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City Using Bonds To Pay For Road Repairs

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Video published March 19, 2010 | Download MP4 | View transcript

Above: The City of San Diego is facing another $25-35 million deficit. So, why did the city council approve a plan to sell $185 million in bonds to pay for street repairs?

GLORIA PENNER (Host): And now we turn to some unfinished business in the City of San Diego. I’m talking about the budget; which supposedly was all nicely balanced until June 2011. And then another hole showed up which needs to be plugged. With me to explain this latest budget deficit is KPBS Senior Metro Reporter, Alison St John. So why is the city facing another $25 to 35 million deficit? I mean, did anyone see it coming?

ALISON ST. JOHN (KPBS Senior Metro Reporter): Well, put it this way, I don’t think anyone is tremendously surprised, they did try to close that hole back in the beginning of the year. It was $179 million, they did their best. And now sales tax receipts are down again, hotel tax receipts are down again, and guess what? The pension deficit is up.

PENNER: The forecast had to include the fact that the economy is still slow, and that people aren’t buying things and that people aren’t coming to San Diego as they used to. Why wasn’t that part of the projection?

ST. JOHN: I think they’re constantly projecting ahead and trying to be a little positive, as much as they can be, sort of pushing the envelope. But, at the same time when the economy doesn’t pick up as much as they hoped, there you go, you have another hole. And in the case of the pension deficit, the point being that last year there was a bunch of people who retired. You remember, because the changes to the benefits they retired in a bunch, so that they didn’t lose some of the benefits under the changing rules. So, because more people retired the pension deficit actually went up a little more than they expected.

PENNER: I see. So, what can the city do now about trimming the budget after what they did last year, but now there’s a new shortfall?

ST. JOHN: Well, Jay Goldstone, the Chief Operating Officer, is talking about trying to tweak contracts. He said, Look all of city staff took a 6 percent pay cut last year, that didn’t affect the contracts that the city has. Well, you know I said, “How could I do that, when you’ve signed on the dotted line?” But he said that their might be some wiggle room. I guess when employment is low, people want the jobs. Maybe he can negotiate with some of their private contractors. And he also mentions trying to avoid service cuts until the next budget round, (Because he knows there will be more coming down the line) by tweaking things such as when they replace their city vehicles, things like that.

PENNER: Well I remember when the mayor first campaigned and then became Mayor.

He was going to go through all these efficiencies, reengineer the city departments and make them really tight and efficient. Has that happened?

ST. JOHN: Well, the city has been trying to reengineer its departments ever since I’ve been covering it, which has been years. So they continue to tighten, to tweak, to put more pressure on, cut vacant positions. The thing that hasn’t really made much progress is the whole idea of outsourcing, manages competition which has made not as much headway which I think the mayor would have liked.

PENNER: Meanwhile, last week the city approved a new borrowing deal to get money for street repairs, road repairs, roofs on public buildings. And they issued lease revenue bonds. How does that work? Give us a really brief course in how that works.

ST. JOHN: Well it’s an interesting form of borrowing money because it doesn’t require a public vote. And that I think is why the city council is in favor of it. What it does is use public property in a way as collateral, so that you can borrow at a better rate, then if you were just borrowing straight from the bank. And there’s a complicated system where by an authority leases from the city, and then leases those buildings back to the city. So it’s a little bit like taking out a loan on your own home that you had already paid off, in order to have some money to do some repairs.

PENNER: There was a debate on whether the City would save money by stretching out this loan to 30 years. What was the decision and how would that work?

ST. JOHN: It is a matter of pushing up the payments up ahead. Some people are saying well, we shouldn’t be having people paying in 30 years for fixes we’re doing now that might not even last 30 years. Council Member Carl Demaio is particularly in that camp. Then you get Jay Goldstone who says well it’s fair enough, people in 30 years will be using these things that we’re fixing now. So the fact is that we are now on roads that were built by our predecessors and we’re not, well we may be paying for them in terms of debt. So it’s just pushing that debt ahead further and further into the future.

PENNER: There’s another aspect of this that has surfaced and that is that the Qualcomm Stadium would be taken of the list of those properties put up as collateral, and the question is whether this would have an impact on the money that the Chargers still owe to the city on Qualcomm Stadium?

ST. JOHN: The city council members did ask that, and they were assured that it would not actually affect the deal with the chargers. However, the fact that the stadium is no longer encumbered by being part of the collateral of these revenue bonds, there are other properties or land in mission bay that is now covering the loan for the stadium. It’s now free of those encumbrances, doesn’t suggest that they’re leaving it free for who knows what in the future.

PENNER: Just quickly, how important is it for the debt to be cleared up in order for another stadium to be built for the Chargers?

ST. JOHN: The Chargers have an obligation to help pay off the debt. That debt has to be paid off one way or another, what ever happens, wherever the stadium gets built.

PENNER: Alright, thank you so much Alison St. John

ST. JOHN: My pleasure.

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