Good evening. Welcome everyone.

Matt, thank you for the warm introduction and welcome to San Jose.

Jennifer and Jenny thanks for showcasing the great work of our honorees.

Congratulations to all of our honorees this evening: the community volunteers and city employees who were just recognized. Thank you for everything you do to make San José a great place to live, work and raise a family. Let’s give them another round of applause.

Pastor Tony, thanks for your inspirational leadership with the Mayor’s Gang Prevention Task Force

Congratulations to our Intel Science Talent Search students on your achievements

To all of the elected officials who have joined us: thank you for your service in these tough times. Please stand and be recognized

I also want to recognize my wife, Paula, and my sister, Sandy, who are with us tonight. Paula: thank you for your love and support, and for your work helping patients and their families fight cancer

I’d also like to thank the San Jose High School Mariachi Band and the San Jose Danzantes for their performances, which remind us of our heritage and the small group of Mexicans who founded San Jose 235 years ago.

Our political ancestors, Los Pobladores, came to California filled with hope and seeking opportunity, but they often faced famine and natural disaster. According to Clyde Arbuckle’s History of San Jose:

"Dams broke, crops washed away, and adobe houses melted into their component soils. All the elements of Nature seemed to conspire against them."

Yet, Los Pobladores persevered. They believed in the California Dream and overcame big challenges. And we can too.

Over the past ten years, San Jose has faced enormous fiscal challenges. But through hard work,creativity and innovation, we have made major progress. That’s why 2012 will be a year of Hope, Optimism, and Recovery

We’re not out of the woods yet, and the trail ahead is steep. But we can see the end of this difficult journey – a future in which we are fiscally strong and can afford to open all of our libraries full time, repair our streets, end the fire company brownouts, and investigate and solve crimes better than any big city in the country

Bold words, I know. But seemingly impossible problems can be solved – and I draw hope and inspiration from the leaders in our community who are working to solve some of our most pressing issues. As Rev. Martin Luther King Jr. said:

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”

I want to recognize some of San Jose’s leaders who have faced serious problems head-on and are making significant progress in our time of challenges and controversy.

Five years ago, when Supervisor Don Gage and I convened the Blue Ribbon Commission on Ending Chronic Homelessness, it seemed like a hopeless cause. But our emcees, Jennifer Loving and Jenny Niklaus, and Leslye Corsiglia, Chris Block and others convinced us that it could be done

Now our Destination Home initiative has shown that by first giving people the hope and stability that comes with a home, they can then gain control over the root causes of their chronic homelessness. Working with Supervisor Mike Wasserman and our other partners at the County and in the community, we will end chronic homelessness in San Jose, and save money in the process. Our collaborative efforts have already helped provide long term homes to 950 formerly homeless people

Two years ago, County Superintendent of Schools, Chuck Weis and I launched the SJ2020 initiative with a goal of eliminating the achievement gap in San Jose public schools. Forty percent of our children were not performing at their grade level, including 60% of our Latino and 60% of our African American children. No big city in the country has solved this intractable problem, but we can’t let that stop us

Our community has made a collective commitment to raise student achievement, and today, we have successful models in both charter schools and traditional public schools that are proving that all of our children can succeed. For example, Kipp Hartwood Academy has reduced the gap to 4% in 8th grade algebra, and the James McEntee Academy reduced their 3rd grade reading gap to 3%

Addressing these challenges in our schools will help us get to the root of other problems as well

For years, we’ve seen Latinos disproportionately represented in our criminal justice, juvenile justice and child welfare systems. With so many different causes and factors involved, this problem has long been considered impossible to solve.

Yet, through the leadership of La Raza Roundtable, we now have a broad collaborative effort that cuts across different agencies and levels of government to address the various pieces of the problem. Thank you Sal and Serena Alvarez, and Victor Garza.

This is the type of collaboration that has made the Mayor’s Gang Prevention Task Force a national model. Despite the loss of redevelopment agency funding and budget cuts, our community based prevention, intervention and suppression approach continues to make inroads against gang violence.

I want to offer special thanks to those who generously supported this past year’s Safe Summer Initiative, including our District Attorney, Jeff Rosen, who garnered asset forfeiture funds, and Elaine Curran from the Shortino Family Foundation. Your investments helped us to provide safe alternatives for youth throughout San Jose in the critical summer months.

These programs were even more important, because as you all know, we had a jump in gangrelated homicides in the first half of 2011. But due to dedicated suppression efforts by our San Jose Police Department, things turned around during the rest of year.

Even though homicides were up for 2011, our homicide rate was far lower than most big cities. And thanks to the men and women of the San Jose Police Department and our many community partners in the Mayors Gang Prevention Task Force, the year ended with gang-related violence down from the year befor

The measurable progress we’re making on reducing crime, gang violence, and homelessness, and eliminating the achievement gap, is one of the reasons I’m filled with hope and optimism for 2012. But we’ll never solve these problems without a stable economy and good jobs for our residents.

