city in peace, with the assurance that city government will be able to continually build upon and innovate for these common goods. Various municipalities throughout the city provide the basis for improvement and information necessary to continually add to these goods in order to create the most value for the city proper. The city engages with its citizens through democratic elections, surveys, and community outreach programs that allow individuals to express their concerns with the city handlings, as well as an open forum for feedback regarding the ways public works are serving the citizens. From quantitative information of collections directly from processes owned by the city to qualitative feedback and governmental interaction with its citizens, San Francisco is able to consistently update and provide the most effective means for change.
The city of San Francisco delivers this constantly reformed value to its citizens most directly through public facilities, mainly the aforementioned governmental activities that are funded through governmental sources rather than citizen tax dollars. However, it also engages in many public-private partnerships that enable other projects that the city either cannot afford or does not maintain the expertise necessary to complete the project. For example, San Francisco’s recent economic recovery has stimulated the demand for new residential and commercial space. This has facilitated a large amount of private construction projects over the last year. By allowing collaborations with private organizations, over 3,185 housing units have been completed and approximately six thousand additional units are under construction at the end of the fiscal year. Another example of this type of public-private collaboration is Google’s provision of free wireless access for parks across San Francisco. While this is not a normal responsibility of the city to provide the resource for its citizens, San Francisco is able to make wifi accessible only through the funding of the private technology company. Partnerships such as these are vital to the economic well-being of the city, and are a very effective way to distribute expertise to projects that will benefit the city as a whole.
Question 3.1: What are your city’s resources (assets and liabilities) shown on the balance sheet that help create the value?
From a financial perspective, San Francisco’s main resource is cash. On the balance sheet, cash is recorded in a variety of different forms.
Assets
Within assets, the most liquid forms of cash are deposits and investments with and outside city treasury. Although these deposits are for the development of the city, access to those deposits is restricted by designated funds. The second most liquid assets on the balance sheet are receivables. These are property and local taxes, federal and state grants, service charges, and interest receivables. The third most liquid assets are loan receivables. These receivables are monthly/annual payments that the city receives on the loans that it made in previous years. Such receivables generate a consistent stream of cash flows, and they promise future amounts of cash, which enables the city to plan for future renovations or developments. The least liquid assets are capital assets. They are the city’s land, facilities, infrastructure, and equipment.
Liabilities
San Francisco’s resources can also be found under the liabilities section of the balance sheet. These resources are unearned revenue, bonds, loans, and capital leases. These four kinds of liabilities offer both immediate and future cash that the city can use create value. Unearned revenue is the value of the goods or services that the city captured, but didn’t yet deliver. By accepting unearned revenue, the city is legally obligated to deliver on the terms of the payment. This liability ensures that the city delivers the value it once promised to its citizens or customers. Next major resource from the liability section is loans. These loans are debt or borrowed funds from banks or investment institutions that the city uses to invest in its activities. Lastly, Bonds is a borrowed resource (case) for a defined period of time at a fixed interest rate. These fixed-income securities are also invested into the city’s designated funds, so that they can perform their day to day activities.
Question 3.2: What are the key off-balance sheet resources?
The key off-balance sheet resources are 1) cash inflows from taxes, 2) income from investments, 3) cash from grants, and 4) services charges. The cash inflows from each resource are distributed to the various operating activities of San Francisco’s eight proprietary funds. The operating activities of San Francisco’s proprietary funds include aviation services, sewer services, and parking and transportation services.
Question 3.3: What are the key activities of your city that creates value for its citizens? Take a look at the income & expense statement.
San Francisco’s key activities are split into governmental activities and business type activities. Below are the various types of activities that the city creates for its citizens:
Primary Government Activities: these activities are strictly funded and controlled by the government
1. Public protection
2. Public works, transportation
3. Human welfare and neighbor hood development
4. Community health
5. Culture and recreation
6. General administration and finance
Business-type activities: these activities are privately funded activities that the city creates and delivers to its citizens
1. Airport
2. Transportation
3. Port
4. Water
5. Power
6. Hospitals
7. Sewer
8. Market
The listed activities are created by San Francisco’s proprietary funds, non-major governmental funds, internal service funds, and fiduciary funds collectively segment the city’s total assets and liabilities. These funds perform both public and private services to citizens, and they are San Francisco’s primary value creators. The various funds and their activities are listed below:
Proprietary Funds: Business-type activities – Enterprise Funds
1. San Francisco International Airport: SFO is a department of the City and County of San Francisco. It is a transparent organization that provides flight transportation services to citizens.
2. San Francisco Water Enterprise: This institution is responsible for the storage, quality control, and distribution of the city’s drinking water.
3. Hetch Hetchy Water and Power: This fund is the reservoir that supplies water to the SF Water Enterprise.
4. Municipal Transportation Agency: This agency is the division that regulates public parking, traffic, and taxis.
5. General Hospital Medical Center: GHMC is San Francisco’s primary hospital that serves patients of the city
6. San Francisco Wastewater Enterprise: SFWE is in charge of processing waste water in the city. This institution works to divide and direct the waste that comes from residential and business areas.
7. Port of San Francisco: The Port of San Francisco is the port that receives and sends cargo via ships. They are responsible for controlling the quantity and quality of goods that comes in and goes out of the city.
Non-major Government Funds
Special Revenue Funds: These funds are used to account for the proceeds of specific revenue sources that are restricted to expenditures for specified purposes other than debt service or capital projects.
1. Building Inspection Fund – Accounts for the revenues and expenditures of the Bureau of Building Inspection, which provides enforcement and implementation of laws regulating the use, occupancy, location and maintenance of buildings. This fund shall be used by the Department of Building Inspection to defray the costs of the Bureau of Building Inspection in processing and reviewing permits applications and plans, filed inspections, code enforcement and reproduction of documents.
2. Children and Families Fund – Accounts for property tax revenues, tobacco tax funding from Proposition 10 and interest earnings designated by Charter provision. Monies in this fund are used as specified in the Charter and Proposition 10 to provide services to children less than eighteen years old, and to promote, support and improve the early development of children from the prenatal stage to five years of age.
3. Community/Neighborhood Development Fund – Accounts for various grants primarily from the Department of Housing and Urban Development including federal grants administered by the former Redevelopment Agency to provide for community development of rundown areas; to promote new housing, child care centers and public recreation areas; to provide a variety of social programs for the underprivileged and provide loans for various community development activities. This fund also includes proceeds from a bond issuance to benefit the Seismic Safety Loan Program, which provides loans for seismic strengthening of privately owned unreinforced masonry buildings in the City.
4. Community Health Services Fund – Accounts for state and federal grants used to promote public health and mental health programs.
5. Convention Facilities Fund – Accounts for operating revenues of the convention facilities: Moscone Center, Brooks Hall and Civic Auditorium. In addition to transfers for lease payments of the Moscone Center, this fund provides for operating costs of the various convention facilities and the San Francisco Convention and Visitors Bureau.
6. Court’s Fund – Accounts for a portion of revenues from court filing fees that are specifically dedicated for Courthouse costs.
7. Culture and Recreation Fund – Accounts for revenues received from a variety of cultural and recreational funds such as Public Arts, Youth Arts and Yacht Harbor with revenues used for certain specified operating costs.
8. Environmental Protection Fund – Accounts for revenues received from state, federal and other sources for the preservation of the environment, recycling, and reduction of toxic waste from the City’s waste stream.
9. Gasoline Tax Fund – Accounts for the subventions received from state gas taxes under the provision of the Streets and Highways Code and for operating transfers from other funds which are used for the same purposes. State subventions are restricted to uses related to local streets and highways, acquisitions of real property, construction and improvements, and maintenance and repairs.
10. General Services Fund – Accounts for the activities of several non-grant activities, generally established by administrative action.
11. Gift Fund – Accounts for certain cash gifts which have been accepted by the Board of Supervisors on behalf of the City and the operations of two smaller funds that cannot properly be grouped into the Gift Fund because of their specific terms. Disbursements are made by departments, boards and commissions in accordance with the purposes, if any, specified by the donor. Activities are controlled by project accounting procedures maintained by the Controller.
12. Golf Fund – Accounts for the revenue and expenditures related to the City’s six golf courses.
13. Human Welfare Fund – Accounts for state and federal grants used to promote education and discourage domestic violence. Low and Moderate Income Housing Asset Fund – Accounts for the former Redevelopment Agency’s affordable housing assets upon its dissolution on January 31, 2012.
14. Open Space and Park Fund – Accounts for property tax revenues designated by Charter provision, interest earnings and miscellaneous service charges and gifts. Monies in this fund are used as specified in the Charter for acquisition and development of parks and open space parcels, for renovation of existing parks and recreation facilities, for maintenance of properties acquired and for after-school recreation programs.
15. Public Library Fund – Accounts for property tax revenues and interest earnings designated by Charter provision. Monies in this fund are to be expended or used exclusively by the library department to provide library services and materials and to operate library facilities.
16. Public Protection Fund – Accounts for grants received and revenues and expenditures of 21 special revenue funds including fingerprinting, vehicle theft crimes, peace officer training and other activities related to public protection.
17. Public Works, Transportation and Commerce Fund – Accounts for the revenues and expenditures of 13 special revenue funds including construction inspection, engineering inspection and other activities related to public works projects. In addition, the fund accounts for various grants from federal and state agencies expended for specific purposes, activities or facilities related to transportation and commerce.
18. Real Property Fund – Accounts for the lease revenue from real property purchased with the proceeds from certificates of participation. The lease revenue is used for operations and to pay for debt service of the certificates of participation. Sales and disposals of real property are also accounted for in this fund.
19. San Francisco County Transportation Authority Fund – Accounts for the proceeds of a one-half of one percent increase in local sales tax authorized by the voters for mass transit and other traffic and transportation purposes.
20. Senior Citizens’ Program Fund – Accounts for grant revenues from the federal and state government to be used to promote the well-being of San Francisco senior citizens.
