Much apologies for the writing drought and thanks to all who have inquired about where I've been. We've got some tremendous initiatives underway here that I think everyone will like. We just need to get them done before the end of the year (and before I lose my mind).
The biggest deal, of course, is the website itself. Stay tuned in the next couple of weeks for a redesigned and retooled site. This will be our third major redesign and I've learned a lot since 2006. The most important thing is not to change your experience too much. So I'm hoping you'll see a familiar, but nicer, cleaner site with a lot more tools and options.
Thanks for your patience.
That said, we have some things to talk about:
Wild ERP Makes News Again You may remember my long piece (and follow up posts) about the city's effort to upgrade its entire IT infrastructure. It's a massive undertaking -- known as an Enterprise Resource Planning initiative and dubbed One SD here -- that has been delayed while costs piled up.
One of the reasons it was supposedly delayed was because of what the city claimed were "serious concerns" about the ability of a contractor they had hired -- Axon Inc. -- to help deliver the project to completion. The city fired Axon and hired the software company itself -- SAP -- at a much higher cost, to finish implementation.
SAP's reputation was at stake and it took the need to finish the project with a good outcome very seriously.
But Axon is not excited to take the blame.
CityBeat revealed on Friday that Axon has sued the city of San Diego and its nonprofit provider of IT needs, the San Diego Data Processing Corp, for $5.6 million, alleging that the city is using Axon's intellectual property and that it broke a contract.
This represents a final deterioration of relations between Axon and the city. After all, when the city fired the consulting firm, Axon still thought it would be involved.
Here was the CEO Steve Peck's quote from my piece on the situation in December 2008:
"We would have preferred to stay in a leadership role but we welcome the city's choice to use SAP and we look forward to being a big part of it going forward," Peck said.
I asked him what he plans on telling potential future clients about the problems in San Diego. A few months ago, for instance, Axon inked a deal with the city of Huntsville, Ala. It was at about the same time city of San Diego officials were gritting their teeth about the firm's lack of production so far.
Peck said that these sorts of "sweeping transformational projects" are inherently difficult. He said he would simply point any concerned customer to the company's history of successfully implementing them.
"When you're reengineering the entire financial operations of the 7th largest city in the country, you're replacing legacy systems and business processes that have been in place for 20-30 years. It's not an easy task," he said.
I suppose the lawsuit means Peck's company wasn't a big part of anything going forward.
This is an important issue to stay on top of. The city is spending tens of millions of dollars on this project under the assumption that, over the long term, it will save millions in staff hours currently spent trying to manage an antiquated and dysfunctional computer system.
But like so many other major initiatives on which the city embarks, the true cost of the project -- what kinds of services must be cut, what kind of other priorities suffer -- was never a part of the discussion of whether to begin.
And like so many other things, we're left to find out the costs many years later.
On our weekly radio show on Nov. 1, I did a back and forth with the newly minted general manager of the San Diego Municipal Employees Association (MEA). You can find it here (Nov. 1).
Zucchet, who has a lot of work ahead to improve MEA's influence and image, made the somewhat surprising claim that city employees had taken some of the concessions of the past after having been told (or after having inferred somehow) that the mayor and City Council would then start exploring revenue increases (new taxes, fees, etc). He also said that while we could expect tremendous cutbacks in the ranks of city employees this year, along with services, he thought it would hit bottom.
Lani Lutar, the CEO of the San Diego County Taxpayers Association sent me a series of messages with perspective on what Zucchet said. I asked her to string them together and she has:
It doesn't surprise me that the labor unions may have been given some indication by city leadership over the last couple years that if concessions were made, they would be more comfortable going to taxpayers to seek revenue enhancements.
Faced with a nearly $200 million deficit it would be disingenuous for the mayor to say that revenue enhancement options haven't been considered. However, it's also reasonable for the administration to consider the realities of the political and economic climate. Last May, over 70 percent of the county's voters rejected attempts by the state to increase taxes. The city of Chula Vista's tax measure also failed miserably around that same time. Since then, county unemployment figures have not improved and currently hovers around 10 percent.
