San Diego finance officials say the city will have to pull $10.1 million from its reserves to cover all its expenses for the fiscal year that ends June 30.
The need to use reserves means the city will start the next fiscal year, which begins July 1, even worse off than expected. A shortfall of more than $300 million has prompted Mayor Todd Gloria to propose a host of cost cutting measures, including reducing recreation center hours, closing all city libraries on Sundays and Mondays and cuts to the city's animal control contract.
The shortfall in the current fiscal year came from lower than expected sales tax revenues and franchise fees, which are paid to the city by utility companies like SDG&E for use of the public right-of-way. The police and fire departments have also been exceeding their overtime budgets.
The city currently has $207.1 million in its general fund reserve, which is broken into two funds — $107.6 million in an "emergency reserve" and $99.5 million in a "stability reserve." The funds will be drawn from the stability reserve, which the city's reserve policy states is to "mitigate financial and service delivery risk due to unexpected revenue shortfalls or unanticipated critical expenditures."
San Diego's reserves are in much better condition compared to the last time they were used at the start of the Great Recession. The reserve fund had $71.5 million in 2009. Even still, the city has not yet met its goal of holding enough reserves to cover two months of expenses.
"I very much hesitate to utilize the reserves," said City Councilmember Vivian Moreno at the council's meeting on May 19. "We didn't even do this during the pandemic, which was a sudden and unpredicted event. And that was before the CARES Act funding was available. So I really want to avoid doing that if possible."
The council is scheduled to vote on authorizing the use of the reserves on June 10 — the same day it will vote on the budget for the coming fiscal year. The City Charter requires San Diego to balance its budget every fiscal year.
Mayor Todd Gloria told the council the budget would be in worse condition if he hadn't taken cost saving measures such as a hiring freeze for nonessential staff and the elimination of a handful of executive-level positions.
But Gloria's comments got pushback from Michael Zucchet, general manager of the Municipal Employees Association, the largest union of city workers. Zucchet told the council that despite the hiring freeze, the city had still hired several middle manager positions outside of public safety departments.
Councilmember Sean Elo-Rivera also suggested city officials had dragged their feet on pursuing new revenue, such as charging visitors for parking at Mission Bay Park. That action would require approval from the California Coastal Commission.
"If it is a multi-year process to get that engine going, then why aren't we getting that engine going?" Elo-Rivera said. "I have a really hard time hearing things like 'We've done all we can,' because we didn't even get the car started to get to where we need to go — to generate the revenue we want (in order) to run this city in the way we want to run it, and the way our residents want to run it."