21. War Memorial Fund – Accounts for the costs of maintaining, operating and caring for the War Memorial buildings and grounds.
Debt Service Funds: These funds account for the accumulation of property taxes and other interest and principal payments
1. General Obligation Bond Fund – Accounts for property taxes and other revenues, (including the tobacco settlement revenues in excess of the $100 million required to fund the Laguna Honda Hospital construction project) for periodic payment of interest and principal of general obligation bonds and related costs. Provisions are made in the general property tax levy for monies sufficient to meet these requirements in accordance with Article XIII of the State Constitution (Proposition 13).
2. Certificates of Participation (COP) Funds – Accounts for Base Rental payments from the various Special Revenue Funds and General Fund which provide for periodic payments of interest and principal. The COPs are being sold to provide funds to finance the acquisition of existing office buildings and certain improvements thereto, or the construction of City buildings such as the Courthouse, to be leased to the City for use of certain City departments as office space.
3. Other Bond Funds – Accounts for funds and debt service for the revolving fund loans operated and managed by the Mayor’s Office of Community Development to assist with economic development efforts in low income neighborhoods (Facade Improvement Program) and for loans under the U.S. Department of Housing and Urban Development section 108 of the Housing and Community Development Act of 1974 (Fillmore Renaissance Center and Boys and Girls Club Hunters’ Point Clubhouse) and the Asphalt Plant Expansion Loan.
Capital Project Funds: These funds control restricted resources for the acquisition of land, construction of major facilities that are not financed in the proprietary funds.
1. Capital Projects Funds are used to account for financial resources that are restricted, committed or assigned to expenditures for the acquisition of land or acquisition and construction of major facilities other than those financed in the proprietary fund types.
2. City Facilities Improvement Fund – Accounts for bond proceeds, capital lease financing, federal and local funds and transfers from other funds, which are designated for various buildings and general improvements. Expenditures for acquisition and construction of public buildings and improvements are made in accordance with bond requirements and appropriation ordinances.
3. Earthquake Safety Improvement Fund – Accounts for bond proceeds, Federal/State grants and private gifts, which are designated for earthquake facilities improvements to various City buildings and facilities. Expenditures for construction are made in accordance with bond requirements and grant regulations.
4. Fire Protection Systems Improvement Fund – Accounts for bond proceeds, which are designated for improvements in fire protection facilities. Expenditures for construction are made in accordance with bond requirements.
5. Moscone Convention Center Fund – Accounts for proceeds from Moscone Convention Center Lease Revenue Bonds and transfers from the General Fund and Convention Facilities Special Revenue Fund. Expenditures are for construction of the George R. Moscone Convention Center and for related administrative costs.
6. Public Library Improvement Fund – Accounts for bond proceeds and private gifts, which are designated for construction of public library facilities. Expenditures for construction are made in accordance with bond requirements and private funds agreements.
7. Recreation and Park Projects Fund – Accounts for bond proceeds, Federal and state grants, gifts and transfers from other funds, which are designated for various recreation and park additions and development. Expenditures for acquisition and construction of recreation and park facilities are made in accordance with bond requirements and appropriation ordinances.
8. Street Improvement Fund – Accounts for gas tax subventions, bond fund proceeds and other revenues, which are designated for general street improvements. Expenditures for land acquisition and construction of designated improvements are made in accordance with applicable state codes, City charter provisions and bond requirements.
Permanent Funds: These funds report resources that may be used for the purposes that support the government’s
Programs.
1. Bequest Fund – Accounts for income and disbursements of bequests accepted by the City. Disbursements are made in accordance with terms of the bequests
Internal Service Funds: These funds account for the financing of providing inter-departmental goods and services
1. Central Shops Fund – Accounts for Central Shops equipment (primarily vehicle) maintenance service charges and the related billings to various departments.
2. Finance Corporation – Accounts for the lease financing services provided by the Finance Corporation to City departments. On July 1, 2001 the City established the Finance Corporation Internal Service fund because its sole purpose is to provide lease financing to the City. Previously, the activities of the Finance Corporation were reported within governmental funds.
3. Reproduction Fund – Accounts for printing, design and mail services required by various City departments and agencies.
4. Telecommunications and Information Fund – Accounts for centralized telecommunications activities in the City’s Wide Area Network, radio communication and telephone systems. In addition, it accounts for application support provided to many department-specific and citywide systems, management of the City’s Web site, operations of the City’s mainframe computers and technology training provided to city the related billings to various departments for specific services performed and operating support from the General Fund.
Fiduciary Funds: These funds comprise all Trust and Agency Funds, which account for assets held by the city as a trustee or agent for individuals and governmental units.
Trust Funds
1. Employees’ Retirement System – Accounts for the contributions from employees, City contributions and the earnings and profits from investments of monies. Disbursements are made for retirements, withdrawal, disability, and death benefits of the employees as well as administrative expenses.
2. Health Service System – Accounts for the contributions from active and retired employees, and surviving spouses, City contributions and the earnings and profits from investment of monies. Disbursements are made for medical expenses and to various health plans of the beneficiaries.
3. Retiree Health Care Trust – Accounts for the contributions from employees, City contributions and the earnings and profits from investment of monies. Disbursements are to be made for benefits, expenses and other charges properly allocable to the trust fund.
Agency Funds
1. Assistance Program Fund – Accounts for collections and advances received as an agent under various human welfare and community health programs. Monies are disbursed in accordance with legal requirements and program regulations.
2. Deposits Fund – Accounts for all deposits under the control of the City departments. Dispositions of the deposits are governed by the terms of the statutes and ordinances establishing the deposit requirement.
3. Payroll Deduction Fund – Accounts for monies held for payroll charges including federal, state and other payroll related deductions.
4. State Revenue Collection Fund – Accounts for various fees, fines and penalties collected by City departments for the State of California which are passed through to the State.
5. Tax Collection Fund – Accounts for monies received for current and delinquent taxes which must be held pending authority for distribution. Included are prepaid taxes, disputed taxes, duplicate payment of taxes, etc. This fund also accounts for monies deposited by third parties pending settlement of litigation and claims. Upon final settlement, monies are disbursed as directed by the courts or by parties to the dispute.
6. Transit Fund – Accounts for the quarter of one percent sales tax collected by the State Board of Equalization and deposited with the County of origin for local transportation support. The Metropolitan Transportation Commission, the regional agency responsible for administration of these monies, directs their use and distribution.
While these funds cover and serve the different needs of the city, all of them work together to collectively create and deliver value to the citizens.
Question 4: Whom does your city partner with to share resources and thereby reduce costs and risks to add value and more services to the citizens?
As an international hub amongst the rich opportunities of the Bay Area, San Francisco attracts thousands of people for business, leisure, and permanent settlement every year. In fact, Over the next 25 years, the Bay Area is projected to add 2.1 million new residents and 1.1 million new jobs. Accommodating this growth is geographically is challenging for the city in regards to adding capacity of goods and services while maintaining within a budget. This underlying motivation to reduce costs and risks in the Bay Area has encouraged resource sharing and collaboration through three main channels: businesses, non-profit organizations, and policy committees.
Private Sector Partnerships: B2C companies that provide digital platforms have let consumers rent out their home or give a stranger a ride in their car for a few bucks. San Francisco and the rest of the Bay Area has become a testing playground for these Silicon Valley based businesses. Some examples include AirBnB, Lyft, Uber, and Sidecar, all of which have grown tremendously in the past 5 years. Recently, however, managing authorities have recognized these digital sharing platforms as legitimate services here to stay and have started addressing the safety, tax, and legal problems that lie behind them. These sharing economy business that essentially strive to minimize the gap between supply and demand will drive sweeping changes in public policy in the coming year as cities and states rethink how they govern the so-called sharing economy. Despite these policy issues that still need to be worked out, businesses have been huge partners in providing value and more services to citizens. IMAGES: Company Logos
Non-Profit Organizations: Business and city partnerships have been formalized after the establishment and success of the respective sharing economy start-ups. However, in the case of non-profit organizations, formal partnerships have been established well before any private action takes place. Non-profit organizations traditionally provide research and knowledge support to cities across the Bay Area. One such organization that directly applies to Smart Cities is the Emerald City Collaborative, a national non-profit network of organizations working together to achieve sustainable development specifically in the energy efficiency sector. The Emerald Cities San Francisco (ECSF) committee has 19 members. It joined hands with EC Oakland in November 2012 to create a regional Emerald Cities Bay Area (ECBA). This type of regional collaboration between two neighboring cities serves as a model for non-profit regional partnership that would greatly prevent reinvention of the wheel and add value to the citizens of both regions. IMAGES: List of the measurable accomplishments that the group has achieved.
Public Sector Partnerships: As noted from the previous examples, much of the collaboration and partnerships between the cities actually is happening outside of the municipal governments themselves. Perhaps due to the ease of private entities in avoiding bureaucracy, companies and non-profit organizations have contributed significantly to the overall mix of inter-city collaboration. However, it is the city governments themselves that have been slow to dissolve the existing silos that exist amongst neighboring cities.
Case Study: In inter city transportation planning for large infrastructure projects like highways and bridges, the state government has largely taken ownership. For example, the Bay Bridge that connects Oakland to San Francisco is managed by the California Department of Transportation (Caltrans). Caltrans also manages the state highway system and is involved with the public transportation systems throughout the state. Basically, in opportunities where municipal collaboration could take place (such as transportation within these cities), the state government has stepped in to take charge, thereby possibly leading to further silos amongst neighboring cities. Mitigating these silos is one of the goals of Plan Bay Area, a long-term plan for the Bay Area that focuses on land use and transportation planning–a fundamental pillar for smart city development. (For details, see post What You Need to Know About Plan Bay Area.) Joint Policy committees such as Plan Bay Area serve as a successful channel towards achieving inter-city partnerships that should be explored in the proposal of developing a Smart City.
