Monday, February 2, 2009
Most people try to save money for a rainy day, and a healthy savings account is a blessing in a time like this. Local governments, like people, vary in how well prepared they are for this economic downturn. KPBS reporter Alison St John surveyed all 18 cities in San Diego County to find out how much money in the bank they have to tide them over.
If you’ve managed to squirrel away enough money in savings to live on for several months, you are in a better position to weather this downturn than someone who’s living from pay check to pay check. In the same way, some cities in San Diego have comfortable reserves or rainy day funds, and others have reserves that make them pretty vulnerable right now.
The city of San Diego is one. Mary Lewis is Finance Director.
Lewis: When Mayor Sanders took office, they were at 3%, which is below any recommended guidelines.
Lewis says the GFOA ( Government Finance Officers' Associations) recommends cities of any size should save a minimum of 5% to 15% of their General Fund revenues. That’s 5% to 15 % of the fund that runs daily operations at the city… police, fire, libraries and so on.
The city of San Diego, which gained national notoriety with its massive pension deficit, is gradually digging itself out of the hole.
Lewis : And so now those reserves are getting built back up.
Lewis says the city’s goal is to get its reserves up to 8% by 2012. So far they’ve managed to set aside $72 million. That sounds like a lot, but it’s actually only just over 6% of the General Fund.
Map: City Reserves Around San Diego County
Larger icons indicate larger cities. Darker icons indicate that the city has more reserves.
The city of San Diego is not the only kid on the block whose savings are hovering on the edge of what experts say is the bare minimum. Chula Vista, the second biggest city in the county, has reserves of under 7%.
And Gary Ameling, Director of Administrative Services for La Mesa, says his city has already had to draw down its reserve funds recently.
Ameling: It’s sometimes difficult to tell if you’re in a rainy day. That’s what the reserves are for. Everybody knows that once you use them, once they’re gone, they’re gone.
Ameling says La Mesa is nowhere near its target of 15% reserves … The city's reserve fund has sunk to just over 5%, and that’s only because of a land sale that added some profit to the reserve pot. Otherwise it would have been lower.
One reason cities are at risk when their reserves drop below 5% is because that makes credit rating agencies sit up and take notice.
Chris Hoene is with the National League of Cities. He says, just like people, cities lose big time if their credit rating slips, because then they get slapped with high interest rates on the bond market.
Hoene: That bond rating piece is like your credit card, right? If your credit rating goes down and your credit card interest rate goes up, you didn’t really help yourself by not paying the bill that month, because you affected your longer term costs.
Cities with reserves hovering around 10% are OK for now, but if they have to draw on those reserves in the near future to help with cash flow, that cushion might not feel so comfortable.
Vista, Escondido and Del Mar are in that situation.
On the other hand, there are cities that have been planning ahead and built up much healthier reserves. Cities like Encinitas. Jennifer Smith, the Finance Director, says her city council had premonitions well before the financial world breathed a word in public of its problems.
Smith : About this time last year, the Council directed staff to develop a recession scenario for this year’s budget, based on some of the early economic indicators that we were seeing.
Smith says Encinitas now has 3 reserve funds that add up to nearly 30% of their annual operating expenses.
Poway has managed to sock away more than 50% of its General Fund, partly because they’ve discovered how useful it is to have reserves when catastrophe strikes - like wildfires for example. The city suffered during the fires in both 2003 and 2007 and drew on their reserves to help with recovery.
San Marcos is looking way ahead. The city has saved so much it could operate for almost a year even without any revenue coming in. They don’t plan on spending those reserves any time soon. Staff have calculated they’ll need it in a couple of years when projections show revenues won’t match expenses.
Even the cities with the lowest median household income in the region, National City and El Cajon, have worked hard to keep money in the bank
Finance Director Mike Shelton says El Cajon is used to facing budget crunches.
Shelton: Actually our fiscal crisis, if you will, we’ve been experiencing this for multiple years now.
But Shelton says his city has made sacrifices to keep their operational reserves above 20% thorugh thick and thin.
Just like families with different styles of managing their money, San Diego’s cities are going into this recession with more or less money the bank. This could affect whether they can keep services up and running in the months ahead, and how cheaply they can borrow money when they really need it.
Alison St John, KPBS news.