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Fitch Ratings Says Passage Of Prop. A Could Cost San Diego Millions

Fitch Ratings agency warns passage of Proposition A – which would outlaw rules requiring municipal projects to hire union workers – could put a big dent in San Diego’s budget.

Aired 6/4/12 on KPBS News.

City could lose tens of millions of dollars in state funding if project-labor agreements are banned, analysis shows.

Hired by the city to analyze the impact of Proposition A, Fitch reports that the city received $194 million in state capital grant funding in the last two years. But if voters pass Proposition A on Tuesday, that funding could go away.

Recent California legislation blocks the state from spending money on local government projects that ban labor agreements for city projects. Fitch says the city could also end up paying higher interest rates, adding greatly to the cost of new sewers, streets, water systems and other public works.

On Tuesday, May 22, the City Council voted on two agenda items, 51 and 52, that allowed the city to borrow money from the State Revolving Fund (SRF) program at a “low 2.01 percent for a 20-year term.” Both items were for public infrastructure projects; one is for wastewater and the other is for replacing old water mains. Combined, the city is seeking to borrow approximately $30 million at this low rate of interest.

According to the mayor’s staff, in a report to the City Council, since 1999, “The City has received approximately $160,000,000 in low interest loans under the SRF Program. Utilizing the SRF 20-year loan program, approved loans of $29 million and $80 million, since July 1, 2007, will result in savings of approximately $78 million when compared to traditional 30-year bond financing.”

"It’s a great deal for San Diego ratepayers and taxpayers, and saves money because lower interest rates allow more projects to be constructed at a lower cost," said former City Councilwoman Donna Frye, who opposes Proposition A.

"But if Prop. A passes, these low-interest loans are just one of many state funds that could be a thing of the past for San Diego because state legislation precludes cities in California that have bans on Project Labor Agreements for public works projects from receiving any state construction funding. This creates a significant financial risk for the public and the city," Frye said.

Opponents of Proposition A note that there never has been a project-labor agreement on a public project in the city and say the proposition is a solution in search of a problem.

Tom Lemon is with the San Diego County Building and Construction Trades Council, which represents unionized construction workers in the region. Lemon said the total potential loss if voters approve Proposition A is not yet known.

“I don’t think anybody has really extrapolated that out. It could be in the hundreds of millions of dollars for San Diegans every year," Lemon said.

According to the Fiscal Impact Analysis for the ballot measure, approved by the mayor and Independent Budget Analyst,

“Major state funding awarded to the city in fiscal years 2010 and 2011 was approximately $36 million and $158 million, respectively.”

This major funding includes Proposition 42 funds, State CIP grants and State Revolving Fund loans. This is the type of funding that is at risk if Proposition A passes, Frye noted.

Lemon said Mayor Jerry Sanders, through lobbyists, was the only mayor in the state who opposed legislation banning state funding for cities that limit labor agreements on projects. Sanders declined comment – through a spokesman - on the Fitch’s assessment of Proposition A.

Chris Cate of the San Diego County Taxpayers Association - which backs passage of Proposition A - said the Fitch Report never commented on whether the state rule was legal. If Proposition A passes, Cate said that legislation will be challenged.

“If it is determined that there is a loss of funds from state law, I think there would be lawsuits," Cate said.

On May 3, the state’s Legislative Counsel Bureau reviewed SB 829, the state rule banning funds to cities that ban PLAs, and provided a legal opinion letter to the governor stating that the bill is constitutional.

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