Besides, as you discussed with Michael, even if voters were to approve a tax increase next year -- it wouldn't be in time to address the current deficit.
Michael also pointed out that according to the Mayor's five year outlook, if the city addresses the upcoming budget with structural changes, we'll see surpluses in future years. The problem with that assessment is that the outlook still doesn't adequately fund deferred maintenance or retiree health care costs and assumes no salary adjustments over the next five years.
There will be a lot to look for in the coming budget cycle, but wait for one thing in particular: whether long-term solutions are put in motion. The mayor and City Council might actually make some tough decisions -- the kind where people lose jobs or residents are asked to sacrifice something beloved. But do they also put in motion long-term structural changes? Do they eliminate whole areas of service and reinforce core needs and completely realign employee compensation? Or do they announce plans to increase revenue somehow in the future?
Or do they let services just deteriorate and tell us all we can do is hope for the economy to improve?
So my wife put on four sweatshirts and gloves and shot this time-lapse this morning of the sunrise over San Diego. I think it's breathtaking. Obviously, I'm biased.
This is hardly a breathtaking sunset, but it's an important invitation from the city. Take advantage of their invitation:
I thought an interesting discussion developed below my post.
Writer "Bystander" had this question:
Did anyone at the forum cite existing California case law where a municipal corporation was able to "tear up agreements with employees no matter what anyone says about them being vested benefits or not"? I've not seen such an expample, and question whether California courts would ever allow such an outcome. This issue is critical, because if a bankruptcy proceeding does not modify vested pension benefits, it doesn't seem there's much to be gained from it.
And Taxpayers Association CEO Lani Lutar responded with this:
Bystander: Yes, the question was addressed at our forum and you'll be able to hear the panel response for yourself by Wednesday when we post our video at link Perhaps Scott might be kind enough to also post on his blog? That said, quick answer to your question is YES if it's part of the labor contract (Mojdehi). Mann cited Vallejo and OC cases as setting precedent and noted that "vesting provisions of California state law are in essence trumped by bankruptcy code assumption and rejection"
And then there was this from former Assistant City Attorney Don McGrath:
what a super panel. too bad jerry sanders was not there for he would have heard what mike aguirre,pat shea and i have told him and the city council over and over for the past five years...'' IT IS TIME TO SEEK RELIEF UNDER CHAPTER 9 OF THE BANKRUPTCY CODE.the city of san diego will never get out from under its present debt problems and it will only get worse...especially for the taxpayer who will get less and less service from the city. the chief of police has said over and over that he cannot cut anymore and one only need to look at our streets to realize the city of san diego cannot pay its debts as they come due. all you ever hear is " not on my watch". i believe that is what the captain of the titanic said?........don mcgrath,former assistant cityattorney.
What McGrath leaves out is how his boss, former City Attorney Mike Aguirre fired him for a day (Aguirre did this from time to time) for advocating bankruptcy passionately. Actually, they probably just yelled at each other and in the heat of the moment, he got "fired." But to say Aguirre was a steadfast supporter of bankruptcy is leaving out some things.
Aguirre, the man who said everything that came to his mind, never took a public position in favor of bankruptcy. He may have alluded to it at times and he may have been, in private, an advocate, but he was just as reluctant to have the public conversation as the mayor.
There were a lot of interesting people eating eggs at a breakfast panel Thursday.
The city's firefighter and police unions had leaders there. Prominent conservatives and business leaders were there along with a few members of the mayor's secret kitchen cabinet including retired shipbuilder Dick Vortmann and restaurateur Dan Shea. The city attorney, Jan Goldsmith, was there. Progressive activist Norma Damashek listened as did libertarian activist Richard Rider, who chatted afterward with someone from the Reason Foundation.
Lawyers were peppered through the audience.