Question 5: How does your city capture the value? Examine the income statement again to types of revenue it generates to change for the value it creates. Does the city create a triple bottom line? i.e. economic, social and environmental.
The City and County of San Francisco captures value through a variety of ventures and partnerships, as mentioned in the previous section. The activities can be broken down into two categories: governmental and business. According to the City and County of San Francisco Statement of Activities ending in June 30, 2014, the main governmental activities fall under the following categories: public protection, public works, human welfare and neighborhood development, community health, culture and recreation, and general administration. The primary business activities include transactions regarding the airport, transportation, port, water, power, hospitals, and sewer systems. The net position of governmental activities as of June 30, 2014 is $2,341,631.
One of the largest expenditures for the City and County of San Francisco is public protection, which has seen an increase in governmental funding from 2013 to 2014. Included in the public protection category are adult probation costs, district attorney, emergency communications, fire department, juvenile probation, police department, public defender, etc. The City and County of San Francisco also covers public works, human welfare and neighborhood development (which includes the county education office and human rights commission), as well as many culture and recreation commissions (Academy of Sciences, Arts Commission, Asian Art Museum, Fine Arts Museum, Law Library, and the Recreation and Park Commission).
The city is able to finance the mentioned expenditures primarily through property and business taxes and intergovernmental funding. According to the City and County of San Francisco financial statements, property taxes bring in $1,517,261, 000, followed by business taxes bringing in $563,406,000. Other revenue drivers are taxes that include sales and use, hotel room, utility users, etc. The City and County of San Francisco also brings in intergovernmental revenue via state ($721,735,000) and federal ($426,314,000) funding.
The various spending activities of the City and County of San Francisco highlight various attempts to reach the triple bottom line. The 2014 fiscal year for San Francisco brought in nearly $22 million in surplus. While it has not been decided how this money will be spent, city Supervisor David Campos has asserted that there is still a housing crisis in San Francisco. This financial surplus may also be used to increase Muni funding, which was approved via Prop. B in November 2014. Increased funding in Muni would also translate to greener transportation options for citizens. Still, the financial surplus has not translated to addressing the social needs of the city. In June 2014, the median home price in San Francisco reached a record-breaking $1 million, and homelessness continues to be a social issue in the city.
For more visit link below:
https://www.dropbox.com/s/b6lugz9lkb9yzhu/Group%20Assignment_SF.pdf?dl=0
The City of Oakland Business Model Analysis as of 01/26/2015
Equally Contributed by: Roman Decca, Dorothy Kong, Isabelle Lee, and Ariella Sosis
Question 1:
The City of Oakland is known for its vibrant culture, history, and industry. Oakland is located in the west-central part of California on the east side of San Francisco Bay. Its name was derived from the numerous oak trees found in the area. The City of Oakland was ranked by the New York Times as the #5 city in the world to visit in 2012. As consultants for the City of Oakland, we have decided to focus on (1) shift in age group population, (2) ethnic composition, (3) education and crime, and (4) myriad of outing opportunities after careful customer segment analysis.
(1) Current Age Population: Much like San Francisco, The City of Oakland is beginning to establish themselves with a fast growing tech community. With the increase of start-ups and healthcare opportunities, Oaklands hold home to a high population 72,315 people aging between 25 to 35 year of age. The young professionals who resided in Oakland during this technological and healthcare industry boom have catered to the advancement of Oaklands current large unemployment pool.
(2) Ethnic Composition: On the contrary, Oakland has a variety of ethnicities making up its population of 390,724 people, according to the Census of 2010. With 134,925 of the population identifying as white, 109,471 as African American, and 65,811 as Asian respectively. The City has smaller percentages of hundreds of different minority groups as well. What’s interesting about Oakland is that the good and bad neighborhoods are like polka dots. Downtown, the Lake Merrit area is nice but the Uptown is filled with office buildings. In the north, Rockridge is nicer than the often stretched out Temescal neighborhood.
(3) Education and Crime: Although Oakland has a household name as a place with extreme rich culture, it has more recently been plagued by the title of the nation’s most dangerous cities such that, its violent crime rate is more than triple the national average. The causes of theses might go hand in hand with the lack of educational attainment. According to the 2010 Census, 37,231 people have attended 1 or more years of college but failed to obtain a degree where as 47,077 have completed their undergraduate education and have received their Bachelor’s degree. With only a 10,000 gap between the two numbers, change is trying to be made as Oakland’s new major, Libby Schaaf’s first priority is to reduce the rising crime rate. She believes that the police need modern tools to be effective and that starts with community-based policing. Moving forward, Oakland has taken on debt to maintain solvency, cut expenses with layoffs and furloughs, and pursued a more informed, data-driven approach to policing crime.
(4) Oakland Outings: Uniquely, Oakland’s glory does not rest on it’s landmarks. Oakland’s glory rests on its personality with their two major league sports teams, their willingness to have communities centered near the beautiful Lake Merritt and 20th century shops still operating. Oddly enough, Oakland still manages to feel equal parts suburban, urban and a bit rural, while still being just a co-player in a larger metropolitan area. You can find the best food in Oakland, any type of cuisine, and all for really cheap!
Oakland’s socio-cultural diversity and rich american background has led to three main customer pain points originated from their customer segment profile: (1) crime, (2) poverty, (3) weak public transportation infrastructure. With 28% percent of Oakland children living in poverty, it’s no surprise why crime is higher in Oakland than that of their neighboring cities. Although with the help of the expanding health care and technology sector, looks like Oakland has the opportunity to leverage that for job creation. Moreover, with the increasing population of young professionals, current public transportation infrastructure seems to be outdated and incompetent. For the City of Oakland to consider itself a smart city, it must tackle its issues head on and create value through its resources, activities, partnerships, and overall relationships. To address theses pain points, Oakland must incorporative research, innovation, and bring forth catalysts to hit the triple bottom line (economic, social, and environmental).
Question 2:
Oakland creates value for its citizens in many unique ways. First, Oakland creates value by ensuring public safety for its citizens. The two most important public safety sectors that the city of Oakland allocates its budget for is the fire department ($125 Million) and the police department ($220 Million). Although Oakland has a reputation for being unsafe, the city of Oakland has been working diligently towards promoting and ensuring safety. In addition, the community service department of Oakland’s government provides value to its citizens through public libraries ($22 Million) and parks and recreation ($20 Million). Specifically, Oakland has ample green space which is free for people to practice recreational sports and where families can spend time together in the great outdoors. To elaborate more on how Oakland creates value through recreation, it is important to touch on Oakland’s thriving art and music scene. It’s well known among the bay area for its inexpensive and culturally accepting space for musicians and artists to practice and perfect their work. (For example, the ultra-famous, superstar band, “Green Day”, originates from Oakland!) Furthermore, Oakland creates value through entertainment by offering many forms of sports entertainment. Some examples of sports entertainment in Oakland are the Raiders and Oakland A’s. These sports spectacles create value specifically because they help build the Oakland economy by increasing tourism from Oakland residents and from people living outside of Oakland who visit Oakland for the sporting events. Additionally, the live sports encourage businesses to work with the stadiums.
The City of Oakland governs with its $50 million budget by providing value-creating governmental activities such as gathering important census information and paying the staff of the Oakland government. Continuing, the city of Oakland spends $5 Million on Aging & Health and Human Services to provide help to aging citizens who may not have the resources to fund problems which arise from old age. Oakland expends $15 Million annually on Community and Economic development which is vital for Oakland. Additionally, the county spends $10,855 Million on Planning and Building which also helps in Oakland’s development. Since 20.5% of Oakland residents are below the poverty line and still require basic needs, the funds allocated for community and economic development are necessary to developing Oakland into a smart city through bettering housing, business development, and education. Building on top of that, Oakland’s business development can also be attributed to the Oakland port which utilizes environmental, economic, and social equality to bring in the largest profits for Oakland’s businesses and citizens. This also increases trade within the value creation of Oakland by increasing distribution of goods and building relationships between merchants and customers. In the business method of creating value, Oakland also established itself as a tech center by building a tech community in Downtown Oakland. From start-ups to established corporations, tech companies work and flourish in Oakland.
The City of Oakland engages and collects information to create value in multiple forms. First, the county of Oakland utilizes sensors with its citizens in to track the speed of cars and the bart station tracks how many tickets were used to find out the amount of people using the various transportation systems. For public health, the Oakland hospital uses big data to ensure that frequent emergency room patients are treated with utmost care and efficiently. For instance, the Sutter Health’s Alta Bates Summit Medical Center is already implementing the new technology to helps its clients. There are also telephone surveys that the city of Oakland executes within the Oakland community, for example, KPIX ran a used survey and interviewed 500 Oakland adults on 03/06/14. There are many forms of surveys with which the city of Oakland uses to understand the needs of its citizens. Our group is excited to work with the City of Oakland to understand how the government utilizes data on its citizens to benefit its people.
Oakland delivers value through transportation, public works, public safety, libraries, public health services, financial services, and government programs. Since Oakland has so many needs combined with its proximity to Silicon Valley resources, there are many nonprofits in Oakland dedicated to helping meet the needs of the Oakland community. For example, to help solve the huge issue of food deserts in Oakland, there is a nonprofit called “Institute for Food and Development Policy b ” to help the cause. Another example of a nonprofit based in Oakland is “Oakland Aid for Animals” which helps solve animal abuse problems. The city delivers economic value by helping young Oaklanders find work through organizations like the Mayor’s Summer Jobs Program. Lastly, the City of Oakland outsources some of its building and construction work. For instance, 40% of the Oakland Bay Bridge construction work was outsourced to chinese construction companies. By creating global partnerships with chinese companies, Oakland is creating the global connections necessary to thrive in today’s economic landscape.
