San Jose’s Incubators Had Unanimous Council Support from 1994 to 2010

At the Rules Committee last week, we voted 4-0 not to pursue an audit of the incubator program that was started in 1994. Instead, we decided to stay with the current work plan that includes an audit of the Environmental Services Department. 

Incubators are located all over the country. They are backed by cities, universities, foundations and venture capitalists. Cities have been involved in incubators since residents pushed them to do so. As national and international economies ebb and flow, residents ask cities, “What are you going to do about creating high-tech jobs?”

Therefore, in wanting to try and please everyone, city government—instead of pointing out that the private sector creates high-tech jobs—funded incubators with a hope and a prayer. This same conversation could take place in any city that assists incubators. The fact is there was a shared belief by the entire San Jose City Council past and present, up until recently, that this was a worthwhile investment.

One example that I am personally familiar with is Agile Software. I worked for Agile Software, which came out of the incubator program started during Mayor Susan Hammer’s tenure. (Unfortunately for me, I joined after the company’s successful IPO.) Agile Software grew in downtown San Jose, with approximately 900 employees worldwide and 450 employees in San Jose. Many of the company’s employees lived and spent their paychecks in San Jose.  As a company, Agile also spent money in San Jose.

For example, Agile from time to time paid for the catering of lunches and dinners for employees. Agile also hosted events that resulted in over 1,000 downtown hotel rooms a night being used for its conference. In addition, the company had partners and customers flying into San Jose to visit corporate headquarters and booking hotel rooms. Agile also generated sales tax on the sale of their software, which was prior to the now-common customer request to download software electronically to avoid paying sales tax.

Agile stayed in downtown from 1995 to 2003. In 2003, Agile ran out of space in the downtown area. As a result, the company moved to Edenvale and stayed there from 2003 to 2008, before being moved out of San Jose by Oracle, which bought Agile in 2006.

This is an example of one company starting in a San Jose incubator and remaining in San Jose since many employees, including Agile’s CEO, lived in San Jose. Other companies, like Datasweep and Sierra Atlantic, wanted to be close to Agile so they also located Downtown.

Agile’s CEO, Bryan Stolle, was loyal to the city of San Jose and generous to local charities. However, part of the evolution of business includes growing, possibly to an IPO, being bought by another company or, as is the case with most high tech start-up companies, ceasing operations and laying off all the employees. There is no guarantee of success.

No city incubator can control:
_ the success or failure of the start-up company.
_ the relationship between the founder and venture capitalists.
_ the relationship between executive management and commercial real estate brokers.
_ the specific cost of real estate in neighboring cities or from building to building.
_ whether or not the company has new management that lives up the peninsula and wants to move offices to another city closer to their own home or employee base.
_ merger and acquisitions
_ intellectual property that is spun off and sold to someone else who carries on in another geography.

Essentially no city incubator can control free market decisions. However, we do need to credit the time a company is in San Jose, as well as other attributes the incubator program has brought to the city.

There are many decisions that the council has made without audits. For example, did we get all the jobs for the thousands of affordable housing units we built? What was the retrurn on investment from spending $835 million of RDA money on affordable housing? What are the ramifications to our city by exempting affordable housing from paying over $100 million in fees and taxes when these developments require more city services?

I have asked for an audit of the housing department and the impacts of exemptions on taxes and fees. But, I also understand that there may no longer be a Housing Department after Jan. 15, 2012. Perhaps we should do an audit often requested by city employees, which is a performance audit of management positions.

When we invest in Intellectual Property or essentially “people,” there is no guarantee that individuals/companies will stay in San Jose. The council voted in June 2011 that it no longer wants to fund the leases for incubators going forward. Moving forward, the city should focus on established companies like Polycom, Microchip and Maxim, which are all looking for larger space rather than early-stage companies.

28 Comments

  1. Trying to save face and appease your fellow council members does not cut it!  Did Chickie and the city manager demand you post this! Don’t even bother to waste our time with your posts anymore which you do not even reply too.

    GOOD BYE

  2. Pier,

    Any chance somebody could do an audit of the travel expenses by our mayor and city council?

    From today’s Mercury News:

    “October is apparently a good time to travel the globe touting San Jose.

