San Diego's structural deficit is eradicated - but critics are concerned with long-term fallout
February 27, 2012 1:11 p.m.
Vlad Kogan, UC San Diego Dept of Political Science, co-author "Paradise Plundered"
CAVANAUGH: This week, San Diego mayor Jerry Sanders is expected to submit a mid-year budget to the City Council that projects a surplus. Last week, mayor Sanders announced he accomplished one of the primary goals of his administration: An end to the city's deficit. But has the city really turned a corner financially? Joining me to talk about the mayor's announcement is my guest, Vlad Kogan. Welcome to the show.
KOGAN: Thanks for having me.
CAVANAUGH: We contacted the mayor's office repeated he to ask if mayor Sanders would join us today, his office told us he couldn't make it. So the mayor's mid-year budget report reportedly projects a surplus of $16.5 million. Do we know where that is coming from?
KOGAN: I think the mayor's announcement made it very clear that I think the bulk of the new revenue, the bulk of the improvements, and the major reason why the city is doing better is really that the economy is starting to recover. There's more people traveling to San Diego, so tax revenues from Holtzes are up, and revenues from sales taxes are up. That's 1 of the primary reasons. There's been other -- city employment answer made concessions over the past couple of years, so that has kept salary growth down, and other things like mechanized compensation, which brings in private bidders to bid on city services.
CAVANAUGH: How does the mayor plan to use this surplus?
KOGAN: To use some of the money to partially restore the cuts wee seen in the city in the last decade. So library branches will be back up to about 40 hours per week, recreation center hours. And the mayor uses the rest of the money to set aside in a reserve in case something happens and the city needs it.
CAVANAUGH: And 15 new police cadets I think too, and the fire alert system is going to be upgraded as well. But the thing that's been on my mind, even though we have a surplus projected, does that mean our chronic deficit is over?
KOGAN: That's a good question, and to put things in perspective, it's important to really have some of the backstory, and understand how we got here. For decades in the City of San Diego, we've essentially had a disconnect between the money we bring in through taxes and the services we provided. The city is providing more services than the moan it's had. So we found ways around that. We would underfund our pension bill. Over the last decade, when the pension scandal became a hot topic, that was no longer possible of the so we found go other gimmicky ways of doing essentially the same thing, using 1-time revenue, sell off city property, find accounts that were set aside for specific purposes and transfer it to the regular budget to pay for services. So that's what we're talking about, the amount of money coming in, is less than the amount of money we're spending. So for the first time this year, the city is going to be spending less than the revenue that it has. But that certainly doesn't mean that quality of life in the city is going to improve dramatically or that the state of the city as a whole is going to be a lot better. There's steal substantial underfunding in other ways, infrastructure, streets. Under the current budget, the assistant district attorney is going to spend significantly less than it needs to to keep them from getting worse. So instead of underfunding pensions now, wee underfunding maintenance of our structure.
CAVANAUGH: Have there been actual structural changes in the way the city commutes its budget in the amount of money it takes in, and the amount of money it's spending to say that the actual structure of our building has changed to where we're not going to get into that kind of chronic deficit again?
KOGAN: Yes and no. There certainly have been a lot of changes at the structural level. So the city was reorganized to prevent fraud. But we haven't sat down with the city and said, for a long time our tax structure was disconnected from our service structure. So we need to sit down and figure out what our priorities are and what we need to cut. We haven't balanced the damage in a systematic way. And one of the ways this mayor has opinioned the building is through attrition. In membership ways, there's a lot of benefits to that, we've avoided unnecessary layoffs. But one of the coves is instead of making strategic cuts to services that are the lowest priority, we've seen amount of cuts through a wider range of services, that are going to affect the quality of life in San Diego, the quality of services. We talked to one of the former top finance officials in the city, and his take was today, the city is still doing the things it did 20 years ago, but it's doing them all not very well. There's not enough support to run these promise effectively and provide the management and oversight we need. So I think we have balanced the budget without having to make tough decisions, and that means we evaporate prioritized the things we want to prioritize.