Question 3:
The City of Oakland’s primary asset on its balance sheet is, understandably, land to the sum of about $86.4 million. How Oakland uses this land, however, is not directly specified and ultimately determines whether the city is creating value for its citizens through its land. Its next greatest asset is easements of $2.6 million, which suggests that Oakland is creating value by expanding the city boundaries with easements from neighboring cities. Oakland also holds museum collections of $793,000, showing that the city is fostering culture through the Oakland Museum of California. However, no new additions were made to the asset account from 2013-2014, suggesting room for improvement. Another large asset account on Oakland’s balance sheet is Construction in progress of $224.8 million with $127.9 million added to the account from 2013-2014. Such a large addition to the account suggests that Oakland is rapidly developing in order to provide better housing, office space, and infrastructure for its citizens and economy to flourish. Lastly, Oakland holds about $703.3 million in infrastructure assets, which include roads, bridges, street lights and sensors, electricity, power, sewer and ultimately determine the quality of life for citizens. The city added $53.6 million to this account from 2013-2014, suggesting it is invested in improving its infrastructure beyond basic maintenance.
The key activities that Oakland diverts its general budget to are funding public safety and basic city services. The police department receives the most money from the general budget ($194 million) — an indicator of Oakland’s serious crime problem. The fire department comes in second, receiving $110 million. Next, over $100 million goes to pensions for public employees which gives income security to the citizens who work for Oakland’s government. $52 million goes to public works, capital improvement, and planning, which benefits all citizens of Oakland as the city continues to invest in its growth. Oakland also invests in tangible assets for its citizens such as the Library, which adds value to citizens seeking to educate themselves, receiving $9 million per year and the clean-up fund receiving $18 million. One additional notable budget allotment is $14 million to debt from the 1992 Oakland Convention Center, showing that investing so much in a convention center in 1992 without a proper business model did not do much to help Oakland’s major issues.
Oakland, due to its strategic location across the bay from San Francisco and directly south of Berkeley, Albany, and El Cerrito, holds partnerships with these cities by sharing transportation and transportation infrastructure. The San Francisco Oakland-Bay Bridge is the prime example of the partnership between the two cities, with two commissions — the Metropolitan Transportation Commission and the Bay Area Toll Authority — managing the best interests of both cities and the citizens who use the bridge. Public transportation furnished by BART (a Bay area rail partnership) and Alameda County Transit (a county bus service) allows the city to save money over running its own rail and bus systems. The AC transit system penetrates Oakland, San Francisco, Berkeley, Emeryville, Albany, and El Cerrito allowing its citizens far more mobility and access than each city using its own, limited bus service. Overall, Oakland’s strategic location and partnerships provide it with the best access to light rail (BART), rail (Amtrak), bridge transport, and buses (AC Transit) of any Bay Area city. However, the city must better use these assets to its advantage so that it may reduce its crime rates and police spending and solve the prominent social issues plaguing the city through a sustainable business model.
For reporting purposes, Oakland’s government splits its value-creation into three categorized funds: (1) Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The city uses enterprise funds to account for the operations of the Sewer Service System and the Parks and Recreation operations. The Sewer Service Fund is considered to be a major fund of the city. (2) Internal service funds are used to report activities that provide services and supplies for certain city programs and activities. The city uses internal service funds to account for its fleet of vehicles, radio and communication equipment, facilities management, printing and reproduction, central stores and purchasing. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements.
The internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this report. (3) Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of employees and parties outside the City. The Oakland Municipal Employees Retirement System (OMERS) Fund and the Police and Fire Retirement System (PFRS) Fund are reported as pension trust funds. The private purpose trust funds along with the private pension trust fund are reported as trust funds since their resources are not available to support the City’s own programs. For this reason, they are not reflected in the government-wide financial statements. The accounting used for fiduciary funds is much like that used for proprietary funds.
Listed below are the primary funds in these categories:
Federal and State Grant Fund: The Federal and State Grant Fund had a deficit fund balance of $4.2 million as of June 30, 2014 that represents a decrease of $0.5 million from the prior fiscal year. The federal/state grant fund deficit will be cleared by grant reimbursement submitted to granting agencies, but revenue has not been received within the City’s availability period and are recorded as deferred inflows of resources for $4.0 million as of June 30, 2014.
Low and Moderate Income Housing Asset Fund (“LMIHF”): Upon the dissolution of the former Agency, the City retained the housing activities previously funded by the former Agency and created LMIHF and transferred the assets and affordable housing activities of the low and moderate income fund to the City. The ending fund balance as of June 30, 2014 was $10.8 million and the fund’s net loan receivable balance was $182.6 million.
Municipal Capital Improvement Fund: The Municipal Capital Improvement Fund had a fund balance of $206.3 million as of June 30, 2014 that represents an increase of $74.8 million or 56.9 percent from the prior fiscal year. Pursuant to Health and Safety Code (HSC) section 34179(h), California Department of Finance (“DOF”) has completed its review of the Oversight Bond action on Bond Spending Plan and on November 6, 2013, it approved the Bond Spending Plan for Oakland Redevelopment Successor Agency (“ORSA”). The Bond Spending Plan allows ORSA to utilize proceeds derived from bonds issued prior to January 1, 2011 in a manner consistent with the original bond covenants.
Traffic Safety and Control Fund accounts for monies received from 3-5% parking meter collections and from fines and forfeitures for misdemeanor violations of vehicle codes which are expended or disbursed for purposes immediately connected with traffic safety and control.
State Gas Tax Fund accounts for the subventions received from state gas taxes under the provision of the Streets and Highways Code. State gas taxes are restricted to uses related to local streets and highways and would include acquisitions of real property, construction and improvements, and repairs and maintenance of streets and highways.
The Landscape and Lighting Assessment District Fund is an assessment district fund that is used to account for monies restricted to installing, maintaining and servicing public lighting, landscaping and park facilities.
Assessment Districts Fund accounts for monies restricted to specific improvements that beneficially affect a well defined and limited area of land.
Parks, Recreation, and Cultural Fund accounts for monies held for the general betterment and beautification of city parks, recreation centers, the Oakland Public Museum, and the Oakland Public Library.
The Equipment Fund accounts for the purchase of automotive and rolling equipment, and the related maintenance service charges and related billings for various City departments.
The Radio Fund accounts for the purchase, maintenance and operation of radio and other communication equipment being used by various City departments.
The Facilities Fund accounts for the repair and maintenance of City facilities, and for provision of custodial and maintenance services related thereto.
The Reproduction Fund accounts for the acquisition, maintenance and provision of reproduction equipment and services related to normal governmental operations.
The Central Stores Fund accounts for inventory provided to various City departments on a cost reimbursement basis.
The Purchasing Fund accounts for procurement of materials, equipments and services essential to providing governmental services for the City.
The Oakland Municipal Employees Retirement System (OMERS) Fund is a closed benefit plan that covers non-uniformed employees hired prior to September 1970 who have not elected to transfer to the California Public Employees Retirement System.
The Police and Fire Retirement System (PFRS) Fund is a closed benefit plan administered by a Board of Trustees which covers uniformed police and fire employees. Membership in the plan is limited to uniformed employees hired prior to July 1, 1976. All subsequent hires are covered under the California Public Employees Retirement System.
Private Purpose Trust Fund include (a) the Oakland Redevelopment Successor Agency Trust Fund, which accounts for the custodial responsibilities that are assigned to the Oakland Redevelopment Successor Agency with the passage of AB X1 26, that are not related to the former Oakland Redevelopment Agency projects or parks, recreation or cultural activities, (b) the Other Private Purpose Trust Fund, which accounts for the operations of certain trust funds, such as the Major Gifts Funds or the Youth Opportunity Program Fund, and retiree medical payments; and (c) the Private Pension Trust Fund accounts for employee deferred compensation fund.
Question 4:
From a business perspective, the value is created through the inputs known as the costs and sustained by the revenue generated. The cost comes in the form of the resources being used, activities that are being put into motion, and the partnerships that are working together to build the city. These costs generate revenue –a cyclical process in which the value that is distributed to the “customers” aka citizens and then relationships are formed adding more value. This section will briefly go over how the City of Oakland is able to capture that value through revenue subtracted by costs, and thus generating the triple bottom line.
To start off with identifying the costs- it is best to start with the concrete, monetary expenditures found in the income statement, and then discuss the other costs that are intangible and thus, harder to quantify. From the 2014 Comprehensive Annual Financial Report “CAFR” of the City of Oakland, the expenses listed on the income statement includes high spending on public safety ($379.8 million), community services ($116.9 million) and public works ($109.1 million). Other categories in which lower funds are allocated to include community and economic development ($83.7 million), general government ($79.8 million), and interest in long-term debt ($59.0 million). The other non-financial costs include other resources, activities, and partnerships. Behind each of the projects listed in the CAFR as expenses are groups of experts, politicians and citizens working to implement programs. These groups invest their time, knowledge, and skills to plan and manage the projects. Then they form partnerships with other sectors to start building the necessary infrastructure. The various activities range from data collecting to implementing – which covers the broadest range of activities showing how integrated city development in as it touches all sectors of society. For instance, Oakland spent the highest amount on public safety – the funds were allocated to the creation of four police academies (Pg. 12, CAFR). The decision making process to create four new police academies involved police officers, urban developers, and politicians. This requires a flurry of paperwork that relates to the vision of the city to reduce crime rates to permits to build on the decided location. Moreover, actual building process requires contracts from civil engineering companies to help develop the physical infrastructure. And finally, the actual training, staffing, and recruitment of the facilities require more social and economic capital. All this effort put into the creation of four new police departments will hopefully generate revenues that will be distributed as benefits to citizens.
