San Diego Could Lose $41 Million Next Year Through Redevelopment, Pension Costs
December 21, 2012 2:12 p.m.
Jay Goldstone: San Diego Chief Operating Officer
Jeff Graham: President Civic San Diego
ST. JOHN: A couple major developments that will affect how much the City of San Diego can spend on basic services and new developments, which includes things like affordable housing and tada, a new chargers stadium! Not long after Jerry Sanders said we would have a surplus, are the incoming mayor, Bob Filner gets hit with a double whammy. How serious are these regulations? Here we have Jay Goldstone, San Diego's chief financial officer.
GOLDSTONE: Thank you.
ST. JOHN: And Jeff Graham, the center that replaced the central redevelopment corporation, and it was the one that was wiped off the map when we eliminated redevelopment agencies. Thank you for joining us.
GRAHAM: Hello, Alison.
ST. JOHN: Jay, Jerry Sanders painted a rosier budget picture than usual. He projected a surplus of $4.9 million for the next fiscal year. We all knew that the new pension system would cost the city more upfront. Wasn't that built into his budget already?
GOLDSTONE: That was built into some of the reports and disclosure, but it was not calculated into the $4.9 million. At the time the $4.9 million was discussed, there were three areas of uncertainty that were also being discussed, two of them related to the pension payment, and one to this whole redevelopment issue.
ST. JOHN: So the pension board has just made a decision to define the amount that the city will be owing. What will does that mean for the budget?
GOLDSTONE: They haven't come up with an exact calculation yet, but they have determined that they will implement the impacts of Proposition B on the city's pension payment for next year. That calculation could result in approximately a $27 million increase to our next year's pension payment.
ST. JOHN: So does this mean that residents are going to have to brace for more cuts yet again next year?
GOLDSTONE: I think it's too early to know that at this point. There are many things that were put into motion in anticipation of some of these issues. We've set money aside above and beyond the city's normal reserves in anticipation of the redevelopment payment that we may have to make. And the city's reserve levels have blossomed with some level of recovery in the economy. We're currently sitting at about 14%.
ST. JOHN: Talk about the redevelopment decision.
GOLDSTONE: There were several decisions that are being made, and I think Jeff will be prepared to talk about some of them. But the one that specifically impact business the general fund is a decision that was made by the City Council several years ago to use some redevelopment dollars from the downtown project area to fund the debt service for Petco Park, and subsequent to that a portion of the debt service for part of the Convention Center expansion. The total is about $14 million. The decision that came down from Sacramento is that they're not going to allow those reimbursements. So that's a $14 million impact to the general budget.
ST. JOHN: From your perspective, do you think this is something that will be absorbed without too much trouble?
GOLDSTONE: In the early years, absolutely.
ST. JOHN: But this'll be every year, right?
GOLDSTONE: Every year until the bonds are paid off.
ST. JOHN: A $14 million hit every year?
GOLDSTONE: That is correct. That's $14 million that won't go into additional services. But I don't think citizens will see immediate service cuts, and I believe there are means of closing the 2014-fiscal year budget gap alcohol begin July 1st of this coming year without service impacts.
ST. JOHN: Well, Filner has apparently said that we should be lowering our expectations about perhaps reinstating some of those library hours that were cut, reinstating some of the money for the police communication systems. Do we need to give up all those hopes?
GOLDSTONE: I think there's going to be a slowdown in terms of restoring and expanding services. What I'm talking about is not having to cut further from at least existing levels. And I'm not saying existing levels are satisfactory. But at least I don't see proposals of the brownouts or library hours being further reduced.
ST. JOHN: Partly because of this healthy reserve fund.
GOLDSTONE: That is correct.
ST. JOHN: It sounds like a big improvement from what it used to be, that reserve fund.
ST. JOHN: Jeff, I wanted to brick you in here and say the local redevelopment agencies that were eliminated by the state last spring in order to defer that money to schools. Now the State Department of finance this week has approved less than half of the money that San Diego requested to pay for redevelopment projects that were already in the pipeline. What did the city argue that it should be able to keep and how much less arure actually finding you're going to be able to work with?
GRAHAM: Well, a couple of the larger dollar amounts that the department of finance rejected were the loan agreements between the city and the agency that jay just referred to. The ones that we're more concerned about that they continue to object to and have denied are a couple of affordable housing projects that involve private third party developers that have enforceable obligation agreements that were executed before the legislation was passed. And in one particular case, it's our new permanent homeless center downtown and the historic world trade center building. That's a $34 million renovation of that building, and it's nearly complete. Wee a couple of weeks away from the construction being complete and occupied. And at this point in time, they're trying to deny an amendment that we made to the agreement that merely acknowledged that construction costs had risen during the construction period due to unforeseen structural issues with the building and that the developer that we partnered with went out and found other funding sources to cover the cost increase. And they're denying that.
ST. JOHN: Is that one of the ones that you're trying to fight then?
GRAHAM: We definitely will! This is something that is very important to the city, it's going to house 223 of our most vulnerable homeless individuals who are living on our streets every night. We've spent a lot of time invested in this project. And they absolutely have no legal grounds to deny a private developer from pursuing other funding sources to cover a cost gap.