    In a multipronged effort to attract more business to the “Capital of Silicon Valley” and more flights to struggling Mineta San Jose International Airport, a bevy of council members and city officials are journeying worldwide this month to meet with business leaders in China, Germany, Ireland and South Korea. Councilman Pete Constant is flying home Sunday from a five-day trip to Suwon City, South Korea, where he attended the 48th Suwon Hwaseong Cultural Festival and worked to emphasize “the competitive advantages of San Jose,” including its airport. The trip was paid for by his hosts.

    Meanwhile, City Council members Sam Liccardo and Nancy Pyle, along with City Manager Debra Figone, are in Dublin, Ireland—San Jose’s sister city—through Tuesday, celebrating the 25th anniversary of our chummy bond with the Emerald Isle. Kim Walesh, head of the city’s Office of Economic Development, and staffer Joe Hedges also stopped by to make presentations to business leaders there. Hedges traveled first to Berlin to meet with airline officials, a trip partially funded by the airport and the city.

    Taxpayers are footing the airfare and hotel bills in Dublin for Walesh, Hedges and Pyle, who is dipping into her council office budget.

    By month’s end, Liccardo, Councilman Kansen Chu and Walesh will head to Hong Kong and Shenzhen for a series of meetings with businesses in China seeking to expand overseas. Liccardo also is talking to airline companies there. All of Liccardo’s and Chu’s costs are being picked up by the U.S.-China Exchange Council, as well as Silicon Valley Bank and the local offices of O’Melveny & Myers, Deloitte, and Collier’s International, which are sending their representatives. The city is paying for part of Walesh’s trip.”

    http://www.mercurynews.com/internal-affairs/ci_19080636?source=rss

  3. Must be nice to be able to travel on someone elses dime,while ignoring your responsibilities here at home. Gee imagine that PLO sucking up to the rest of the Council, no news there. PLO can try to spin this any way he chooses, he just hasnt realized that NOBODY is buying his load of B.S..36 homicides for the year,P.D. & F.D. severely understaffed,more low income housing,no new jobs, an airport that loses money, a mayor who says”sunshine reform”but always deals in closed sessions,a clueless city manager. why in the world would any of the cities that are being visited want anything to do with this joke of a city

  4. I wonder if the City received a thank you from the billionaire owner of Oracle for its bringing to market a company that had already survived the huge risks inherent in the startup shake-out process? With taxpayers picking-up the tab for incubator schemes—in essence absorbing the financial risk that capitalism dictates belongs to discerning investors and tech vultures (such as Larry Ellison), the idiots running this city figured out a new way to get tax dollars into the pockets of the rich.

    In the final analysis, every incubator dollar invested represents:

    1. A dollar that could’ve been returned to the taxpayers or used to enhance a traditional city service.

    2. A unit of investment opportunity that did not undergo the assessment of savvy investors in the private sector, resulting in, a) a private investor denied an opportunity—in the case where the risk is deemed worthy, or, b) a startup’s existing investors deprived a much needed wake up call—in the case where the enterprise is deemed foolish. Keeping losers afloat, something that government seems inspired to do, is not good for the environment, business or otherwise. Plus, it is not the business of government to deny the private sector its rightful place in affecting the economic landscape. In the private sector a lucrative startup can set investors buzzing, often times increasing its access to hard cash. Conversely, the private sector will—especially in high tech, quickly cull the weak and unpromising, thus freeing up talent and capital for other opportunities. 

    With government funding there is neither buzz nor stench, just a devouring of resources. There is no reason to suspect that government has, no matter how many millions have been “invested,” increased productivity or created jobs through its incubator programs. For the few successes it can be argued that private investors could’ve been found, for the many failures, that they would’ve been better served had they been left out in the cold.

    The way to make this city attractive to corporations and private investors is to offer them a clean, safe place to make money; in other words, exactly the opposite of what this city administration has done.

    • Oracle just had their convention in San Francisco at the Mascone center. 45,000 employees, venders, contractors spending their money at hotels, bar’s, restaurant’s, tourist attraction. Low estimate, city of San Francisco made 10 million that week, easy.

      What was going on at our convention center? Antique show, maybe a lowrider car show? Why are we kidding ourselves that companies like Oracle are going to come here and spend their money, even with a 140 million dollar renovation.