As for the revenues, the city generates both financial and non-financial revenues that add into creating value. On the CAFR, revenues are mainly generated from programs, which add up to $313.8 million. Total revenue increased by 10.8% from the FY of 2013-2014. These programs are related to the expenses mentioned in the previous paragraph. As for general revenues, revenue is generated from property taxes ($240.8 million) and local taxes (i.e: business license, parking, transient occupancy, and voter approved special taxes) totaling to around $259 million. Taxes are a good way of understanding what the values of the cities are, and gives a good insider look at the relationships formed in the city. The benefits that are distributed to the citizens and the relationships that form as a result – are harder to quantify due to the multitude of benefits and consequences. So to frame the discussion, it will be useful to return to the Public Safety project. Ideally, the creation of four police academies will create better training for police officers to alleviate crime in Oakland. The increase in security and safety will add benefits to the customers – as people will feel safe walking out at night to go shopping (increase consumption) or go outside to exercise at night (reduce obesity rates). The benefits of increase consumption and reduction in obesity rates will increase the economic and social value of each citizen. They will probably spend more supporting the local businesses or become a stronger and healthier labor pool increasing total factor productivity. Although these examples are somewhat crude, they highlight how the benefits are distributed to various customer segments – and then if these services are appreciated the citizens will pay taxes creating a relationship that adds value to the overall city. If these services do not add value, then the city may experience civil unrest causing tensions between the city government/police force and citizens. To better illustrate the revenues by sources – please see the pie chart on http://www.oaklandnet.com/government/fwawebsite/accounting/cafr.htm, City of Oakland, California – Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2014.
Finally to complete the business model approach, the value and value captured is the most important part as it is the fundamental features that makes people want to live in cities. In the business model framework, value or “profit” is captured when revenue is subtracted by costs. As mentioned before, there is always the quantitative value from the income statement as well as the intangible benefits of running programs. Referencing the quantitative values, the overall total revenue added up to $916 million and the total expenditure resulted in $828.4 million. Thus, the change in net assets before transfers and special item yields $87.7 million. Finally, with the transfer of excess tax allocation the overall change in net assets is $177.9 million. Although the change in net assets is positive, it’s unclear whether or not Oakland is capturing the optimal value given the level of expenditures. Revenue increased significantly from the FY ‘12-‘13 by 10.8% – this is because of the real estate transfer tax which is due to the increase in real estate sales. However, real estate transfers can often prove volatile given the nature of the rapidly changing market. It would be unwise to depend on real estate transfers as a sustaining way to generate revenue. On the other hand, expenditures have increased by 5.4% since the last FY ’12-’13. This is due to increase in investments in governmental activities. However, the next figure shows that the investment in these programs generate low financial revenue – as expenditures exceed revenue. Although, there is a general consensus that the value that is generated through these programs cannot be completely captured through a business model framework – this is still a problem area as cities cannot continue to run on deficits but must make smart investments to generate higher financial returns so that the programs can sustain themselves in the long run. Despite the low financial returns relative to expenditures, there are still a lot of intangible benefits. These benefits include increase productivity, more opportunities (chances for wealth), economies of scale, safety regulations, communities for everyone, and overall higher utility/happiness. Please see chart on http://www.oaklandnet.com/government/fwawebsite/accounting/cafr.htm to see illustrations on the expenses and revenue of each governmental acitivity.
Given that the city is not generating the optimal level of “value,” Oakland is overlooking certain aspects preventing it from delivering the triple bottom line (economic, social, and environmental). For the economic aspect, Oakland has an 8.8% unemployment rate which is much higher than the neighboring city of San Francisco’s 4.4% (U.S Bureau of Labor Statistics). Although, there is a lot of work being done on July 2014 with continuing and developing the West Oakland Job Resource center, expanding youth internships program, and the investing 3.9 million in technology and equipment – there needs to be a clearer focus and vision on where to smartly invest the funds for economic growth and training education. For the social aspect, Oakland is considered one of the most vibrant “performing and cultural arts communities in the West Coast” (Pg. 165, CAFR). Oakland has proved its dedication to these communities through the Cultural Funding Program ($1.1 million investment), Public Art Program (revitalization of historical sites), and the creation of three new exhibition space in downtown. However, there could still be more room for improvement especially given racial tensions and high crime rates – this is tied closely with creating sound and innovative policies and trusts within communities. Finally, as for the environment, Oakland is home to the largest and busiest port and two major commuter freeways – which generates toxic pollution. This pollution hits west Oakland as it is considered a childhood asthma hotspot. The Environmental Protection Agency has worked in collaboration with Oakland on the toxics reduction programs – gathering many stakeholders together to work on the issue. However, the overall results of these programs have been unclear. It might be beneficial to shed some light on this issue– with the insights we gleaned from how Ahmedabad and New Delhi has dealt with pollution and congestion. Overall, Oakland has a lot of potential to deliver the triple bottom line, as there is a lot of effort and enthusiasm, it just needs a stronger focus being a smart city by using technology and community advocacy to maximize efficiency and well-being.
The City of San Jose Business Model Analysis
Members: Sue Ann Goh, Christina Yu, Camron Savarani, Wesley Truong, Kaitlyn Tsai
Question 1: Provide details about the customer segments: profile, types, numbers, age groups, ethnicity and other relevant information. What are their pain points?
San Jose is a city located in the heart of the Bay Area in Northern California. Founded nearly two hundred forty years ago in 1777, San Jose is now the largest city in the Bay Area, the third largest in the State of California, and the tenth largest in the United States. Just over this past decade, the city has become a hub for innovation, housing some of the largest and most influential technology companies in the world. This, in turn, has earned the city its title of the “Capital of Silicon Valley.” While San Jose has almost become synonymous with Silicon Valley, the city is actually a dynamic region with a diverse population and in turn is filled with different types of people who have various competing interests and concerns. In the following months, our team will work closely with San Jose to provide solutions to address its stakeholders’ pain points and increase the overall the quality of life of its citizens. In order to do that, it is critical to understand the city and its collective goals. In the following paragraphs, we will give a brief introduction to the composition of the city to paint a clearer picture of what San Jose entails.
I.General San Jose Information
A.Population & Age Group Breakdown
In 2014, San Jose’s population was estimated at 1,000,536. This was a 5.6% increase in population compared to 2010. According to the Center of Continuing Studies of the California Economy, this trend is expected to continue. It is estimated that by 2025, the population will stand at 1,215,000, and by 2040, 1,445,000 amounting to a total increase of about 48%. Currently, San Jose can be broken into several major age groups. The first age group, 18 and under, makes up for 24% of the total population. 18-24 and 25-44 year olds make up for 9% and 31% of San Jose’s overall population, respectively. The 45-46 age group make up a quarter of the population and 65+ are 11% of the population. San Jose’s projected population growth is concentrated in two age groups—1) young adults aged 20-34 and 2) older residents aged 65 and above while the school aged (18 and under) and prime working age group (35-54) is expected to decline. The overall increase in young adults and older residents presents a plethora of new challenges that San Jose will have to face over the next few decades. These include pension and retiree benefits, education accessibility, and affordable housing. Some of these points will be further discussed in the Pain Points section of the summary.
B. Ethnicity Breakdown
San Jose has a relatively diverse ethnic make-up. The city, itself, categorizes its citizens into five main groups: 1) Asians, 2) Whites, 3) African Americans, 4) Hispanics, and 4) Others. Currently, San Jose’s largest ethnic groups are Asians (32.4%) and Hispanics (33.2%) with Whites trailing closely behind at 27.6% of the total population. On the other hand, African Americans and other ethnic groups have a relatively lower presence at 2.8% and 3.6%, respectively. All of San Jose’s projected population growth is concentrated in three ethnic groups—Hispanic, Asian, and Other. The Hispanic population is projected to increase by 264,000 by 2040 and account for 55% of the City’s projected total growth. Similarly, the number of Asian residents is projected to grow 120,000 and account for 25% of the total population The remaining growth is attributed to the “Others” which include multi-race and Pacific Islanders. This is partly due to the rising amount of immigrants coming into the region. The African American and White population are expected to remain stagnant over the next few decades. San Jose’s changing demographics are expected to parallel that of the United States as the country shifts from a white to minority-dominated country. It is extremely important for us as a team to understand the changing demographics in San Jose because as the ethnic landscape changes, so will the foundation of the city’s economy. In addition, pain points and areas of contention are also likely to change as new issues emerge. When working with San Jose, our team will have to take into account the ethnic breakdown of the city to create successful long-term solutions for a more efficient and “smarter” city.
C. Income Distribution Breakdown
San Jose has been commonly known for its affluence. In fact, in late 2012, the Global Metro Monitor named San Jose as one of the most affluent world metropolitan cities with median household incomes at approximately $80,090. However, like every other metropolitan area, there are people of all income levels. San Jose’s income distribution breakdown is as follows: 15% of households in San Jose earn an income of $15,000 or lower. 14% of households earn income from $15,000-34,999 while 10% earn from $35,000-49,999. Households that fall in the income bracket of $50,000-74,999 and $75,000-99,999 make up 12% and 19% of the population, respectively. 41% of San Jose’s citizens earn a household income of more than $100,000. Needless to say, San Jose is a very affluent city. However, according to the numbers, it is obvious that there are still many have relatively low incomes and a disparity between high-income and low-income families that make up a large number of San Jose households. By understanding the income distribution in san Jose, it will give us a better view of understanding which groups have been helped out and which groups can be helped out more. This will allow us to prioritize which issues to attack during our short time working with San Jose.
D. Education Attainment Breakdown
San Jose’s population is very diverse in terms of education attainment. Nearly 15% of people have graduate or professional degrees. This makes San Jose a metropolitan area with one of the highest rate of graduate degree holders. 24% of San Jose’s population hold Bachelor degrees while 9% hold associate degrees. A staggering 19% of San Jose citizens attended college but did not receive a degree. 17% hold high school diplomas or equivalents such as the GRE, and 18% have did not or have not received a high school diploma. Although there seems to be a significant number of college graduates, there are still a large number of citizens who have never attained degrees. These education patterns, as we continue our research, will have to be further explored. Learning the reasons behind each of these numbers may pave way for an opportunity for our team to address issues in education prevalent throughout the city.
II. San Jose City Pain Points
San Jose has several major pain points that are currently focused on by its elected officials and citizens. In the remaining of the section, we will delve further into some of the major pain points that can be further explored as our team begins our project working with San Jose.
