July 22, 2004

City’s Office of Economic Development works with Fortune 500 companies to boost business climate
Economic development strategy paves the way for city’s financial future

By Sheila Sanchez
Staff Writer

Editor’s Note: The following is the second article in an ongoing series about the city’s departments and its appointed officials. Next week: San Jose City Manager Del D. Borgsdorf’s office.

More than two years ago, slammed by the state’s worst economic downturn, Paul Krutko set out on a mission to develop a strategy for a financially devastated San Jose that would set the city on the road to recovery.

The newly hired director of the city’s Office of Economic Development knew that the days of the valley’s Internet boom were over and that millions of research and development office space was vacant after once-prosperous companies went under. The gloomy outlook was exacerbated by the loss of more than 200,000 jobs and unemployment, which had fallen below 2 percent during good times, had risen to an alarming 9 percent.

The 40-something Krutko, with other city officials, immediately began thinking of ways to revamp the economy by focusing on the city’s positives as a global gateway, a creative community, its entrepreneurial environment, being tech-savvy and recognized as most livable big city.

Krutko knew that San Jose was the 11th largest city in the country and the largest city in Silicon Valley and was considered the most successful technology region in the world with the largest concentration of technology expertise, with more than 7,300 technology companies employing more than 300,000 people.

He also knew the region had exceptional rates of productivity, innovation and entrepreneurship with a highly educated workforce, top universities and experienced venture capitalists.

But he also knew that the valley, among the highest-cost places to do business, was facing aggressive competition from other global technology hubs and that San Jose was no longer the only concentration of technical talent in the world.

Krutko and other city officials viewed the economic slowdown as an ideal time to develop the strategy to guide city policies, projects and investments for the next three to five years saying it would help the city and its partners set priorities in a proactive manner.

In November of 2003, the San Jose City Council approved Krutko’s economic development strategy, a 100-page document that outlined more than a dozen initiatives today helping the city make a slow but steady economic comeback.

During a recent interview from his modest office on the fourth floor of the opulent 60 South Market Street Building in downtown San Jose, Krutko said he’s confident the document and the city’s hard workers will ensure a strong economic future.

“San Jose is an exciting place to work because of the types of companies and businesses that I interact with. We’re talking about the leading companies in the world. I’m happy to be here when we could work with the council to develop a strategy on how to continue to solidify San Jose’s position in the world economy in which we are a very significant player,” he said.

Krutko’s economic plan came about after more than 300 business leaders, residents and experts participated in 14 focus groups involving more than 200 people, interviews with senior executives from 50 companies and 30 interviews with economic-development partners and city leaders. The document was also possible thanks to the hard work of Kim Walesh, assistant director of the OED.

“We need to make the rest of the world aware of our potential,” he said. “They know what Silicon Valley is, but they don’t necessarily know what San Jose is. We need to do a good job at making sure we’re positioning the city relative to the rest of the world economy.”

In the area of job growth, the report found that from 2000 to 2020, the city will have 140,000 additional jobs. The report also noted that the most fundamental source of sustained revenue growth for the city is a strong, competitive economy that is generating jobs, rising incomes and fostering private-sector investment.

The report also highlighted the need to improve the Norman Y. Mineta San Jose International Airport making it a world-class facility with nonstop air service to international business centers and domestic markets as it found that it does not meet current or future needs of companies. The city is in the process of improving the airport transforming its terminals, roadways, garages and airfield to meet the increased demand, which is estimated to cost the city about $3 billion by the year 2012.

The city in partnership with Cisco Systems, the federal Small Business Administration and West Valley Community College has developed extensive capacity to train, coach and support small-business development through the city’s Entrepreneur Center. The OED oversees three loan-financing programs and a one-stop center for businesses through its $15 million Silicon Valley Workforce Investment Network, but awareness of these resources appears to be low and not accessible to Spanish or Vietnamese businesses, the report found.

Krutko explained the OED’s principal responsibility is to execute the city’s economic development strategy recognizing that during the past 10 years, 75 percent of San Jose’s job growth came from new and young companies that didn’t exist 10 years ago. Since the end of 2000, the valley has lost nearly one-fifth of its peak employment base and during the recession, the city has had the highest unemployment rate in the nation among metropolitan areas. “We’re beginning to bottom out,” said an optimistic Krutko. “Companies are beginning to hire and that’s a good sign.