      I remember a couple of years back, our city officials would not Larry Elision fly his private jet into San Jose airport after hours, because it violated curfew. Who’ laughing now!

      Just another debacle by our mayor, city council and city managers, ego’s getting in the way.

  5. Unanimous Support for incubators naturally translates into Unanimous objection to auditing incubators.  Way to go San Jose City Council!  Mayor Reed and Company show once again that “Sunshine and transparency” in local government is a load of hogwash!

  6. So affordable housing has cost the city over $1Billion. And that’s just the upfront,obvious money. All the issues on the back end, police services, fire/ems, etc are eating up big chunks too. Even worse when many of those people are unemployed and don’t pay taxes or worse, on welfare. The waste is staggering. Good job guys. Brilliant idea to flood the city with affordable housing. Thanks for bringing the projects to my home town.

  7. ” Meanwhile, City Council members Sam Liccardo and Nancy Pyle, along with City Manager Debra Figone, are in Dublin, Ireland—San Jose’s sister city”  partying with Tom McEnery

    McEnery is Liccardo’s political mentor and major political supporter of Liccardo’s Mayor campaign and expects to get more city taxes, city property leases, high profit sports / parking deals and city property as political payback from Mayor Liccadro

    Licacardo and Figone wotked together to give McEenery $6 million taxes / loans and selling city property below market prices after meeting with him

  8. Is it really so surprising that liccardo is in bed with both McEnery and Figone.this city is in serious trouble and only getting worse.the severe mismanagement and corruption are killing this city.Continuing to build low-income housing,insuffient jobs,depleted Public Safety,Mayor who lies, city manager out for herself,city council full of puppets,demonized & demoralized City Employees.Cant wait to move out of this god forsaken city………………….like those currently leaving.

  9. PO,

    The Council and Rules Committee attempted cover up of Incubator program stinks

    Your rose colored political view and rewriting of Incubator program history is very different and ignores reality and facts from what most residents, taxpayers and voters see and believe is a more accurate view factual of what happened with $32 million spent on Incubator program

    ” Incubators are located all over the country. They are backed by cities, universities, foundations and venture capitalists. “

    Most of Incubators supporters either wanted tax subsidies or the city government managers and staff wanted more high paid government jobs

    Look at salaries of San Jose economic development jobs compared to other non public safety jobs

    “Cities have been involved in incubators since residents pushed them to do so. As national and international economies ebb and flow, residents ask cities, “What are you going to do about creating high-tech jobs?”

    The residents were former politicians, lobbyists, special interest groups, employees or those would directly or through other benefit from tax subsidies

    “The fact is there was a shared belief by the entire San Jose City Council past and present, up until recently, that this was a worthwhile investment. ”

    Heavily influenced by political contributions and that the Incubators tax subsidies could be used for political payback

    Sah Jose what is supposed to be unbiased professional staff – City Managers, Economic Development Directors and senior staff used economic studies to justify taxes spend on Incubators showing inflated number of jobs and business while ignoring most jobs and business left San Jose or closed so city got very little new tax revenues and jobs

    Any resident questioning numbers was ignored or told they didnot know what they were talking about or more biased inaccurate studies were oppaid for to justify more city tax millions spent

    Meanwhile Council with cooperation of our supposedly unbiased non political professional city government and Rules Committee who was responsible for economic development oversight and $32 million spent:

    a) did nothing,

    b) hide highly critical jobs and spending studies,

    c) did not understand basic cost – benefit analysis

    d) Council chose for political purposes to ignore $32 million wasted taxes because their political friends and campaign donors

    Council dos not want questions asked, political accountability or show public and taxpayers who received taxes spent

    Bottom line is Council and city government wasted $32 million taxes and wants to not have any Incubator program city government responsibility, accountability, openness or transparency

  10. A few question;

    1) how much money was given to this start up?
    2) how much money was the company sold for?
    3) how much money did CEO , CFO walk away with?
    4) disclose how much money was made over the years?
    5) was tax payer money ever returned, with profits?
    6) who was on the board of directors?

    I know these question will never be answered. But maybe civil grand jury can do it, since that the way business is conducted around here.

  11. Why is Mercury News not investigating where $32 million wt and who benefited from Incubator program?

    What happened to Mercury investigative journalism?