Keeping jobs here in Silicon Valley has been a monumental task – and it’s exacerbated by the fact that many other states and countries offer major financial support to help companies relocate and expand

Despite these challenges, we are having a modest recovery. While we haven’t fully recovered from the Great Recession, I’m pleased to report that the San Jose Metropolitan Area tied for the highest rate of job growth of all U.S. metro areas in 2011, and we now have 25,000 more jobs than a year ago.

When it comes to job creation, our commitment to “work at the speed of business” has been a great success. Our special tenant improvement and industrial tools programs helped more than 60 companies locate or expand here in 2011 --- making investments that create jobs and generate tax revenues.

Through our Green Vision, we have supported the development of new technologies that have created nearly 7,000 clean tech jobs in San Jose. We’ve seen significant growth in the renewable energy and energy conservation sectors, and we are now home to more than 100 clean tech companies

In addition, the City Council recently took an important step towards capturing job growth in the coming year by cutting taxes, cutting fees, cutting red tape and adding staff to process permits faster

Sadly, the State of California has taken away the most effective tool available to help local governments create jobs, eliminate blight and build affordable housing. Our Redevelopment Agency was the best in the state, and I want to thank all the dedicated people who worked at the Agency to help improve our economy and strengthen our neighborhoods

While redevelopment agencies are gone, the need is still here. We need to speed up the pace of economic recovery, put unemployed Californians back to work, and generate more tax revenues for the state and local governments.

In the coming months, I will be joining the Mayors of California’s ten largest cities and the League of California Cities to help the Legislature and the Governor devise new economic development tools for local government

At the same time, we need to step up our city’s own economic development efforts and use the resources we have more efficiently and more effectively. I challenge staff in every city department to figure out how to get to “yes” quickly so we can help our driving industry companies stay here and grow here. This is one of the reasons our Redevelopment Agency became the best, and we need to continue in that spirit

Another important job creation engine is our state of the art airport, which is efficient, convenient, comfortable, and has one of the best on-time records in the country. Due to a regional effort to restore flights lost during the Great Recession, I am proud to say that Alaska Airlines and Southwest Airlines have added multiple new flights; and within the next year, Japan’s largest airline, All Nippon Airways, will start non-stop service to Tokyo

I’d like to thank Alaska, Southwest and ANA for their investments, the Silicon Valley Leadership Group and San Jose Silicon Valley Chamber of Commerce for their outstanding support, and my City Council colleagues for making some difficult decisions to control costs at the airport that made it possible to start growing again

We are also working with many regional partners to bring a U.S. Patent and Trademark Office to San Jose. Of course we should have a patent office. San Jose is the number one patent filing city in the country, the Capital of Silicon Valley, the innovation center of the world

One of the reasons that Silicon Valley is the world leader in tech innovation is our unique ecosystem of collaborating entities, including public, private, and non-profit organization

Earlier you heard from Matt Mahood from the San Jose Silicon Valley Chamber of Commerce, San Jose’s oldest jobs advocacy organization with 1500 member businesses.

I also want to acknowledge Carl Guardino from the Silicon Valley Leadership Group, whose 345 member companies provide nearly one-third of the private sector jobs in Silicon Valley; Russ Hancock from Joint Venture Silicon Valley, which provides a platform for collaborative regional thinking; and Pat Sausedo from NAIOP Silicon Valley, an organization that fosters collaboration in the commercial real estate industry.

Matt, Carl, Russ, Pat: thank you for working with the City of San Jose, and please thank your members for their collaboration and their leadership. We are grateful for their investments in San Jose and the jobs they provide our people. And if any of them are thinking of expanding or relocating, tell them to call me. The number is 408-535-4800.

Expanding our local economy will be critical to improving our budget, and when it comes to our budget, making difficult decisions certainly was the theme of 2011. But by facing the painful reality of our fiscal situation, our City Council has put San Jose on the road to Hope, Optimism, and Recovery.

Back in May, the City Council approved a Fiscal Reform Plan with two big goals:

- One: Ensure the solvency of the retirement plans by reducing the city’s annual cost for retirement benefits to last year’s level.

- And Two: Restore services to January 2011 levels, and open the city’s vacant libraries, community centers, fire stations and police substation.

Thanks to a Council majority willing to implement the Fiscal Reform Plan, we can now begin discussing how to rebuild services for our residents and taxpayers.

In my first State of the City Address, five years ago, I said:

“The Budget Deficit is Public Enemy Number One, an enemy that will steal our hopes and kill our dreams of becoming a great city if we ignore it.”

The reality of that statement has been painful. We’ve been forced to eliminate jobs, close libraries and community centers, lay off police officers and fire fighters, and watch our streets and infrastructure deteriorate. As pension and healthcare costs skyrocketed, we drained money out of services and poured it into retirement benefits.