CAVANAUGH: What about the city worker pension deficits? Isn't that part of the city's structural deficit?
KOGAN: Well, it's certainly a problem, so to give you scope, 15 years ago, the city was spending 15% of its everyday budget. Today, we're spending between a fifth and a quarter of our entire budget on pensions. Because we have this massive unfunded liability built up over decades, we have to spend it. The budget pie hasn't grown very quickly, so it's a zero sum game. The less money is left over for police officers or firefighters. So we spent more and more on pensions and cut back on everything else.
CAVANAUGH: Recently a city staff report outlined nearly $900 million in infrastructure repairs needed in the City of San Diego. Where does that fit in our budget surplus in the way we're saying we don't want have a structural deficit anymore?
KOGAN: For a long tim, the assistant district attorney of San Diego, and this is nothing new, one of the politically easiest ways to balance approximate the billion is underfund structure. In the short term, that saves a lot of money. In the long term, it creates new costs because a lot of the more serious prepares that have to be made are going to cost more. And certainly, we're still spends far less than we need to to manipulate feign the streets -- maintain the streets and the fire stations. The current backlog I think is close to $1 billion. But going forward, we're in the getting better. We're getting worse. Over the next five years, the amount we're going to spend to make sure the facilities don't get any worse is -- there's a disconnect. We're spending about $100 million less just to keep this backlog from growing. We're balancing the budget, but at the cost of systematically underfunding maintenance ever very basic infrastructure in the city.
CAVANAUGH: Is there anything that you see in this balanced budget in this new way of getting -- calculating revenues, and the cuts to city service that guarantees that next year's budget won't be in deficit in
KOGAN: I think it's hard to make that guarantee, because at the end of the day, the city is at the whim of the economy. The economy is doing poorly, if there is it a double rip recession, it's going to mean that there is going to be much les revenue and a deficit that will have to be close to cuts. There are certainly things we as a city can do to plan for those contingencies, we need to sit down and say how much as a city do we want to pay, and what kind of services do we want? And if those two don't match up, we have to say, are we going to pay more or accept fewer services, and what are the specific 7s we're willing to give up? And for a long time, the city has not been willing to have that conversation. For an elected official, it's difficult to have that conversation because it's difficult to get elected on a platform of cutting services. But it's a conversation that we need to have.
CAVANAUGH: There's the idea that San Diegans have not been able to ascertain how much their lifestyle has been shrinking and going down because of years and years of deficits and cuts.
KOGAN: You mentioned the IBA, a year or two, she put together this fantastic chart that looks at service levels in the city, and compares levels from 2001 to 2010. And what we see is a lot of gradual incremental cuts. Once you add them up over the course of a decade, the cuts are substantial. The average recreation center was open about 60 hours a week, it's down about 25%. And this is not just true for recreation centers or library, it's true for a wide variety of services. The mayor has proposed restoring some of them, but the hard reality is that for a long time, the city has had services that it couldn't afford, that our tax structure couldn't support. And I think it's unrealistic to expect that service levels will ever recover to levels that we saw prior to 2001, again short of changing the tact structure that we as a city have.
CAVANAUGH: This amount about the deficit, about a surplus, does this help or hurt in our view, the next mayor of San Diego?
KOGAN: I think it creates unrealistic expectations. The voters in the city, it's easy for them to say the problems are fixed, the changes we need to make we've already made, and there's no more difficult decision to be made. It's just not true. We haven't come to terms with what we can afford, and going forward, that's going to be problematic. As pension payments rise, and salaries rise, there's going to be more pressure on the budget. And the voters are gone going to say, mayor Sanders said to me the problems are continue, why ever we facing another deficit? And that's a lot of criticisms of the city, and having this sort of exchange where we raise expectations to levels that we know are not realistic, it's going to make criticisms even more frequent, regardless of how accurate they are. And not having the difficult but necessary conversation is going to make it more difficult for voters in the future to trust the city, and realize that when the mayor says there are budget cuts that are going to happen, there's going to be serious implications, and there's a lot of truth to those statements.
CAVANAUGH: Thank you so much. ?
KOGAN: Thanks for having me.