    Are they incompetent, don’t investigate their political friends only political enemies or somehow city compromised Mercury politically, financially or help in finding government or other jobs if laid off?    So Mercury can not or will not investigate $32 million city government Incubator program scandal ?

    Any current or past Mercury journalists want to publicly answer questions on SJI?  Anyone ?

    Hey, Metro – This is your shot at really nasty City Hall political and tax scandal You going to step up for public and taxpayers ?

    1) Who financially and politically benefited from Incubator program started during Mayor Susan Hammer’s tenure and expanded during Gonzales and Reeds terms?

    2) What city politicians, managers and administrators – supported spending $32 million taxes on Incubator program during last 10 years budget deficits without proper city oversight, auditing results, then when embarrassing fact that most taxes were wasted, hid critical reports, did not hold public hearings or tell public ?

    3) Which politicians and city government manager are making excuses or now calling for investigations years late to benefit themselves politically?

    4) What politicians and city government managers previously supported, voted to spend millions taxes, who’s responsibility did not adequately oversee spending as incubator program taxes and that city got promised new businesses and jobs that stayed in San Jose that was justification for spending city taxes?

    5) What about a Civil or Criminal Grand Jury investigation ?

    There are many many more questions that city government, San Jose State and those involved in incubator program need to answer in public meetings about where $32 million city taxes went and who benefited.

  12. San Jose BioCenter presents:

    The Science of Beer & Biotech Vendor Showcase

    Wednesday, October 19, 5:00pm-7:00pm, San Jose

    MORE INFO: http://www.sjbiocenter.com/event/ev_2011Q4-The Science of Beer and Biotech Vendor Showcase.html

    Just because you may enjoy it on weekends doesn’t mean there isn’t some serious science behind it. San Jose BioCenter presents The Science of Beer featuring Dr. Charlie Bamforth, Dept Chair, Food Science & Technology, UC Davis and Anheuser-Busch Endowed Professor of Brewing Science. Dr. Bamforth’s talk will ‘tap’ into the art and the science of the brewing process as he highlights the health and nutrition of beer. Charlie will have us all believing that “Beer is proof that God loves us”. All attendees will receive 1 ticket to the Beer Tasting after Dr. Bamforth’s presentation.

    Mingle and network before the presentation with hors d’oeuvres and a Biotech Vendor Showcase before the presentation to find out how you can get more beer tasting tickets & enter in our Raffle! Hush…don’t tell ABC.

  13. P.O. who is steering this ship? This note alone from the San Jose Incubator Assessment Report of 2009 should have prompted questions long ago.  If Agile was being run like this, they would have fired you long ago. Oh but it is okay to run San Jose like this I guess.

    Note: The annual revenue impact of $280,900 differs significantly from the $12 million in sales tax revenues (for a 10 year period) published in the Agency’s 2004 incubator program brochure. Twelve million dollars in sales tax revenue generated over 10 years is highly unlikely.

  14. Less then half of the council was there to vote?  Seems to me that if a majority can not be represented at the time of a vote, then a vote should be nullified.  It’s pretty ridiculous when all it would take for a council member to be there is an active broadband connection and an MSN account.

  15. nice response but Mercy news does not care unless they can attack SJPD and pensions.  MN is in the pocket of Chucky.  They hate the PD and wish they would just go away.

    No one cares about corrupt city government or are afraid to do a real investigation.

    Why does SJL not do the same!  Investigate and not just post items and hold interviewees responsible to reply to questions.

  16. Liccardo took a bold step in bringing his concern to light taking a major hit politically as shown by lack of support from his colleagues.  My perception as a voter is Liccardo has information to warrant an audit and or investigation.  If he sits on it and does nothing I would not feel comfortable voting for him if he seeks another public office.  It certainly a reek of a cover up and appears to be a matter for a grand jury.

    • Sam,
          Why don’t you post what you know.  You or members of your staff monitor this site.  Denial you have seen this blog and post would only add to the less than truthful coat you wear.  Step up to the plate and demand and investigation.  Don’t let the matter die with a deal made behind closed doors.

  17. The answer to #2 (metro) is that the San Jose Metro has exactly zero staff who are qualified to do a bona fide investigative journalism piece on this type of subject matter. It’s mostly ads for marijuana, clubs, and special massage services at this point.