Ten years ago, San Jose spent $73 million on retirement benefits. This year, we spent $245 million on retirement benefits. These are not projections or assumptions. They are actual dollars spent. Retirement benefits now cost the city more than 50 percent of base payroll and consume over 20 percent of our general fund budget. Every dollar the City pays for retirement costs is a dollar we can’t spend on services for our residents.

Writing ever-larger checks for retirement benefits has had a dramatic impact on our work force. We’ve cut more than 2000 positions over the last 10 years in order to balance our budgets. Every city job eliminated reduces the services we can deliver to our residents.

Here’s what happened in the police department. Despite increasing the budget by nearly a hundred million dollars over the past ten years, we now have fewer officers than we had a decade ago. And retirement cost increases were the single largest cause of those cuts.

While the numbers are staggering, our Fiscal Reform Plan has provided a road map for reversing these devastating trends. The steps we have already taken, combined with the steps we will take before the end of June, will allow us to reduce the cost of retirement benefits, halt the decline in jobs and begin to restore services at long last.

Although necessary, few of the fiscal reforms have been easy. All city employees, including the City Council and our senior management, have taken at least a 10 percent cut in total compensation. While painful, those reductions were crucial to saving jobs and services, and they helped slow the rate of growth in our retirement costs.

We also saved millions of dollars by contracting out services and reorganizing departments. We recently learned from an IBM operational efficiency analysis, that there are many other opportunities for us to save money. We will review the analysis over the next few months looking for ways to restore services by becoming more efficient in the delivery of services.

We need to keep our minds open so we can learn from what the data tells us. That’s an old Silicon Valley practice. One thing the data does tell us is that, as we generate savings from our fiscal reforms, we do not have to rebuild our organization exactly as it was before

While we’ve made significant progress with our Fiscal Reform Plan, much work remains to be done before we are out of the woods.

- We must implement a lower cost medical plan that will reduce healthcare costs for both the city and employees.

- We must end sick leave cash-outs, which cost the city $9 million a year.

- And the voters must approve a ballot measure in June to reduce pension costs.

The pension reform ballot measure will reduce city costs and allow us to restore services by requiring our current employees to pay a larger share of the cost of their retirement benefits, a step that has already been taken by over 200 California cities and is an element of Governor Brown’s pension reform proposal.

New employees would pay half of the cost of their retirement benefits in a new lower-cost plan. Over 100 California cities have already adopted lower cost plans for new employees, and the Governor is proposing a similar approach.

Current employees would also have the option to choose a lower cost plan and avoid paying higher costs.

The ballot measure also would reform disability retirement rules to prevent abuses, eliminate bonus payments to retirees, and require voter approval for any future retirement benefit increases.

All together, the ballot measure will save the taxpayers hundreds of millions of dollars over the next 10 years, and much more after that as the percentage of employees in the new plan grows. Once we have our costs under control and are efficiently delivering services, we can consider asking the taxpayers for more money to improve services. But fiscal reforms must come first.

I know that fiscal reforms have been difficult for our employees who have made financial sacrifices, delivered services with fewer resources, and devised new ways of serving our residents. I especially want to thank our employees for maintaining a professional attitude despite pay cuts and organizational changes.

Implementing our fiscal reforms has also required strong leadership from our City’s management. First and foremost, I want to recognize and thank our City Manager, Debra Figone, who has been a true professional - calm and steady at the helm, despite the storms we’ve faced. That’s also been the case with our senior staff and department heads.

I want to acknowledge and thank Alex Gurza and the staff of the Office of Employee Relations, who have one of the hardest jobs in the city. They were given an enormous task to conduct multiple negotiations with multiple unions on multiple difficult issues, all at the same time. They have done their work well and with great professionalism.

And I would like to thank the leaders of our employee unions who have remained engaged and stayed at the table for many hours, days and months of difficult discussions. I appreciate your hard work, and I still hope that we will be able to reach an agreement on fiscal reforms

The path has been long and hard, but we now know that our Fiscal Reform Plan is the road to recovery. Much work remains to be done, because as was said by the man who inspired me to public service, President John F. Kennedy:

“Things do not happen. Things are made to happen.”

It is our collective responsibility, our duty, to make things happen to eliminate problems so they do not burden future generations.

Together, we can make a future in which we are fiscally strong and can open all of our libraries full time and repair our streets

Together, we can make a future in which we end the fire company brownouts and investigate and solve crimes better than any big city in the country

Together, we will restore and improve the services that you care about most.

I look forward to discussing these issues with you over the next few months, but talk will only become reality if we implement our Fiscal Reform Plan

With your support, we can and we will make that happen

And when we do, 2012 will be a great year of Hope, Optimism and Recovery; the year in which we overcome our greatest challenges; the year in which we finally turn the corner on a decade of budget deficits and service cuts; and the year that we put San Jose back on the path to becoming a great city