But one team was conspicuously absent: the mayor and his staff. They were probably too busy. But they've been avoiding the discussion that was going on Thursday for four years -- it would not have been out of character for them to avoid it one more time.
What was everyone there to hear? A frank, informative and very interesting discussion about municipal bankruptcy.
And yet, neither the panelists, nor the moderator -- accountant and former chairwoman of the Pension Reform Committee April Boling -- said a word about the city of San Diego.
That was a good idea. Every time, since 2004, that the issue of bankruptcy has been discussed at all seriously, it has devolved into a discussion about the San Diego's particular position. But San Diego is just one city in this county. When you look at places like Chula Vista, where two years ago the city manager said they were on the path toward insolvency, it's not hard to see how many people will want to know more about this procedure.
The point of the breakfast was to understand what a municipal bankruptcy proceeding would entail and if what we think it is really what it is. And the panelists were perfect: Retired Judge John Ryan, who oversaw Orange County's 1994 bankruptcy case (and who was the subject of our Saturday Q&A); Margaret Mann, a bankruptcy attorney at Sheppard Mullin; and Ali Mojdehi, another lawyer from Baker McKenzie.
Let's get into it and review a list of statements -- they might be myths, theories or just plain uninformed declarations. But are they true? Let's test them against what the panelists said.
True or False? Bankruptcy is a choice.
True, it is a choice.
What city officials do is look at their situation and ask themselves whether they will be able to continue paying all the bills the city owes. The city owes money to investors who lend it money and employees who work for it, among other lesser obligations.
If a city is coming close to a position where it won't be able to pay back lenders or make good on employee contracts, it can ask a court to declare it insolvent.
Ali Mojdehi said there are basically two factors a court considers: Whether a city is unable to pay its debts (or whether it will be unable to pay its debts) and whether it has no reasonable way, outside of bankruptcy, to negotiate with the people it owes money to change those debt obligations.
"That is really the first theater of consternation between those who oppose bankruptcy and those who are siding with it. It's a fight over whether or not a municipality is insolvent," Mojdehi said at the breakfast.
True or False? By its very nature, a city can't be insolvent because it will exist into perpetuity and can either cut services or push its debts out to the infinite future because it will be around in 100, 200 or 300 years. It's therefore never going to be at a point where it can't make good on the most immediate of obligations.
This was one of the most interesting themes of the conversation.
Margaret Mann answered it best. Yes, a municipality can push its debt off years, even centuries into the future. But a dollar now is worth far more than a dollar in 350 years. Creditors and employees need money now.
And if a city is in bad enough shape, cutting and cutting until its back in balance will leave you with an untenable situation:
"If you really take the hypothetical out the whole way, you are going to end up with a city with no services," Mann said.
In other words, the municipal bankruptcy option is codified in law precisely to protect a basic level of services residents might expect their city to deliver. If city management has left it so imbalanced that it will have to eat into core public heath, safety and infrastructure services to make good on its debts, the bankruptcy option is there as a last resort to right the ship.
"The premise is there needs to be at least a modicum of services that a municipality provides its citizens. How much it is, you can debate those kind of issues. But I don't think you can debate some of the fundamental needs," Mann said.
True or False? A city would have to prove that it has tried to raise taxes and cut as much as possible before a judge would accept an insolvency claim.
Mojdehi said that there was no technical requirement for the city to have tried to raise taxes before a judge will declare it insolvent. Nor was there a requirement to have negotiated with creditors or labor unions.
And he went on to describe the situation in Vallejo, the Northern California city that started the bankruptcy proceedings last year and won a judgment that it was insolvent.
"In case of Vallejo they did engage with the unions for a considerable period of time. They did, in fact, enter into a Band-Aid solution with their unions that enabled them to meet their obligations for a year. But they finally came to the point where they were going to run out of cash in the matter of a couple months so they made the decision after taking all of those preliminary steps of cost cutting and engaging with their creditors to file for bankruptcy," Mojdehi said.
