San Diego Hit With More Budget Problems
Tuesday, March 16, 2010
The city of San Diego faces another budget shortfall of $25 million.
MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. San Diego Mayor Jerry Sanders and members of the city council closed a $179 million budget shortfall at the end of last year, and came up with a 18-month budget that city leaders praised for its foresight. But apparently that foresight did not actually see very far ahead. New drops in hotel and sales tax revenue, and a drop in investments that were supposed to cover city pension obligations have left the city with another budget deficit, this one at least $25 million. KPBS senior metro reporter Alison St John is here with the story, and good morning, Alison.
ALISON ST JOHN (KPBS Senior Metro Reporter): Good morning, Maureen.
CAVANAUGH: So why exactly is the City of San Diego facing this $25 million deficit? Didn’t anyone see this coming?
ST JOHN: Well, it might actually be closer to $30 million and I think, you know, that’s part of why they did this 18-month budget back in December was because they knew that things could get worse so they’d better tackle things as soon up front as they could. I think everyone was hoping perhaps the economy would improve just a little faster, and it hasn’t. And in terms of the pension, it’s not just the investments that went down, it’s also the fact that, if you remember, a bunch of extra people retired last year because of changes to the DROP program and retiree health. And so they got a little bump in extra staff retiring, which bumped up that obligation by another $15 million, so it’s now looking that they’ll have to pay $232 million into the pension fund next year.
CAVANAUGH: So what can the city do now after the budget was trimmed last year to cover this new shortfall?
ST JOHN: So now they’re talking about the possibility of trying to avoid anymore service cuts. I talked to Jay Goldstone, the Chief Operating Officer, yesterday and he did say that he expected there to be more service cuts in next year’s budget. He’s hoping that 2011-12 will be the last year that the city has to keep on tightening its belt painfully and that then things will start looking up. But he hopes that this interim shortfall won’t have to be fixed with more service cuts. As you know, Maureen, we’ve already seen cuts to fire engines, eight fire engines, so-called brownouts where there are fewer fire engines available to respond to fires. That saved $11 million. And we’ve also now got libraries that will be closing that save three or four million dollars. We’ve seen less beach cleanup. There’s just – all the departments have taken a 6% pay cut last year. It’s a matter of trying to keep the ship on the road until – or, ship upright…
ST JOHN: …until the economy improves.
CAVANAUGH: Now this interim shortfall has to be covered by June 30th?
ST JOHN: It’s something that the mayor will address when he comes up with his budget in April, so it’s the mayor who’s going to come up with the proposal for how to fix it. According to Jay, he says he thinks they can probably do it without any more drastic service cuts. He was talking about trying to, I guess, you know, twist the arms of vendors who have contracts with the city because, as he pointed out, all city employees took that 6% pay cut but private contractors doing city services and city work have not. So he’s hoping he can squeeze something out of that. He says maybe they’ll have another look at how they replace city vehicles, although I know that the mayor mentioned that in his last round of cuts as well. So it’s very much a matter of like tightening those screws.
CAVANAUGH: And I know City Attorney Jan Goldsmith has also said that city employees might be responsible for part of the city’s $2.1 billion pension deficit. Now what reasoning does he give for that?
ST JOHN: Yes, well, this is interesting. I mean, city employees do theoretically contribute some to their pension plans but as that deficit – as not so much the overall billions in terms of the overall deficit but the amount that the city has to pay every year, its annual contribution to meet its obligation, goes up and up—it’s up now, as I mentioned, it’s at $230 million; it might go up to, you know, $300 million, which is almost a third of the overall general fund. The city council was considering whether there might be a way to ask the employees to make a larger contribution. And the pension fund board, the Pension Board, argues that it’s not in the city charter to ask the employees to pay more, it’s up to the city, in other words, the taxpayer, to cover the extra costs if the investments fail. And City Attorney Jan Goldsmith argues that it’s not their job to interpret the city charter, it’s his, and he thinks that there is some room to look at asking the employees to share in that burden.
CAVANAUGH: So could we be looking at lawsuits over the pension plan again?
ST JOHN: Well, that’s definitely not out of the question, Maureen. At the city council meeting which it was discussed, you know, everybody was urging the Pension Board to reach an agreement with the city rather than resorting to lawsuits which would just cost more taxpayer money. But there’s no way of telling if that is going to be resolved without a lawsuit.
CAVANAUGH: I’m speaking with KPBS senior metro reporter Alison St John and we’re talking about the San Diego city budget, among other things. And just quickly, to wrap up about cutting services, Alison, I know that library hours are being cut again. Tell us…
ST JOHN: Umm-hmm.
CAVANAUGH: Tell us about that.
ST JOHN: Well, that’s quite a big change. That’s going into effect this Saturday. And if you wanted to go to a branch library on a Monday, you’ll be out of luck. They’re closed on Mondays as of now, and they’ve been closed on Sundays for a while so they’re still closed Sundays except for the central library, which will be open on a Sunday, and also three libraries in La Jolla, Point Loma and Serra Mesa, which will stay open on a Sunday. They’re sort of privately funded, have private contributions. And some of the hours are changing so, you know, library hours are kind of hard to get ahold of already. They’re – sometimes they’re closed at 5:30, sometimes at 8:00 p.m. at night. So you need to go to your branch library and figure out what the new hours are now that Mondays are closing and some of the evening hours are changing.
CAVANAUGH: Now last week the San Diego City Council did approve a new lease revenue bond package. What is that exactly?
