San Diego’s Budget Projections Have Coronavirus Written All Over Them

Speaker 1: 00:00 The city of San Diego is projecting an $86 million budget deficit. Next year. It's early days in the budget process, but here to give us a glimpse into how the economic impact of COVID-19 could hit the city is David Garrick, who covers city hall for the San Diego union Tribune. Thanks for reading the city budgets and, and breaking them down for us. Speaker 2: 00:21 Thanks for having me. I'm glad to talk about it. Speaker 1: 00:23 How much trouble is the city of San Diego in and why? Speaker 2: 00:27 I think the city does the city does an outlook like this every year. And it always kind of looks a little grim because they don't know how things are going to look, but obviously the pandemic has had a huge impact. San Diego is heavily reliant on tourism for tax revenue that comes from that both hotel tax and sales tax. And that has plummeted during the pandemic because people aren't traveling to San Diego from around the world and around the country. Speaker 1: 00:51 Now different cities rely on different kinds of taxes. What does the city of San Diego rely on most for its revenue, property taxes, sales tax, tourist tax, business tax? Speaker 2: 01:00 Uh, I think San Diego is still realized quite heavily on property taxes. Also these dudes, the key is though other cities have almost no hotel tax take a city like San te or Poway. You don't have a lot of hotels and a lot of tourism. Whereas in San Diego, in addition to property tax, they have a huge chunk of money that comes from hotel taxes. And then that also generates more sales tax because the folks who go come stay in a hotel, go out to dinner every night, they're here and they're out shopping and doing things. So it increases both of those revenue streams beyond what they would normally be because of the tourists. Speaker 1: 01:32 So we've heard $86 million for next year. Uh, is this like a one-year stress on the budget or, or could the loss of revenue last longer? Speaker 2: 01:42 Yeah, they're looking at 86 million and the fiscal year that starts next July and then 75 million in the year after that. And then about 59 million in the year after that. So it looks like this could be sort of San Diego's first budget crisis since the great recession that began in 2008, where we have, you know, brownouts of fire engines and slashing of library hours. I don't want to say for sure those things are gonna happen, but those things are going to sort of be on the table when the council starts begging it's budget deliberations next spring. And when mayor elect Todd Gloria presents his first budget as the city's new mayor, Speaker 1: 02:14 Could money coming down from the federal government under a new Biden administration, make a difference. Speaker 2: 02:19 Sure. I mean like the people who created this, which is basically the city's financial staff, there's a whole lot of unknowns. Um, you know, one thing is there could be more federal relief. San Diego got 146 million of direct federal relief last spring, uh, as part of the pandemic. And there's definitely a possibility, there'll be another package question is how big it will be and whether it will include relief for cities and States, which has been a key sort of issue in, in Washington DC about whether it should include that and how much it should include that could really help the city. Uh, on the other hand, it could be far worse. The, the, that look that I'm writing about that I wrote about does not include any pay raises for employees over the next five years. Uh, it does include any critical, critical strategic expenditures is money spent for new fire stations and recreation centers and parks. The city just assumes they're not going to be building those parks and opening those fire stations as they had initially planned before the pandemic. So it could be worse. It could be better. Speaker 1: 03:12 So finance officers are warning that libraries and parks could be affected. They might be sort of shutting down on the weekends, that kind of thing, Speaker 2: 03:19 Right? Shorter hours is generally the way it goes. When, when cities are facing a budget deficit or projected budget deficits, they typically avoid cutting things like sewer and water and fire and police. And they typically cut things like libraries and parks and recreation, even though those are important things they're deemed sort of less essential than the other things. Speaker 1: 03:37 Now, if the vaccine becomes widely available next summer, couldn't that change the budget outlook. I mean, people, people say that tourism, for example, should come roaring back. Have they taken that into account with this projection? Speaker 2: 03:49 Unfortunately, this already includes, so I think what someone called an optimistic perception, this assumes that a vaccine will be widely available in late spring and that San Diego's convention tourism and that stuff will return to normal starting in may or June around that time. Uh, so if the vaccine doesn't work out as predicted that these numbers will actually get worse, Speaker 1: 04:11 How will that affect the average San Diego on a daily basis? Speaker 2: 04:16 Uh, that's a great question. Um, I think if you use your library a lot, if you lose your local park a lot, or your local recreation center a lot, you're probably have less access to them. I don't know if it'll get as deep where you're, maybe your fire station will have an engine across town instead of one that's right in your neighborhood. I don't know if it'll get there, but those are the sorts of things that spring to mind immediately. Uh, and in a less impactful way, the city as a climate action plan to reduce greenhouse gases, they're trying to put in place money for that will be more scarce. So they may move more slowly on that that'll affect people, but maybe not in a direct, tangible way. Speaker 1: 04:51 Right. That's disappointing for people who've been fighting for that though. Isn't it? And then the, the pension deficit is something that always gets talked about, well, let's make it even bigger than it is already. Speaker 2: 05:02 Yeah. That's one unfortunate thing about these recessions. If you remember back from 2008, is that unfortunately the pension system uses investments to cover some of the obligations that has to retire workers. And so when the stock market struggles, uh, you know, the pension system actually gets in worse shape. So the city's pension payment is going to go up this year, maybe 24 million from what it was last year, which is about maybe 10%, um, you know, based on the fact that the stock market, while it hasn't really plummeted that badly, it hasn't really gained this year at the same rate that it will be projected the city projections to gain about 6% every year. And it looks like it's going to stay about even this year, which is not what the city was hoping for. Speaker 1: 05:41 Now, Todd Gloria takes over as the new mayor next month. Are his budget priorities different from Faulkner's? When is his first budget? Speaker 2: 05:50 This first budget is due April 15th. And we'll see if there are different. I mean, I think he's, he's viewed as, as more of a centrist. So I don't think there'll be radically different. Um, but certainly mayor Faulkner, um, was much more focused on development and road paving. Um, not that roads aren't important to everyone, but I think Todd will focus on some other priorities. Um, you know, Todd raised the minimum wage, uh, he got the climate action plan passed. So I think he does have different priorities. It'll be interesting to see Speaker 1: 06:16 The state of California apparently overestimated the budget shortfall by billions of dollars. You know, the legislative analyst announced last week that the state has a $26 billion surplus, largely due to tax revenues, unexpected tax revenues from the wealthiest residents who didn't start working during COVID-19. In other words, they overestimated the collapse in tax revenues could anything like that happen for the city of San Diego, Speaker 2: 06:43 I suppose it could, but when they don't have income tax, San Diego doesn't have income tax. So it wouldn't be the same way that it happened at the state. San Diego is based on sales tax, hotel tax and property tax. Those are the three main revenue streams, and it appears that their projections to me, as a, as a novice, they appear pretty, pretty reasonable and pretty accurate. And I don't see a mistake like that. Having any impact for the city's budget. Speaker 1: 07:06 Well, thanks for doing so much work to look into this, David. Speaker 2: 07:09 I appreciate it. Thanks. We've Speaker 1: 07:11 Been speaking with David Garrick who covers city hall for the San Diego union Tribune. Speaker 2: 07:15 Mm.