  18. ” Liccardo took a bold step in bringing his concern to light taking a major hit politically as shown by lack of support from his colleagues. “

    No, he took a pramatic political move,  only very politically naive people or his supporters believe he was now 2 year late doing the right thing for taxpayers  

    ” If he sits on it and does nothing I would not feel comfortable voting for him if he seeks another public office. ” 

    He sat on the report for 2 years and should have ask for an investigation but did not until he was politically forced to call for an investigation or he would have to deal with $32 million loss taxes during his Mayor Campaign  

    He knew that the investigation would not go where at Rules Committee has responsibility No Surprise – that he and Constant who is also running for Mayor were both out of town when vote occurred.

    ”  If he sits on it and does nothing I would not feel comfortable voting for him if he seeks another public office. “

    Don’t vote for him for Mayor since Liccardo sat on Rules Committee and did nothing, absolutely nothing – 2 years ago when the report was available. 

    His 2 years late call for an investigation after seeing negative incubator report or hearing it was negative ( I don’t want to look at it, so I can deny I knew about in the future ) when he had a legal responsibility to see city taxes were spent properly was done to give himself political cover with voters when he runs for Mayor  

    ” It certainly a reek of a cover up and appears to be a matter for a grand jury. ”

    Definitely a cover up by Rules committee, while Sam was on it.

    Grand Jury will say Rules Committee should have published the report and then done an investigation 2 years ago

  19. PO we all can see thru your rants, what you mean to say is these companies that were given millions of dollars and support from the city’s elected were very generous to you and you co workers.  The threw gifts and kind words at you and the council because they did not make a product. It’s not like they were making iPods. They needed that money to survive. The city of San Jose or the tax payer was their biggest customer and what did the city or tax payer get Nada. Those funds were have been better spend college loans for students in trade for public service. Unlike you PO these young kids see how the elected are suffering from the Same greed as wall street.  The other night I sat at dinner with a council member who joked that Reed hill view was a Tailban training center because due to all the East Indians who live nearby.  Yes it was a joke meant in jest but the idea that this council person was so arrogant and out of touch was not lost. Your mind suffers from the same arrogance. Your in a position to do something good but you want to hear your name announced when your at an event. You wanted to be invited to the parties and get in for free. You align yourself with the miserable ex cop council member.  It truly is sad to see you fail the public. Yes you have your money but does that make you a man who does decent things?  Your time and way of thinking is coming to an end. Look at wall street. If that comes to San Jose do not expect the cops to hold you hand and protect you. The public servants who work for the city are caeer employees, they hate to see waste.  Many enjoy good jobs and would like to see the rest of the public able to work and obtain a decent living. Unlike you they care about the wasted money and see the abuses. Occupy wall street should be a wake up call you can be part of the change even though your part of the problem but your simple mind will not stop the change that is coming.  PO hope on your jets at city expense now because it will not last the elected official melt down is here. There will be no more incubators or selling of public tax dollars for your fund raisers.

  20. Hopefully Now the residents of San Jose can see for themselves how corrupt this Mayor,City Manager,& City Council truely are.they constantly preach”SUNSHINE REFORM” but continue to work backroom deals,push agendas that even they dont fully understand,continue with building low-income housing but provide NO JOBS,continue dishing out favors to developers and ex-Mayors.These Politicians have made decisions that have put San Jose in the position that it is in.Not to mention what they have done to public safety……..no one in their right mind can or should feel safe or protected.P.D. and F.D. are desperately doing the best with what they have.Nut the city is already talking more layoffs for P.D. and even more Brown outs(station Closures).Of course the City will continue to tell you its because of Pensions.They are to full of themselves to realize that no one is buying their B.S..Hopefully now the residents of San Jose will rise up

  21. An audit is necessary not to indict any organisation or a person or groups of persons, but to take a close look at policy decisions taken at a point of time. An audit can point flaws and even suggest remedial measures.
    I have established 7 incubators in different regions of India. All except one are academic incubators. The sole exception is a city incubator in a PPP mode.
    What you have pointed out about incubators and startups are true. No one can guarantee success.However public money spent on creating facilities must be accounted for. You have also mentioned the sort of revenue that one single company contributed to the city. But we get no idea about the volume of commerce the city generates on its own where such facilitation are not extended. Those figures are important to take a definite call.

    Thanks