A.Public Safety
One of the city’s major pain points amongst its citizens relates the public safety. In recent years, according to Silicon Valley Community Foundation, the number of sworn in police officers and firefighters has been reduced over the past few years to historically low levels. Currently, there are about 1,020 officers, down from about 1,065 in 2012 and almost 400 fewer than in 2008. These lowered levels have increased the response time to all but the most serious situations by 20% and community policing has overall decreased as well. This has been due to a recent increase in the amount of funding needed for retirement pensions because of the aging population (this will be explained later in the section). Because of the decrease in police availability, the department has been forced to prioritize cases and is often unable to respond to issues such as property damage or theft complaints. In addition, It has also eliminated some services, such as police-school-liaison program, and most crime-prevention problems. Understandably so, San Jose’s recent decrease in police staffing has caused concern amongst the population. This pain point is not attributed to one particular demographic, but rather all of those that fall under the protection of the San Jose police department. This is a major pain point of all age groups (particularly adults from ages 24-60 who have school aged children and senior citizens), all ethnic groups, and all households.
B. Decline in Public Services
Historically, San Jose has provided community services to improve the lives of its citizens. For example, San Jose is home to numerous golf courses, skate parks, biking trails, family camps, and dog parks. The city has also established community centers that provide organized activity for children, seniors, and families. However, in recent years, staffing has become and issue and the amount of services provided to the community has subsequently decreased. Since 2007-2008, staffing throughout the library system has been reduced by 26%. Libraries, as a result, are now opened four days a week as opposed to its previous six days a week. In addition, the city’s Park, Recreation, and Neighborhood Services staffing has been cut by 47% since 2001. This sort of decline in community services will affect many groups that reside in San Jose. For example, decline in community center staffing may particularly affect senior citizens (65+) and the youth (18 and under) who regularly use the community center as a place for leisure and activity.
C. Affordable Housing
In the last decade, the San Jose region has experienced some of the fastest rising housing prices in the country. From 2000-2005, the median house value in san Jose increased over 160%, and rents increased dramatically as well. Today, the median price of single-family homes are priced around $655,000. Condominiums and townhouses are priced at $486,500. Housing rentals, similarly have increased throughout the years. For example, rent for a studio currently average at around $1,331 while one and two bedroom apartments average around $1682 and $2,155 respectively. Consequently, it has become difficult for lower income families to afford housing in the region. This pain point will also affect the early 20 to 30 year old professionals who do not have the resources to afford the high prices for housing in the city. If left unsolved, this has potential to cause major problems such as major gentrification similar to the process observed in San Francisco. Although the city has created many initiatives to create more affordable housing, it is important for San Jose to continue attacking the issue before long-term, irreversible consequences surface.
D. Pension Problems
Another major issue is the pension spending within the city. San Jose now spends one-fifth of its $1.1B general fund on pensions and retiree health benefits. To free up money, services have been cut, libraries and community centers have been closed. Salaries have been reduced and many facilities have been left unused. This pain point can be traced back to various groups that are affected by the pension problems. The closing of facilities and decrease in services as a result of the pension issue will inevitably affect the youth, seniors, and families who regularly use these services. On the other hand, those who receive pensions (generally retired and disabled members) will be affected by any reform that takes place. It is possible that their pensions and benefits they receive may be cut.
Question 2: How does your city create value for their citizens? How does it engage and collect information to create the value? How does it deliver the value? i.e. Directly, through 3rd parties, outsourcing, non-profits, public facilities etc.
The City of San Jose provides some of the most encompassing and comprehensive public services in the Bay Area, creating value for citizens in 11 key areas: 1) Child and Family Services, 2) Education Institutions, 3) Public Libraries, 4) Water Management, 5) Waste Management, 6) Green Mobility, 7) Neighborhood Maintenance, 8) Medical Facilities, 9) Parks and Recreation, 10) Public Safety, 11) Private Businesses. Each area is essential to citizens’ quality of life and the sustainability of the city for future generations. The following analysis will discuss each of these related areas, how the city engages and collects information for these services, and the mediums through which they deliver the value.
Child and Family Services, 2) Education Institutions, 3) Public Libraries
San Jose hosts a plethora of services targeted towards improving the lives of children and developing literacy at a young age, and literacy is commonly cited as one of the most important metrics to determine the “smartness” of a city. With an overall literacy rate of 84% of Santa Clara County, the city has the appropriate coverage of primary, secondary, and higher education institutions as well as supplemental public libraries, and the secondary schools are often cited as some of the most competitive college preparatory facilities in the state. Under 2) Education Institutions and 3) Public Libraries, the municipal government adds value by directly funding 16 primary and secondary school districts and supporting the professional development of individual school administrators who operate the programs on a daily basis. The city also runs valuable public facilities such as the San Jose Public Library and the local County Library, in which students can further their education and find optimal study locations. In particular, San Jose State University is the number one supplier of engineering, computer science, and business graduates to Silicon Valley, illustrating the city’s commitment to state-run universities in developing employable talent to the most relevant industries in the area (technology and professional services). Seven other universities and colleges, such as Evergreen Valley College, Lincoln Law School of San Jose, National Hispanic University and more, also train and deliver value to students with other professional focuses. By engaging with these schools and collecting data on education services that students need the most, such as extracurricular tutoring or computer science labs, San Jose can appropriately allocate its funds to the right skills development programs. These educational institutions in turn create a cycle of value, generating wealth and economic activity for the city.
However, the city also recognizes that not all students have the privilege of smoothly transitioning into school with supportive families and adequate financial support. San Jose provides comprehensive 1) Child and Family Services. Both government-run agencies such as the Santa Clara County Department of Family and Children’s Services and nonprofit organizations such as Child Advocates of Silicon Valley work together to protect children who have experienced abuse and neglect. Value is also delivered through nonprofit partners such as the David and Lucile Packard Foundation, Palo Alto Medical Foundation, and Rotary Clubs, who can provide information on young patients with injuries and medical conditions caused by abusive family environments and additional facilities who can temporarily take care of the children. In fact, there is a network of nonprofits called the Sobrato Center for Nonprofits, committed to sharing information, resources, and specialized services. To fund these activities, these agencies also engage with the CSR programs of many locally-based corporations such as Google, In-N-Out Burger, FedEx, and eBay.
4) Water Management, 5) Waste Management, 6) Green Mobility, 7) Neighborhood Maintenance
Secondly, the City of San Jose has also established large infrastructural projects that create value through public facilities, specifically targeting 4) Water Management, 5) Waste Management, 6) Green Mobility, and 7) Neighborhood Maintenance. There are three particularly notable initiatives under water management: the South Bay Water Recycling program, the San Jose-Santa Clara Regional Wastewater Facility, and the San Jose Municipal Water System. The South Bay Water Recycling program provides sustainable, high-quality water supply and reduces the city’s dependence on imported water. This initiative not only makes the city more self-sufficient, local businesses benefit the most and in turn create value for the city residents. For example, the Villages Golf and Country Club, the McCarthy Ranch shopping center in Milpitas, and four major power plants all use the lower-cost recycled water for a variety of purposes, from cooling buildings, irrigating parks, to manufacturing paper, which indirectly creates value for citizens by reducing the prices for these products and services. The city engages with these customers directly through 130 miles of pipeline and five pump stations, and these third-party customers indirectly deliver value to citizens through public services and facilities. Furthermore, the San Jose-Santa Clara Regional Wastewater Facility and the San Jose Municipal Water System are both considered one of San Jose’s 4 business-type activities, serving seven cities beyond San Jose and their business sectors with more than 17,000 main sewer connections and cleaning 110 million gallons of wastewater per day. The San Jose-Santa Clara Regional Wastewater Facility, co-owned and operated by the City of San Jose and the City of Santa Clara, is considered the largest advanced wastewater treatment facility in Western U.S., which also recycles water for irrigation, industrial processes, cooling towers, and flushing toilets. The San Jose Municipal Water System makes an operating profit and is the fourth largest water retailer in the County of Santa Clara, serving over 100,000 people per year.
Waste Management is also a critical component of city planning, and San Jose has launched a variety of recycling initiatives such as business-specific garbage recycling programs and landfill transfer stations to dispose of waste, which delivers value directly from the municipal government to the city residents in the form of clean neighborhoods. Further Neighborhood Maintenance is sustained through street sweeping and safety initiatives. Street sweeping occurs at least once per month to remove fine metal particles left on roadways by vehicles, which delivers value through well-maintained public facilities (roads, parks, and and sewers) that people would actually want to spend time in and removes harmful chemicals in local waterways, on streets, and in gutters that may negatively impact citizen health. The Mayor’s Gang Prevention Task Force was also a coalition established to curb gang-related activities in San Jose, a particularly strong initiative due to the coalition’s collaboration between local residents, government leaders, school officials, community and faith-based organizations, and local law enforcement agencies. With the multitude of stakeholders indirectly delivering value to the city with their input, the mayor and police chief can appropriately carry out the Policy Team to determine strategic direction for the task force, and the Parks, Recreation and Neighborhood services staff, police officers, school officials, and direct-service organizations can effectively provide prevention and intervention services in the neighborhoods daily. The Mayor’s Gang Prevention Task Force is quite possibly the most innovative and forward-thinking committee in the Bay Area.