“But it’s very important to work with small companies to help them grow for the future of the city,” Krutko added, stressing the importance of providing small employers of start-up companies what the city calls “incubators,” or office space while they grow and find a permanent location. The city has a software incubator, an international business incubator, an environmental technology incubator and a bioscience incubator located in the Edenvale Technology Park in South San Jose.

“We help them facilitate their projects and their needs through the rest of the city’s bureaucracy,” Krutko said. “We’re essentially a helping hand to businesses of all scales.”

An example of a homegrown company is eBay. Started locally in 1995 in someone’s bedroom, it grew into one of the city’s incubators as a powerful platform for the sale of millions of items through auction or fixed-price formats and is now one of the leading Internet commerce companies in the world.

The OED was instrumental in helping eBay expand locally maintaining operations on Hamilton Avenue and facilitating the purchase of property in North San Jose of approximately 511,000 square feet of office space. The city will assign to eBay rights to purchase an adjacent parcel of approximately 15 acres of land from Novell, Inc., and its development rights. The entire package gives eBay the potential to develop up to 2.1 million square feet of office and research and development space. To put the acquisition in perspective, Krutko said eBay’s ambitious expansion and building project would mean the construction of about six 350,000-square-foot Sobrato Towers, the new high-rise office building by well-known land developer John Sobrato on Almaden Avenue next to the San Jose McEnery Convention Center.

Across the street from eBay, the BEA Systems software company, the fourth largest in the world, wants to also expand and grow by 2.8 million square feet, or eight Sobrato Towers.

The OED’s mission becomes even more complicated in light of high cost of living in the valley. That’s offset, Krutko believes, by the quality of the valley and what he calls a “very high return on location,” meaning valley employees produce three times more for their companies than any employee anywhere else in the country. “It may be more costly for a company to be here, but their employees are more productive because of their skills.”

According to the report the city has an employee value of $184,000, more than double the national average of $82,000. The value is derived from subtracting the costs of a company’s materials, inputs, and contracted services from revenue earned from its products.

Another big project for the OED is the expansion of Hitachi Global Storage Technologies, founded in 2003 and formed as a result of the strategic combination of Hitachi and IBM’s storage technology businesses. The company and the city announced in May plans to relocate its headquarters and research functions to a modern corporate campus in the city’s Evergreen District, while retaining its development, manufacturing and support operations at the company’s Cottle Road campus in San Jose. The project will require the rezoning of the 332-acre Cottle Road property to create a mixed-use transit village with employment, retail, and housing opportunities near major transit hubs. Hitachi GST, one of the world’s leading suppliers of hard disk drives, plans to invest more than $250 million in the new headquarters and research campus and develop portions of the Cottle Road site during the next 10 years. The company recorded $4.2 billion in revenue last year and has approximately 2,800 employees in the city and some 24,000 worldwide.

On the small side, the OED has helped several businesses in downtown San Jose address their needs such as parking challenges, to name a few, working with banks to provide their parking lots for shoppers like those who patronize Willow Glen’s business district on Lincoln Avenue.

In Almaden, with the assistance of Vice Mayor Pat Dando, the OED helped organize the new Almaden Valley Business Association in partnership with the Silicon Valley Chamber of Commerce. The association has about 30 members who meet regularly.

The OED also manages a Web site, www.sjeconomy.com, where it regularly posts unemployment, property valuation, rents, and other information for the public in general, but also for real estate developers and private sector companies.

A father of five children, Krutko is married and loves to bicycle. He obtained a bachelor’s degree in urban planning and design from the University of Cincinnati’s School of Architecture in 1979. He has also done some master’s work in public administration from Cleveland State University. He has a total of 25 years in economic development experience.

Before coming to San Jose, Krutko worked in economic development for the cities of Cleveland, Ohio, where he spearheaded downtown development projects; and for the city of Jacksonville, Fla., where he served as director of downtown development and manager of large-scale projects.

The OED operates under San Jose City Manager Del D. Borgsdorf’s office.

The office is staffed by a small number of employees with a $2.5 million operating budget. The OED works collaboratively with other city departments, including the city’s department of transportation and planning building and code enforcement.

About 45 additional employees work on the workforce initiative. The office also has a staff economist who does economic research to assist Mayor Ron Gonzales and the city council in making policy.

For more information about San Jose’s Office of Economic Development, visit www.sjeconomy.com or call (408) 277-5880, or e-mail Krutko directly at paul.krutko@ci.sj.ca.us.