Bankruptcy an Option, Says Mayor’s Fiscal Task Force

Bankruptcy an Option, Says Mayor’s Fiscal Task Force

Businessman Marshall Merrfield congratulates Mayor Jerry Sanders on the city's return to the bond market in May 2008. Merrifield serves on a 12-member task force advising the mayor on the budget crisis. Photo: Sam Hodgson

Friday, Nov. 20, 2009 | A private task force of prominent local business leaders formed by San Diego Mayor Jerry Sanders is recommending the city file for bankruptcy unless it undergoes a series of urgent and drastic fiscal reforms, according to a draft of the group’s report.

The draft, obtained by voiceofsandiego.org, lays out 11 recommendations that include slashing employee expenditures, reducing and outsourcing city services and gaining voter approval for dramatic staff reductions. The task force also advocates tax increases after expenses are cut. Should the city fail to implement all these solutions, it should consider municipal bankruptcy, the document states.

“The City must change the way it does business,” the draft says. “Stop the half truths, unfunded mandates and budgetary gimmicks. We can no longer promise what we cannot afford. The task force herein recommends several near term solutions but we must stay focused on the bigger problem; the practice of making promises that we do not properly fund or pay for — or history will likely repeat itself.”

Sanders created the fiscal task force in the summer as part of an effort to recruit business and community leaders to promote his wide-ranging agenda in the final three years of his term. The 12-member task force includes retired ship builder Dick Vortmann, former City Councilwoman Barbara Warden and restaurateur Dan Shea. It has been meeting four hours a week for the last four months.

The group’s recommendations resemble many of the same solutions that Sanders had promoted during his two mayoral campaigns, but which have not been implemented. It adds another voice to the chorus predicting doomsday scenarios about the city’s long-term financial heath — a chorus that once included Sanders. It says in essence that the city’s finances are broken, patched together with cosmetic Band-Aids and require urgent and significant actions.

The task force’s recommendations include a massive reform or elimination of retiree health care benefits and the implementation of the city’s long-stalled outsourcing efforts. After the realization of those and other cost-cutting measures, the draft states the city should seek new revenues through storm water and trash collection fees.

Bankruptcy should be considered if any of these reforms fail, the draft says, and the city should start laying the groundwork for filing now.

“The City must not delay developing a permanent solution to what seems to be a perpetual budget deficit cycle,” the draft says. “To do so could put the city at risk and potentially in default of its credit obligations.”

Lani Lutar, president of the San Diego County Taxpayers Association, read the draft at the request of voiceofsandiego.org. Her organization has made many recommendations similar to those listed in the report and held a forum on municipal bankruptcy last month. She called the draft “candid,” and added the task force has invited her to review its report before it becomes final.

“I believe if you put together any group of people in the city with strong financial backgrounds they will come to the same conclusions,” Lutar said.

The draft was obtained by voiceofsandiego.org from a source who was granted anonymity. The source said the draft was altered to change the typeface, the text’s color and remove the word “draft” from the top of the report so that the source of the document could not be identified. The source said the draft’s content was not changed.

It is clear that revisions will occur before the draft becomes final. The draft has left blank a list of budget shortfalls beyond next year.

Vince Mudd, the task force’s chairman and owner of an office interior firm, confirmed that the task force had produced the draft. But he said that it was not the draft that was presented to the mayor and his top deputies in a Tuesday meeting. Also, he said, the draft was incomplete and could have undergone as many as five revisions since its production. Mudd would not release a more recent draft.

He reiterated that the task force plans to make its final report publicly available in as soon as three weeks and would comment at that time.

The Mayor’s Office also declined comment through spokeswoman Rachel Laing, saying it would not discuss a draft.

The task force’s conclusions put it at odds with the Mayor’s Office on the causes of the city’s budget woes. For six weeks, the mayor and his deputies have insisted that the national and local economic recessions, not structural financial problems, are the primary drivers of the city’s current $200 million deficit. In contrast, the draft states that “virtually all” of the deficit is structural, meaning the city is set up to spend more money than it takes in.

Next week, Sanders plans to release budget reduction proposals based on recommendations he received from all city departments, including police and fire. He has said he hopes to lower the deficit by $60 million — an amount more than 1.5 times the entire library department’s budget — by January.

Lutar said the Mayor’s Office has shifted its strategy in the last six months to emphasize large construction projects and deny the roots of the city’s fiscal challenges and risks repeating the mistakes Sanders said he would rectify.

“It’s disingenuous at best to just blame the deficit on the economy when they have acknowledged that so many of these problems are structural based on decisions made in the past,” Lutar said. “The problem is those poor decisions are not just occurring in the past, they’re occurring now under the mayor’s leadership.”

Lutar added that the mayor should not receive all the blame, citing a lack of City Council support for mayor-backed initiatives, such as outsourcing.

At times, the draft praises the mayor and the City Council for reforms that have made the city more efficient and that will save money. But, the draft concludes, those efforts haven’t been enough.

“Simply stated, major cuts in personnel, benefits and services, as well as increase in revenue are in our judgment unavoidable,” the report states.

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org and follow him on Twitter: twitter.com/dillonliam. And set the tone of the debate with a letter to the editor.

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