While certain cities often prosper economically at the expense of environmental sustainability, San Jose has proven that green mobility is possible for an economic hub. The city has launched a variety of sustainable initiatives such as the Bike Plan, Bike Sharing, Envision San Jose, Car Sharing, and electric vehicular infrastructure. The Bike Plan establishes a goal of completing a 500-mile bikeway network in the city by 2020, and the Bike Sharing program makes part of the plan possible by making 150 bikes available at 16 downtown stations, day passes that only cost $9 each, and annual passes at $88 that provide unlimited number of 30-minute-or-less trips. San Jose has ensured that this program will be feasible by carrying it out in short pilot programs, the first of which involves 5 Bay Area cities, leveraging partnerships with the Air District, San Francisco Municipal Transportation Agency, Sam-Trans, Caltrain, and more. As we learned in “smart city planning,” partnerships are key to the success of sustainable city initiatives. The operator of this program is Motivate, an American firm that is the only company in the world focused on operating large-scale bike sharing programs, and the manufacturer of the bikes is Public Bike System Corporation (PBSC), who provides bikes for bike sharing systems around the world, with over 14,600 PBSC bikes used every day. This program fits within a larger vision under the Envision San Jose plan for 2040, committing the city to reduce the number of people who drive alone to work by 50% by switching to walking, biking, carpooling or using transit. Other modes of transportation was made possible with car sharing programs, with a main partner, Zipcar, launching a pilot program in 2012 that expanded from 12 cars initially to 35. In addition, the city has been developing initiatives parallel to recent automotive industry innovation towards electric vehicles, as San Jose has set up charging stations (53 EV stations in downtown parking garages) at a rate of $1.25 fee per session and allowed residents with plug-in vehicles to park in select parking garages and city parks, often offering streamlined residential permitting processes to facilitate the installation of home charging systems.
8) Medical Facilities, 9) Parks and Recreation, 10) Public Safety
Three other categories fall under San Jose’s general initiatives to improve the general well-being of its citizens: 8) Medical Facilities, 9) Parks and Recreation, and 10) Public Safety. With 10 public and private sector hospitals in the city, city residents have access to convenient medical facilities that can accommodate a wide range of needs and insurance plans. A few privately run hospitals include Kaiser Permanente Medical Center, O’Connor Hospital’s Pediatric Practice, and the Good Samaritan Hospital, who each deliver value to their patients through their third-party for-profit businesses. Publicly run hospitals include any Santa Clara Valley Medical Centers, who cater to patients that prefer directly government-run medical facilities. In addition, parks and recreation are core to the development of healthy and happy citizens. City parks allow for online picnic reservations, family camps, and specialize in a wide range of services from dog parks, golf courses, to skate parks and biking trails, delivering value directly by the City of San Jose through these public facilities to increase outdoors activities and areas to socialize within the community. Community Centers also offer collaborative environments for city residents to partake in community-organized programs for children, seniors, and families, which is value delivered directly by the government-run PRNS (Parks, Recreation and Neighborhood Services staff). Finally, particularly in urban neighborhoods suspect to violence and gang-related activity, Emergency Services, FBI, the Fire Department, and the Police Department are all available through the City of San Jose to surveil public facilities and deliver value in partnerships with third-party law enforcement agencies.
11) Private Businesses
The final category covers a key stakeholder in the city planning process: 11) Private Businesses. San Jose’s economic activity can be considered one of the city’s largest strengths, but it still continues to grow with many activities to attract new businesses and talent to Silicon Valley. With over 6500 businesses currently operating or headquartered in San Jose, Cisco, eBay and IBM can be identified among the top 3 employers of San Jose city residents. This value to private businesses is delivered directly by the City of San Jose through open office space, parking permits, and optimal operating locations close to Silicon Valley. In turn, these businesses directly deliver value to city residents by providing employment opportunities. To more closely illustrate the role that the city plays in attracting new economic activity and employee talent, San Jose had cut fees for developers of high-rise office and housing projects, with three new towers already under construction since 2014. The city thereby directly delivers value through affordable housing and office space, with downtown rents much lower than Mountain View and Palo Alto.
Question 3: a) What are your city’s resources (assets and liabilities) shown on the balance sheet that help create the value? What are the key off-balance sheet resources? b) What are the key activities of your city that creates value for its citizens? Take a look at the income & expense statement. c) Whom does your city partner with to share resources and thereby reduce costs and risks to add value and more services to the citizens? You can often find in the notes to financial statements or on your city’s website.
San Jose’s Value-Creating Resources
San Jose’s balance sheet provides an overview of the resources that enable the city to create value for residents. The city’s balance sheet is divided by governmental activities and business-type activities. Governmental activities are relatively standard across cities, and San Jose categorizes these activities into general government, public safety, capital maintenance, community services, sanitation, and interest and fiscal charges. These governmental activities are primarily supported by taxes and intergovernmental revenues. San Jose’s business-type activities include 4 main services that recover all or a portion of their costs through user fees: 1) Norman Y. Mineta San Jose International Airport, 2) Wastewater Treatment System, 3) Municipal Water System, and 4) Parking System. For governmental activities, the majority of assets are capital assets (78%), cash/investments (10%), loans receivable (4%), and restricted cash/investments held in the Treasury. Similarly, for business-type activities the majority of assets are capital assets (71%), cash/investments (17%), and restricted cash/investments held in Treasury. This breakdown illustrates how San Jose’s primary resources are capital assets such as land and buildings, and a more in-depth look at these capital assets provides insights into how the city creates value.
Governmental activity capital assets total $5.9 billion, and these assets are primarily comprised of infrastructure (71%), buildings (17%), and land (7%). As the 10th largest city in the U.S., San Jose invests heavily in infrastructure that aids transportation, creates space for recreational activities, increases public safety, and serves many other essential functions. For example, the city has approximately 62,000 streetlights and is one of the first cities investing in smart, energy-efficient streetlights. These new LED lights feature an adaptive control system and have many benefits such as reducing street light energy costs by 40-60%, significantly improving lighting visibility and quality, and providing real-time reporting of energy usage. The city had installed 3,400 of these LED lights by 2013 and planned to increase this number to over 5,000 by the end of 2014. San Jose has also invested in “intelligent transportation systems” such as its Traffic Light Synchronization Program (TLSP) that was completed in 2013. The TLSP project utilized the latest “signal timing, coordination, and communication technology available for optimizing and monitoring traffic,” and it reduced vehicle travel time by 15%, eliminated 840,000+ hours of vehicle delay, and has reduced fuel consumption by 625,000 gallons. To keep track of its infrastructure development and provide a platform for residents and staff members to view the projects, San Jose has created an interactive management, tracking, reporting, and outreach software used for construction projects called the Capital Projects Management System. This system, along with the ambitious mobility programs discussed above, demonstrate San Jose’s commitment to investing in infrastructure that will create a safer environment, reduce pollution, and improve the overall quality of life for residents. San Jose’s capital assets also include many buildings such as the 8 colleges/universities buildings, San Jose public library, police and fire department buildings, publicly run hospitals, and other buildings that provide key services for residents.
Business-type activities total around $2 billion, and they are comprised primarily of buildings (57%), projects to improve capital assets (30%), and land (7%). The first business-type activity is the airport service provided by the Norman Y. Mineta San Jose International Airport. This airport, also known as the “Silicon Valley’s airport,” is located just 2 miles from downtown San Jose and is owned and operated by the city. As a business-type activity, it is entirely self-sustaining and serves approximately 26,000 leisurely and business travelers per day. The airport has two terminals, 28 gates, 10 airlines, and one of the best rankings for on-time performance among California airports. The San Jose International Airport is one of the key building capital assets found on San Jose’s balance sheet, and it creates significant economic activity through creating jobs, connecting Silicon Valley companies with international business locations, increasing demand for local hotels, restaurants and retail stores, and enabling essential shipment services. San Jose has also committed to constantly improving the airport and its other business-type activities, and in 2014 the city spent $122 million in capital investments (offset by $445 million in depreciation). Some of San Jose’s initiatives to improve the airport include a new consolidated rental car center and public parking garage, roadway improvements, terminal upgrades, and a taxi staging area. San Jose is also looking to boost its global outreach in 2015 and will be offering new nonstop flights to Canada, Europe, and Asia. For example, Hainan Airlines was recently approved to start flights between Beijing and San Jose, which will directly connect the high tech center of the world to the world’s second largest economy for the first time. In addition to San Jose’s airport, the other 3 business-type activities also require capital assets such as the city’s water treatment facilities and eight parking garages, and San Jose is constantly investing in projects to improve these assets and continue to provide a high quality of life.
San Jose’s Liabilities and Off-Balance Sheet Resources
In order to fund these capital projects, San Jose primarily utilizes long-term debt instruments such as general obligation bonds, lease revenue bonds, special assessment bonds, and revolving fund loans from the State of California. San Jose’s governmental activity and business-type activity liabilities are both comprised of around 90% long-term obligations due in more than one year. Furthermore, San Jose has off-balance sheet resources such as its personnel and brand image. The City of San Jose directly employs approximately 5,650 people, and these staff members work in the city’s police and fire, city management, finance, housing, information technology, public works, retirement, and various other divisions that provide necessary services for the residents. These employees act as the backbone of the city, and their impact cannot be measured through the financial statements alone. San Jose’s brand image is also a key asset that constantly attracts residents and businesses. For example, the city is known for being the 10th largest in the U.S., having many employment opportunities as “The Capital of the Silicon Valley,” offering a high quality of life with over 300 days of sunshine per year, remaining one of the safest cities of its size, and being very ethnically diverse with one of the largest Asian and Hispanic populations in the state.
Value Creation through Revenue Generation: Self-Sustaining Business-Type Activities vs. General Fund Governmental Activities
San Jose’s Statement of Activities provides a breakdown of the city’s income and expenses for its governmental and business-type activities. The 4 business-type activities the city engages in are self-sustaining, meaning that they are fully funded by the revenue that the activities generate. In 2014, the wastewater treatment system, municipal water system, and parking system all made an operating profit. The airport experienced a year-over-year increase in revenue and made an operating profit before depreciation and amortization. One of the main advantages of these business-type activities is that they each provide many benefits for resident—ranging from affordable, clean drinking water to over 7,500 parking spaces located throughout the city—without requiring an increase in taxes or cuts to governmental activities; this means that they are only paid for by the residents and businesses that directly utilize the services rather than every resident of the city. In contrast, the city’s governmental activities are funded through the General Fund, and in 2014 expenditures totaled about $935 million. The revenue sources for the General Fund are property taxes (45%), sales taxes (22%), utility taxes (14%), franchise fees (6%), business taxes (6%), and other sources (7%). The amount of revenue and expenses for governmental activities has remained relatively constant over the years with over 60% of the expenses dedicated to paying the city’s personnel. In 2014, the breakdown of General Fund spending by department was the following: 32% police; 24% citywide, capital transfers and reserves; 17% fire; 6% parks, rec, and neighborhood services; 4% public works; 3% library; 4% planning, building, and code enforcement; 2.7% transportation; 1.3% IT; 1.3% finance; 4.7% other. This spending breakdown illustrates the city’s top priorities and the divisions that require the largest personnel. For example, over 90% of residents prioritized overall feeling of safety as essential or very important, and the city has responded to this need by devoting 32% of its General Fund to the police department; as a result, San Jose is one of the safest major cities of its size.