ST JOHN: Well, this is an interesting way of borrowing money, Maureen, and of course ever since the city got its credit rating back, it’s been looking at the most efficient ways of borrowing. Lease revenue bonds are a way of using your property as kind of collateral to borrow money, whereby you lease those buildings to an agency that purchases the bonds and then the agency leases it back to the city. So essentially you’re using your private – your property, the public property, that is, to leverage as collateral to borrow money, which means you can get a loan for a slightly less expensive interest rate.
ST JOHN: And the other big advantage to those is you do not have to go to a public vote, that’s the advantage to the city, the city anyway.
CAVANAUGH: So how much…
ST JOHN: A public…
CAVANAUGH: So how much – excuse me, but how much money are we talking about?
ST JOHN: $185 million, so it was three sets of loans that were kind of rolled into this new big lease revenue bond, which pushes the payments back 30 years and, therefore, saves the city about $16 million in the short run but costs the city, according to Carl DeMaio, about $6 million more because it’s extended the payments over a longer period of time, 30 years.
CAVANAUGH: What does the city plan to do with that money?
ST JOHN: Well, this is the interesting thing, Maureen, is that, you know, the budget we’re seeing squeezing city services but because of this big new lease revenue bond issue they’ve now got the money to start doing some of the capital improvement work that really has been postponed for years. And I spoke to a city engineer the other day who was saying this is the biggest investments in things like sidewalks and storm drains that he’s seen in his career at the city. So for people who are fed up with crumbling sidewalks and holes in the streets and, you know, roofs that leak at their library or police station, this is now a source of money for the city to start fixing all of that. You know, making capital improvements, improving access to the disabled. It’s really a very positive move in terms of seeing the city start to get to grips with its deferred maintenance, even although it’s at the cost of this larger, long term loan.
CAVANAUGH: And I wonder, Alison, is there any way for us to know, getting back to the idea of deficits for the city, if that $25 million is going to grow? Are there going to be any more shortfalls we discover between here and June?
ST JOHN: Well, I’m sure that’s a question that everybody’s asking at the back of their minds. You can never guarantee. Things may get worse. They’re literally fine-tuning things month by month down at the city, so it could change again. They’re trying to get ahead of it and every step they take it seems like it keeps getting worse than they thought.
CAVANAUGH: Well, let’s change gears just a little bit and go to the San Diego County Board of Supervisors. At their meeting next week, I know that they’re going to be discussing the possibility of cutting a $10 million annual discretionary fund, perhaps cutting it in half. First, Alison, remind us what this discretionary fund is.
ST JOHN: Okay, so this so-called neighborhood reinvestment program is $2 million for each supervisor; we have five county supervisors and they each have $2 million which they can spend at their own discretion. It does not go through the normal budget process. It’s literally up to each supervisor to look and see what their individual desires are to support in the community and spend $2 million each. So that’s been in place for a long time and, of course, it’s a very small amount of money in relation to the overall county budget, which is $5 billion, although only about $1 billion of it is at their discretion. Most of it’s kind of tied up in state mandated programs. But $10 million in this day and age is a significant amount of money.
CAVANAUGH: Now, why – Yes. Tell me how this money is typically spent. You say it’s a neighborhood discretionary fund but it’s not just used on neighborhoods.
ST JOHN: Well, basically, each supervisor spends it in a different way. Bill Horn, up in the north county, Boys and Girls Clubs, a lot of Fallbrook nonprofits. Ron Roberts, I believe he spent it on, for example, golf lessons for disturbed youth. And we’ve got Pam Slater-Price who spent hers mostly on the arts and on the opera and, of course, recently we’ve heard the news that she has been also receiving free tickets from the opera without declaring them, which I think is probably the political revelation that has prompted this new initiative on the part of two of the supervisors, Dianne Jacob and Greg Cox, to suggest to their colleagues maybe it’s time we reconsider this because it has been known – called, commonly called a slush fund and the political environment is getting increasingly negative about this.
CAVANAUGH: That was going to be my next question to you, Alison, why are they considering this now? But that can’t be the only reason.
ST JOHN: Well, it is a time of very tight budgets and to be having, you know, political leaders out there doling $2 million at their own discretion possibly in return for support, certainly it has the appearance of the supervisors using this money to shore up their incumbency, buying their incumbency. It’s not really the political or economic environment for political leaders to be sort of distributing the largesse to whoever they feel like it without going through the normal channels. I know the Taxpayers Association has felt very strongly that this is something that that money should be returned to the process whereby the full board decides where all the money goes.
CAVANAUGH: Now, Alison, we had each of the members of the board of supervisors as guests on These Days last year and every one of them defended this discretionary fund as something that was really crucial to their constituents. How – So if they decide to cut it in half, how big a decision would this be for the supervisors?
ST JOHN: It would be a very small decision economically speaking. As I mentioned, it’s, in the bigger picture of the economics, it’s not, you know, a huge amount of money. But I think it would be a very significant decision politically. You know, these are supervisors who have been incumbents for some – in some cases, you know, anyway, oh, more than 14, 15 years, coming on for 20 years. And to this whole idea that it’s almost impossible to unseat them is bolstered by the fact that they each have this so-called slush fund to distribute, to help, you know, reward those who support them. The slush fund, of course, is not the only reason that they’re incumbents, there are many reasons that they are still there, but this is one of the issues that seems to be emerging with the elections coming up and it’s becoming an increasingly unpopular issue among the public, and I think the supervisors want to avoid the appearance of graft of any kind.
CAVANAUGH: Alison, thank you so much.
ST JOHN: My pleasure, Maureen.
CAVANAUGH: I’ve been speaking with KPBS senior metro reporter Alison St John. And if you’d like to comment on anything you heard in this segment, go online, KPBS.org/thesedays. Coming up, the rise and fall of one of San Diego’s most famous attorneys, Bill Lerach. That’s next as These Days continues here on KPBS.