True or False? A city in bankruptcy proceedings would be beholden to a judge who could raise taxes, sell land, cut services or even change the city's laws and structure. The city's elected representatives would be subservient, therefore, to an appointed judge.
This was a fascinating part of the discussion that came up in various ways a couple of times. It was made very clear how limited the power of the judge is -- he can do none of those things. On the other hand, saying he has no power over them is like saying the president has no power over the legislative process. The president, in fact, has a very powerful tool over legislation: He can veto it.
What became clear was this: The judge presiding over a bankruptcy has to make determinations about what is brought to him. So, for instance, a city can simply reject one of its agreements with unions and a judge might have to declare whether to uphold that or not.
But what is most likely to happen, the panelists all agreed, is that neither the city nor its labor groups will want to risk leaving it all up to the judge and they will work to forge an acceptable agreement before that -- a plan the judge is likely to approve.
Can the judge force the city to raise taxes, sell land, raise rents on property it owns or restructure the governance?
No.
Mann:
"Basically the bankruptcy judge serves as the referee for the game which is played by the participants before the court. What the judge can do is ... rule on the contested matters that are brought before the court and those include, most importantly, the plan which is 'What are you going to do with these troubled affairs of the city.'"
Judge Ryan basically agreed but Mojdehi said he was being modest.
"The reality is that the court plays an extraordinarily important role as the director of the symphony. The symphony director doesn't play any instruments but he or she does manage the process to achieve an equitable resolution," Mojdehi said.
True or False? A bankruptcy proceeding means millions of dollars to the lawyers who shepherd it through.
Without question, this is true. Mojdehi said that Vallejo has shelled out $5 million to lawyers so far and the process is far from over.
What's more, the lawyers have a priority claim on their fees. In other words, under a bankruptcy proceeding, everyone to whom the city owes money basically hires lawyers and get in line to jostle for their fair share of whatever pie is left.
Mann said that the actual administrative costs of the bankruptcy proceeding along with the basic costs of keeping the city operating are the top priority in that line.
"The process has to carry itself," she said.
The question is whether this major expenditure is worth it.
The city of San Diego is pretty well acquainted with handing out massive fees to consultants and lawyers it thought were helping to bring it financial stability and credibility. Taxpayers gave Kroll Inc. more than $20 million to research and write a report about how bad things were here.
Unsurprisingly, the lawyers on the breakfast panel were supportive of that kind of expenditure to help a city restore itself.
"Restoring financial health is something that is, needless to say, expensive. But the question I think that is better asked is: 'If you don't restore financial health, what is the cost of that?'" Mojhedi said.
Mann and Ryan agreed.
"How are you going to resolve a billion dollars of claims inexpensively? The key is to have good attorneys and it's important. In the Orange County case, we had wonderful attorneys and the county was smart enough to listen to those attorneys," Ryan said.
Can you avoid the cost of these attorneys? A sort of do-it-yourself bankruptcy? That brings us to our final theory, of which I'm a prime purveyor.
True or False?The city of San Diego and others have the opportunity now to avoid the cost and combativeness of a bankruptcy by convening stakeholders to negotiate across-the-board sacrifices that will put us on a healthy and sustainable trajectory.
This is, of course, my basic theory: the city's stone soup. Nobody individually can solve the city's problems but if we each put something in the pot, we can make a good soup.
We can't deal with this problem by looking at individual issues: raising parking meter costs here, cutting an employee benefit there, etc. We have to look at the city as a whole, convene everyone and agree to reasonable revenue increases in exchange for reasonable and significant employee benefit reforms.
So the question came up at the panel: Can't we just do this on our own without bankruptcy?
Mojhedi said yes and no. There are really two things bankruptcy provides that normal negotiations don't: One, you can tear up agreements with employees no matter what anyone says about them being vested benefits or not. And two, you can negotiate lower rates with lenders, a process that is difficult if not impossible outside a structured bankruptcy. Sure, in normal times, you can refinance loans, but if you want to negotiate with a particular lender without refinancing and those associated costs, you are out of luck.
