Julie on Civic Center - Can my son afford a BMW with his salary?

From: Julie Chu

Date: Tue, Nov 17, 2015 at 5:40 PM
Subject: Civic Center - Affordability Analysis
To: citycouncil@cupertino.org, citymanager@cupertino.org

Dear City Council:

My friend told me that Cupertino is going to spend 70 million dollars to build a new city hall. I thought. Nice. Cupertino must be rich.

Then, I found that you will borrow 60 million dollars and put the city in debt.

I looked at your report and I don't think you have enough information to decide the "affordability" of such a large sum.

If my son wanted to buy a BMW that's going to cost one year of his income, I would ask him the following questions:

1. How much is your income now and for the past 5 years?
2. How much is your income for the next 5 years?
3. What would you do in case you lose your job and lost income or have to find a lower-paid job?
4. How much are your fixed expenses each month? Like rental for apartment, food and clothes, electricity, internet, other necessary expenses to sustain his life standards, like taking a vacation.
5. How much is your disposable income every month?
6. Any future necessary expenses during the loan period, like getting engaged, taking a trip to Europe, buying a house, starting a family.
7. What's the percentage of loan payment in comparison to the amount of disposable income?

Then, he can decide whether he can afford that BMW. Or, maybe he wants to save the money to go to Europe or buy an engagement ring.

Here is the missing information that you should consider before deciding whether Cupertino can afford to spend 70 million dollars to build a brand new city hall.

1. How much is the current revenue of Cupertino? How much is the revenue for the past 10 years?
2. How much is the revenue for the next 10 years?
3. What's the contingency plan? In case of another recession and a big one, when the revenue is significantly reduced, what do you plan to do?
4. How much are the expenses each year? Like staffing and retirement fund, police, fire, and other civic services, expenses for infrastructure, like bike path enhancement or crossing guards.
5. How much is our disposable income each year for the past 5-10 years? How much surplus?
6. Any potential future big expenditure? For the next 10 or 20 years, are there no more projects in sight? If there is any, you should make a plan and decide whether you could still afford the other future projects while paying a debt for the 70 million dollars. Maybe expanding the senior center or provide a community shuttle bus?
7. What's the percentage of loan payment in comparison to the amount of disposable income? (Not the percentage loan payment in relation to the total revenue.)

Then, you can decide whether Cupertino can afford that shiny new City Hall. Or, maybe Cupertino should save the money for something else more important in the future that actually enhance the lives around the city.

My son said: "I have money now."

I said: "Even if you can pay for that BMW with all cash, you should look at your future expenses and think whether that money is better saved for something you might need even more later."

There you have it.

I hope you do a better job managing the city than my son in managing his finance.

Regards,

Julie Chu