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S.D. City Budget Gap Increases By $19 Million

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Video published January 22, 2010 | Download MP4 | View transcript

Above: Why is the City of San Diego now facing a $19 million budget gap a week after the mayor praised the council for passing a balanced budget in December? We speak to Scott Lewis, from, about what is causing the projected deficit to grow.

GLORIA PENNER (Host): Bad news for the City of San Diego, another $19 million owed to the city pension system. This after the City Council voted to close a $179 million budget deficit by accepting the mayor’s proposed cuts. The only ‘no’ vote belonged to councilman Carl DeMaio. So, we asked him why he didn’t vote for the mayor’s budget.

CARL DeMAIO (San Diego City Councilman): Well, the city budget was never balanced in the first place, that's why I voted against it in December. It relies on $100 million in one-time monies, accounting shifts, and loans. It did not book $60 million worth in the cost of retiree health care benefits. So that's $160 million of debt right there that was being run in this year's budget. On top of that the city just got a pension payment from the city's pension system.

The mayor's office was off by $20 million on the pension payment, and that's going to require that the city come back and find out where we're going to find those monies. This is a budget that really is not good for San Diego taxpayers.

PENNER: With me to look into the city’s latest financial problems is Scott Lewis, CEO of So Scott, how will that higher payment be funded now that we know that the city is down to the bare bones; that they’ve moved their one-time pots of money and they’ve shifted accounting type things?

SCOTT LEWIS ( I’d bet you they find another little bit of change in the couch somehow. They’ve always found some way to get through it. The question is, look, the city is fundamentally set up not to take in as much money as it is fundamentally set-up to spend. And until that’s corrected then these shortfalls are going to continue to appear. The question is, when is there going to be a plan to change that dynamic? And that still hasn’t come out at all.

PENNER: But how is that $19 million missed? I mean the mayor has analysts. The council has analysts. Somebody from the pension board came up with it.

LEWIS: Well they do a study every year. They didn’t know exactly how the study would come out, and I think it’s interesting that it came out about three days after the mayor gave his State of the City. But the fact is that they have to analyze where we’re at, how much they think we’re going to owe retirees into the future, how much we think we’re going to owe and how much we’re going to put in it and how the investments actually perform. And after they pull that together they look and say, look, you need to give us $200, $230 million. We used to put $50 million into the pension system. This increase means that we have to come up with that without a comparable increase in revenue. And that’s why the city’s services continue to deteriorate. They decided to enhance benefits for city employees, but they never decided to increase funds at the same time.


LEWIS: The city’s leaders in 2002, 1996. All these times they decided to make benefits better. And that’s fine if you want to do that, but you better come with some funds at the same time.

PENNER: Well there was a lot of self-congratulating going on when the 18-month budget was passed. We’ve done it; we’ve closed the gap. Now, will there be finger pointing instead of patting each other on the back?

LEWIS: They’re not very good at criticizing themselves. Look, they're going to have to fix this somehow and that means tough decisions. And they decided to make half of that deficit go away with – like Carl said – gimmicks and one-time funds. Now that’s fine for surviving, but if you're going to just tread water you’ve got to offer at least a plan of how you're going to get to shore. And they have not done that. They’ve rejected bankruptcy as a plan. That’s fine. What's your alternative?

PENNER: Well the alternative of course would be to cut more city workers. You know it would take another 200 to cover $20 million.

LEWIS: Well, and the city then, as a community, has to decide what the level of bottom service is that they care about. At what point do you say, look, this city has deteriorated far enough and I'm willing to either raise taxes or throw these people out and get people who will actually inspire us to make comprehensive decisions about where we should go?

PENNER: Well, we did ask Carl DeMaio what might prevent more unexpected budget shortfalls in the future.

DeMAIO: Well, what's going to prevent this situation from happening in the future is really fixing our city's pension system for real. No more smoke and mirrors. No more proclaiming prematurely that pension benefits have been reformed, we are out of the woods. This pension system is not financially sustainable. We are now at 42 percent of city payroll for the pension payment alone, for SDCERS. But when you include all retirement benefits for city workers, we are at 69 percent or $370 million a year. That's more than we spend at the police department. It's actually more than double what we spend at the fire department. Every year, $370 million dollars, or 69 percent of payroll goes to satisfy the cost of retirement benefits for city employees. Those expenditures are not sustainable, and until we deal with that problem the city will never regain its financial health.

PENNER: So, Carl DeMaio says that those expenditures are not sustainable. How can the city sustain that huge chunk of its payroll for retirement benefits and pensions?

LEWIS: I don't know. And for the last several years since 2004 we’ve doubled, now tripled our pension payment. And yet we’re in the exact same position that we were when they kicked Mayor Dick Murphy out in 2004, 2005.

PENNER: Ok, we’re not going to be one of those who just criticizes without offering suggestions.

LEWIS: Right.

PENNER: What would it take to reign in those costs?

LEWIS: The city, in my opinion, needs to do a comprehensive thing. It needs to both offer a system of cuts and efficiencies and then offer a system of new revenues. The fact is that both are more attractive when they’re paired with each other. They're more attractive to employees if you say, look, we’re going to cut as much as we can but in exchange we’re also going to try to raise money – because all of that has to happen in order for this system to change that dynamic where we’re fundamentally set-up to take in less money than we’re fundamentally set up to spend.

PENNER: But new city employees do sign up for lower pension benefits now.

LEWIS: Right.

PENNER: Not all of them. Apparently not fire, not police, not elected officials. So does that give us hope for the future?

LEWIS: Sure, but that’s a very small population of the city’s workforce. And it is set in motion to help us into the future, but the fact is that there's thousands and thousands of employees who have been promised something that we don’t have the assets to pay for. Either we get those assets or some dynamic otherwise needs to change, and it hasn’t changed.

PENNER: But it’s not reasonable to say go get those assets. What are we going to do? Tax the people of San Diego all those millions? I mean, who is going to vote for that?

LEWIS: This is the problem. They decided to enhance those benefits without offering funds in exchange. And so they put that in motion and we have to deal with that now. The only other option is to explore and consider bankruptcy, and see if we cannot somehow get out of those contracts. But that’s a discussion the mayor and the city attorney simply don’t want to have. If they don’t, then it’s up to them. They are not only obligated, but its their civic responsibility to provide an alternative plan.

PENNER: Ok. So this is the basic question: What is the essential reason that prevents San Diego to go from reducing excessive costs in any sector?

LEWIS: Well, most of these are vested. Now, Carl has his own opinion of what could be gotten rid of, but the fact is that the courts will uphold them. And so the question is what can you do around the edges, what other things can you cut? Maybe you decide cities, for example, simply should not be in the parks or libraries business. But those are the kind of major decision you have to make. And if not, then you have to inspire people to change that and to bring more revenue in. The fact is that these leaders here are not interested in inspiring us to make those big decisions.

PENNER: Ok. Very quickly, Scott, what hope do you have that this is going to change in the next year, two years?

LEWIS: I guess you can hope that things get so bad that the population finally stands up and actually appoints a leader that really rallies us to make bug decisions because right now we don't have one.

PENNER: Appoints meaning votes for –

LEWIS: Right.

PENNER: – a mayor?

LEWIS: A city councilman, a mayor, anything. It can be any person that can really lead them to a position where, look, we’ll take cuts, we’ll take service cuts, we’ll take tax increases, but it’s got to happen altogether.

PENNER: Thank you very much, Scott Lewis.

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