"The bankruptcy process enables you to achieve a collective solution hopefully by consensus but it's very difficult outside of bankruptcy -- particularly if you have a complicated balance sheet to deal with multiple constituencies," he said.
So is bankruptcy the right answer for local cities that are underwater?
I don't know, but the discussion made it clear that there's nothing to be ashamed of in having these kinds of talks at an ever-more sophisticated level. The mayor himself, years ago, saw the merits in keeping bankruptcy in mind as an option.
There seem to be two camps among this city's leaders and thinkers. The first sees the city as just another ship floating precariously in rough sees. They seem to be working furiously to keep the ship afloat -- whether it is with gum, duct tape or something else, the goal is to survive. And either they believe 1) that if they just keep things going long enough, the seas will calm and the city will prosper again or, 2) that if they just keep things going long enough, they'll be able to hand over the helm to someone else.
The second camp believes that something needs to change and change fast. The city is deteriorating and services will be on the chopping block like nothing we've seen. It's one thing to try to solve a deficit knowing that next year might bring prosperity. It's another thing to know that solving this year's deficit and know that it's only going to be worse next year.
As evidenced by the sophisticated forum last week, those in the second camp are now thinking about bankruptcy very seriously.
Update: I tweaked the formatting on this post and added "True or False?" to make it clear those bolded statements were the ones we were putting to the test in this post. Just to be clear. Some readers were confused.
I was invited to speak at the Online News Association annual conference in San Francisco by both J-Lab (out of American University) and the ONA team. So my wife and I turned it into a vacation: Driving up the coast, eating well in San Luis Obispo, camping in Big Sur and generally getting to know each other again after a busy year.
I'm back now, trying to catch up.
As I read through the mountains of e-mails and stories I missed, I have been gathering a few notes I thought I'd pass along.
So let's get right into it:
First up: I caught up enough to appear on Editor's Roundtable on Friday. We talked about the city's financial crisis, the absurdly confusing situation regarding medical marijuana and the state's overcrowded prisons.
On the city's massive budget deficit, let's review a few facts.
Yes, this is a bad one. It's going to be extremely difficult for the City Council and mayor to cut $179 million to $200 million or more. I do not envy them.
But there are some things to keep in mind here and some other things to watch:
I. Do not let anyone tell you this is a huge unexpected surprise and that the city is an innocent victim of a brutal worldwide economy.
The city has a structural deficit. This means it is not set up to collect as much money as it is set up to spend.
In early 2008, Independent Budget Analyst Andrea Tevlin identified this and articulated it as the source of major budget deficits that we'd seen from 2004 until then. Remember, this was a period of relative prosperity for San Diego and the nation.
If we experienced these kinds of deficits during good times, it should not be a shock to anyone that we'd have a massive, eye-popping shortfall when the economy slowed down even just a little bit.
In fact, this is the problem. The only way we got through those years -- booming economy and all -- was with one-time revenue sources. These are the kinds of one-time solutions that could have been used to bridge the gap between the implementation of long-term structural changes and the actual benefit of those long-term structural changes.
But only a few at City Hall have wanted to face the reality Tevlin did. And they are not the ones who are now saying we've been surprised and victimized by this economic calamity.
II. Looking forward, what should we watch for? It's very encouraging to see the new City Council react right now. A budget need not be implemented until June of next year. It's still October. Yet you see Kevin Faulconer, Tony Young and Todd Gloria gathering public opinion now and talking about their own priorities. You see Donna Frye and Carl DeMaio trying to position the city to do all it can to reduce the burden of retirement benefits the city offered but never, apparently, planned on funding.