ST. JOHN: But that was just one among many, many projects that were on this wish list. I know that there was one they said, okay, you can go ahead with it, and that's the north embarcadero plan that we've seen so much about.
ST. JOHN: With the jack Randa trees. But Chargers stadium, that must be one of the biggest items! Where is that now?
GRAHAM: Well, there was no Chargers stadium cost to develop a Chargers stadium on our project list. There was a cooperation agreement entered into between the city and the agency before the legislation got adopted that merely allowed if are the city to complete all of the projects in all of the redevelopment project areas through the end of their redevelopment plans. In the downtown redevelopment area, we have an east village, the old NCS bus yards that have been there for many, many years. And it's been our downtown community plan that was adopted in 2006 that someday before the end of the project year's life, we would like to see the bus yards relocated to some new site outside of downtown, the soil cleaned up, and new private development, whatever it might be, placed on that site.
ST. JOHN: So that site now is in limbo.
GRAHAM: It continues to be the bus yards. But we had I believe $16 million in our future budget many years out to acquire the site from NCS and clean up the soil. And that was the only cost that the redevelopment agency was proposing to use.
ST. JOHN: So you're thinking where are we going to get sources of funding to make up for these major redevelopment projects.
GOLDSTONE: That's going to be a decision that -- I'll have to have a discussion with the mayor and ultimately the City Council. As Jeff indicated, the city's going to move forward and challenge through the legal courts that decision. There are a number of other projects, smaller capital improvement projects, pocket parks, other infrastructure improvements that would will have been done by the redevelopment agency that may now fall on the city. They're not mandatory or obligations but the city is trying to move forward and improve its infrastructure, and we've now lost a major source of funding of the
ST. JOHN: I know we've talked a lot about how we need to build up downtown. The population is growing, more people are going to be living downtown, we have to develop it so it can absorb this population. Where do you think you're going to be looking for alternative funding now for that, including things like parks, but also buildings?
GRAHAM: To be honest with you, the loss of tax increment is a huge loss to this state. I've spent the last 6-9 months looking to see what other states and other cities have been using to fund their infrastructure in their urban areas. And while there are many small funding sources out there, there are grants, new market tax credits, which we've applied for and hope to win next year. You add them all up, and they don't come anywhere close to the amount of money that we were able to raise through property tax increment. And these were property taxpayers who live in these area, and it was just keeping a portion of their property taxes that they pay every year local to reinvest in the neighborhood that they own property in.
ST. JOHN: And 20% of that went to affordable housing. So how concerned are you about affordable housing as a result of this decision?
GRAHAM: Extremely concerned. Affordable housing is an important economic driver for our region. And if businesses don't think that their employees will be able to find housing that's reasonably priced to live in in our region, then they're going to seriously consider whether this is a place to locate their company or to continue to locate an existing company. So we're hoping that next year will be a year that our legislature will come up with a permanent funding source for affordable housing that would be a statewide solution. It may not again meet the amount that we were receiving under property tax increment. But aside from that, we can use a little bit of our new tax credit money for affordable housing, but most of it has to go to employment generating uses, and wee going to be turning over every stone that we can to keep it going. I might mention also that with the dissolution of redevelopment, we do get to keep our affordable housing properties that we bought. So once we go through this rather convoluted process with the department of finance, we will still get to keep some processes, land that was bought for affordable housing purposes. It's now a matter of cobbling together the funding sources to build it.
ST. JOHN: You've got this decision, and then the pension obligations. When do you see a time that the citizens of San Diego won't see a major deficit staring them in the face at the beginning of the year?
GOLDSTONE: Well, I thought we were there. And obviously we're not. Our current projections updated with this new information suggests that we may see deficits for the next few years, and it may not be until fiscal year 2017 that we may be long-term projections. Obviously a lot. It is going to be dependent upon the economy, how quickly it does turn around, and is it sustainable, do we hit a fiscal cliff and go into another mini or deep recision? Those are uncertainties. But we are seeing improvements in tourism and sales tax. People are spending. The lag is in the property values right now. And that growth may at least help us overcome some of these other hurdles.
ST. JOHN: When you think about San Diego in relation to other cities around the state and the nation, where do we fall in terms of how serious our budget problems are?
GOLDSTONE: I think we are far better than most major cities. Both on the pension front -- you look at a city like Chicago, and their pension plan is about 37-40% funded.
ST. JOHN: And ours is?
GOLDSTONE: Ours is almost 68-69%.
ST. JOHN: And it's supposed to be 70% or so.
GOLDSTONE: Or 80% would be a nice target. Look at the city of Los Angeles, San Francisco, and the kinds of deficits that they're dealing with, right now we're looking at a projected $37 million deficit for next fiscal year. That's about 3% of our budget. So the dollars are big, percentage-wise, I think it's definitely manageable.
ST. JOHN: Okay. And we will probably be seeing a new person taking your position sometime in the coming year. We'll just have to follow this. It's not going to be an easy job to follow. Thank you so much for joining us.
GOLDSTONE: Thank you very much.
ST. JOHN: And Jeff, appreciate you being on the phone with us, thanks.
GRAHAM: Thank you, Alison.