San Jose’s Cost-Minimizing Partners
San Jose shares many resources that require large capital investments. Its transit division works closely with BART and Santa Clara Valley Transportation Authority (VTA) to plan and construct public transit projects. BART’s extension to San Jose is scheduled to be completed in 2017, which will relieve traffic on the notoriously congested highways and give millions of Bay Area residents convenient access to the South Bay. The project is expected to be finished a year early thanks to almost nonexistent political infighting and voter approval of additional taxes in Alameda and Santa Clara counties to fund the $3.2B project. The VTA is building a bus rapid transit (BRT) system between Santa Clara and Alum Rock. It will be an express bus service utilizing high tech communications so that traffic lights will stay green when the bus approaches intersections. This combined with other features such as a dedicated bus lane on Alum Rock, comfortable bus stations, service every 10 minutes during peak times, and up-to-the-minute information through electronic messaging signs makes this BRT an attractive and modern way to commute, which should reduce the negative stigma commonly attached to public buses.
The two cities jointly own the San Jose-Santa Clara Regional Wastewater Facility which serves 1.4 million residents and 7,000 business throughout several cities in the South Bay. By using innovative ways to clean wastewater to very high standards for discharge, the plant plays a critical role in protecting the health of the community, safeguarding wildlife habitats, and providing a foundation for the economy. It won the National Gold Standard Award for 100% compliance with strict federal standards for treating wastewater, and the Environmental Protection Agency recognized the facility for being a leading producer of alternative energy (methane). Over the next 15 years, $1B will be invested to make capital improvements and ensure that the plant will continue to be a world-class facility that provides significant value to Bay Area residents.
Question 4: How does your city capture the value? Examine the income statement again to types of revenue it generates to charge for the value it creates. Does the city create a triple bottom line? i.e. economic, social and environmental.
San Jose captures value directly through fees, fines, taxes, and grants for its governmental and business-type activities, and also indirectly through the positive externalities generated by its investments. Some examples of key activities that generate direct revenue and/or positive externalities are 1) public safety, 2) community centers and parks, 3) transportation/parking, 4) the international airport, and 5) water utility and treatment services.
As discussed, San Jose dedicates over 30% of its General Funds budget to its police department, and one major source of revenue for the department is traffic enforcement fines. However, the city also captures value indirectly as a result of fewer injuries and damaged properties from motor accidents, safer pedestrian walkways and sidewalks to promote alternative modes of transport, and a reputation for safety due to the low crime rate relative to other large cities. Although previously known for high crime rates, part of San Jose’s tremendous economic growth can be attributed to its investments in public safety and commitment to creating a safe environment for residents and businesses. However, the decrease in police availability in recent years has caused concern among many residents, and this can have many detrimental indirect effects if not addressed. San Jose also spends a considerable part of its budget on recreational centers, parks, and other social and cultural facilities. These investments do not generate significant direct revenue, but they contribute to a high quality of living and encourage diversity since all types of people can find a community within San Jose. By encouraging community building and investing in these public facilities, San Jose has built its reputation as one of the most diverse cities in the state and benefits from increased creativity, enhanced productivity, varied attitudes, and other advantages of a diverse community. These advantages cannot easily be measured and the funding comes almost entirely from the General Fund (primarily property and sales taxes), but the value generated far surpasses the costs for residents. Similar to the police department, there has been a recent decline in these public services, and the city must address these concerns to continue to capture indirect value and ensure long-term sustainability. Finally, transportation and parking generate direct revenue through parking fees and permits, and also indirect value capture through reduced congestion, travel time, and consumption of gasoline.
San Jose’s business-type activities are self-sustaining and generate larger amounts of direct revenue to cover their costs, and they also result in indirect value creation similar to the governmental activities. San Jose has invested hundreds of millions of dollars to improve its airport in recent years, and it has many more upgrades planned for the airport through 2018. San Jose’s commitment to improving its airport stems from the tremendous value it captures from connecting local businesses to the international business community. Once again, the value cannot easily be measured, but the value captured far exceeds the revenue that the airport generates through ticket sales as represented on the income statement. The water utility and treatment facilities also require no ongoing investment from the government as business-type activities, and they allow the city to capture value by reducing healthcare costs and improving the quality of living through providing affordable, clean drinking water for all residents.
Recognized as a global hub of technological innovation, San Jose has also excelled over the decades by breaking down silos and encouraging collaboration across teams and partners to implement budgets supporting its Economic Strategy, General Plan (Envision 2040). The City has internally implemented an organized approach of system issues through affinity groups of related departments, known as six City Service Areas (CSAs). These groups thoroughly address the three measures of the triple bottom line, such as community and economic development, environmental and utility services, neighborhood services, public safety, and more. San Jose creates a triple bottom line by defining a coordinated approach to its economic development, transportation and land use planning, workforce development, and environmental management which incorporates its primary community goals for sustainability (environmental), community livability (social), and prosperity (economic). By maximizing the collaboration between these six service areas, these distinct departments are able to work efficiently in the climate of resource constraints to best allocate and plan their strategies accordingly.
Environmental Goals
Environmental performance is arguably one of the most important drivers of San Jose’s strategic planning. Aside from Envision 2040, San Jose also implemented Green Vision in October 2007. Green Vision – a set of 10 aggressive goals addressing environmental stewardship, economic growth, and fiscal responsibility by the year 2022 – aims to transform San Jose into the world center of Clean Technology innovation through the promotion of cutting-edge sustainable practices. While Green Vision and Envision 2040 address separate matters, they are linked in their purpose and implementation by the Office of Economic Development (cutting down silos to encourage cross-team partnerships alongside San Jose’s goals).
Some efforts that the Office of Economic Development has invested in are its partnerships on affordable water and energy supplies, along with efficient lighting and waste-to-energy projects to help both the City and businesses realize cost savings and stimulate demand for clean technologies targeted as a growth industry. Mixed-use neighborhoods are also promoted because they efficiently utilize resources and existing infrastructure, as well as creating a customer base for local businesses. Furthermore in its market development efforts, the City also integrates the aspect of technology through demonstrations that align with its environmental performance goals. Some examples are LED lights (higher energy efficiency), waste to energy conversion (resource maximization), and electric vehicle charging stations (reducing air pollutants). All in all, Green Vision helps to drive demand for renewable energy, efficiency, green buildings, and support supply-side innovations that help the San Jose City Council achieve its environmental goals.
Economic Goals
From an economic standpoint, these variables always refer back to the City’s bottom line and flow of money. San Jose has actively pursued its economic goals through a variety of methods. For instance, the rapid incubation of clean tech companies and demonstration of clean technologies, increasing collaboration between companies, workforce development, government support to independents for business location and expansion, as well as a buy local program using social media to help San Jose residents and businesses identify local shops to visit (similar to Yelp). To reduce unemployment and stimulate job growth, the City aims to create 25,000 new Clean Tech jobs in 15 years from 2007 to 2022. Thus far, they have fostered the creation of more than 7,000 green jobs. There is a mutual benefit for the creation of jobs, as individuals receive personal income and are able to live comfortably, while the City receives tax revenues that can then be used to further invest in other areas of importance that also support San Jose’s triple bottom line. However while this proves true theoretically, it is important to note that from 2013-14, facts display that San Jose has been employing some of the least full-time positions per 1,000 residents relative to many other large California cities. This declining trend of full-time employment in the city has worsened since the year 2010.
Social Goals
San Jose has invested an abundance of resources over the past few years to drastically improve physical infrastructure within the community in efforts to increase the overall well being and quality of life for the community. Some strategies include locating new housing and workplaces along transit-accessible, walkable, and bikable village-scale environments to promote active living and reduce traffic congestion. The City has also focused its identification on investments around sports, parks, local retail, entertainment, and art, with the purpose of creating dynamic and active spaces that encourage interaction between community members. Especially in such a culturally and ethnically rich city like San Jose, workforce and career development to meet these diverse needs are important.
While the City has been balancing its efforts between providing and improving the basic amenities of the community with technological development and innovation, there is still the most room for improvement when it comes to the social aspect of the triple bottom line. According to a priorities assessment survey by the San Jose City Council, most of the residents who responded felt the City should focus on the overall feeling of safety in San Jose. The next highest issues voted were the economic health of San Jose, and opportunities for education and enrichment. The survey also showed that the City currently lacks citywide public trust in the present governance. It is crucial for San Jose to address these issues going forward, as its goal of achieving Envision 2040 and Green Vision can only be achieved if the present governance and community are aligned in their views to ensure all three aspects of the triple bottom line are touched upon.
Importance of the Triple Bottom Line Impact
Through San Jose’s efficient and structured method of triple bottom line reporting in its economic development strategy, it is able to measure performance to support long-term sustainability goals and generate high internal rate of returns. Especially in this day and age where the links between economic vitality, environmental stewardship and community well-being have only become tighter, it is essential for the City to be able to evaluate the ramifications of their decisions from a long-run perspective, in order to maximize the value capture benefits of the City as a whole.
City of Berkeley: https://www.dropbox.com/s/qydoh1abahrzd0r/City%20of%20Berkeley%20Assessment.pdf?dl=0