But how will they break? Will Gloria and Frye again support a tough stance with the city's employees and further request compensation concessions? Will Faulconer, DeMaio and the mayor, for once, indicate what they need to happen to enable them to discuss supporting tax increases? "No" is not going to get us anywhere.
The City Council, this year, is basically in charge of negotiations with the city's unions. The city attorney made this the case last year when, to the chagrin of the mayor and others, he declared that the City Council basically had the right to come to an agreement with unions rather than simply accept or reject the deal they made with the mayor.
On medical marijuana: Look, it's obvious that marijuana does have medical benefits. But the law that allows its use for sick patients is terribly vague and confusing and it is being used by those who don't think pot should be illegal at all. Now, whether they're sick or not, thousands of people who just want marijuana are using this law. And an entire economy is growing up with these providers accommodating them.
This is not healthy. The laws are absurdly confusing and I sympathize with local officials who are charged with somehow enforcing them.
Supporters of legalization should redirect their fury from those local officials and toward the decision makers at the state and federal level who can make marijuana legal once and for all. The fact is, if pot were treated like alcohol and tobacco, it would be much easier to both regulate and, drumroll, tax. Right now we have the untenable situation where something is legal but nobody knows how to zone dispensaries, determine whether someone is "profiting" from the drug or properly collect fees and taxes on it.
For now, the city and its mayor need to take a decisive step toward providing zoning, commercial and permitting regulations that make it clear where and how medical marijuana facilities can coexist with neighborhoods. Someone needs to provide clarity until the law can be changed so that users of marijuana no longer need to pretend as though they are either criminals or patients.
Finally, I came across this Q&A with Mayor Jerry Sanders in the Union-Tribune the other day.
In it Sanders says this:
What you say about the critique from Councilman Carl DeMaio and others that your continued interest in things like the Convention Center expansion and a new city hall is very inappropriate in a time when money is so scarce?
Well, we could stop everything we're doing, but that doesn't make sense or serve the public. Mr. DeMaio understands perfectly as well, as do the other council members, that we're not using general fund money for those things. On the main library, for example, we have $150 million of the $185 million we need, none of it general fund money. People are not going to have to make a decision between cops, other libraries in the system, firefighters or anything else for that library. That comes from sources that can only be used for that. So do they want us to give that back? Give back $50 million to donors? And $80 million in redevelopment money that can only be used downtown? And the $20 million library grant? And the $20 million that is from the school district so that they can have two floors in the building for a high school? So we just decide we don't want to do it, and we give the state back $20 million and we give the school district back $20 million and they don't get a high school there? That makes no sense at all. We should take an opportunity to get that done, especially at a time when we need to create jobs and especially at a time when the costs of construction are taking a nose dive.
Very interesting to watch him embrace more and more the argument that the new main library is needed to create jobs during its construction and to provide for a school. The Union-Tribune editorial page has similarly ventured into this territory. Interesting to watch these conservatives embrace that argument to justify public spending.
But Sanders' answer raises another question:
The mayor says there that library supporters have raised $50 million from local philanthropists for construction. Howzat? The library boosters will only disclose the sources of up $3 million. Then they said they've gotten pledges of up to $33 million. Now the mayor is claiming they have raised $50 million?
In July, Jay Hill, the executive director of the library foundation raising money for the project, declared on the radio that the foundation had raised $37 million.
When I asked him from whom the pledges had come, Hill said it was a secret:
Well, you know, we have donors that are -- want to be private but they've come forward with pledge agreements and, you know, we've shared that information with elected officials and, you know, also offered to share it with the state.
The argument that there is $50 million of private funds ready to support the library is a good one only if it's true. And that's hard to verify when the number keeps changing and they, well, refuse to verify it.
Anyway, I'm sure we'll figure all of these things out soon. Here's to a good start.
In response to my last post, a couple of you argued that employee benefits are not what we're paying off with this big pension bill, oh contraire.
There was this from NorthPark for instance:
Scott. I hope you are hearing Augmented Ballot, who is right on. You remind me a bit of the UT (Uninformed Trash) writers when you refer to our "big bills" as going to fund the employees' pension. Why do so many seem to discard the Council's decision to UNDERFUND the pension for so many years, which is a big factor in the size of the current bill. The 2.5 % at 55 puts City employees on even footing with other government agencies, not above average. Be more forthright, not SLOPpy
The Pension Reform Committee and other city and pension consultants looked into this in previous years to determine how much of the unfunded pension liability came from investment losses, increased benefits, unplanned or higher-than expected salary increases, and underfunding.
The committee and its actuarial efforts found that 72 percent of the unfunded liability arose from both benefit enhancements and unplanned or higher-than-expected wage increases or benefit accruement. And 41 percent specifically came from benefit increases. Only 10 percent of the liability arose from the city not paying as much as it should into the plan (that doesn't mean it still wasn't ridiculous but we should keep in mind this was agreed to by most employee representatives on the pension board).
Look, the fact is that promising benefits you don't have plans to fund is itself a form of underfunding. So I essentially agree -- the city underfunded the pension plan, which caused this.
The other argument I hear a lot is that the city's benefits are on par with other governments. Yep, and other governments, especially the county of San Diego, are dealing with outrageous pension bills too.
And finally, the last argument is that employees got these pension benefits in place of increases in salary. In essence, they came in place of salary hikes the employees felt they deserved. Hence the term "deferred compensation."
Just like deferred debt, deferred compensation has to be funded eventually. Employees will say, and do say, that the city should simply raise taxes. But when employee leaders were doing these deals -- these deferred compensation deals -- they never went out of their way to point out that we'd have to eventually raise taxes or lay off hundreds to pay for them.
In fact, this was the problem: City management and employee unions expressly didn't want to talk about the consequences of the deals they were making.
They figured that we'd all find out eventually. And they were right.
More and more it seems, I spend my Fridays talking. So if you wanted a little made-for-TV response to the pension board's big decision Friday not to change its accounting practices and pass along a brutal bill to the city, here you go.
My perspective on this is simple: This is only good news in the sense that reality has won and the city will now have to face up to the consequences of its leaders' past decisions unlike anytime before.
You see, before now, the pension scandal has been largely been the stuff of drama -- legal and political intrigue. Sure, it has had profound effects. In fact, Mayor Jerry Sanders is mayor because of it.
But the reason it was an issue in the first place is now about to be as clear as it possibly could be. It was a scandal because the city had, repeatedly, agreed to both shortchange its pension fund and give its employees more benefits at the same time. It was like buying a car and mortgaging your house to do it.
And that's a big deal because, eventually, we were going to have to make up for this. We were going to have to pay.
Not to say we haven't already paid. As discussed before, the annual payment the city makes to its retirement system has skyrocketed. The payments used to be in the $45 million range. In 2004, it jumped to just more than $160 million and they had it leveled out there for several years. They had figured out ways to keep it at that level.
Imagine if we'd have taken that $120 million difference and instead invested it in a massive infrastructure bond. Could have had all the sewers, libraries and Convention Centers we wanted. This was how big of a decision it was to do what past city leaders did without much of a public debate. They gave a massive chunk of the future of the city to employees without ever figuring out how they would pay for everything else at the same time.
Like a bad mortgage, at some point, you have to start paying it off.
The mayor had hoped the pension board would consider options that would have pushed the pain further out. But the fund's trustees, rightly, prefer assets to promises. They have a fiduciary responsibility to ensure they protect the health of the fund and they did. And leaders now have an obligation to pass along the healthiest city possible to future generations. It's one thing to owe money for a massive facility from which we'll all benefit for decades. It's another thing to pass along debt for mere operating costs.
Imagine, for example, making your kids pay off credit card debt for lavish dinners you never could afford but still enjoyed.
Now the big bills are going to come. To fund the benefits we've promised employees, we're going to have to come up with hundreds and hundreds of millions of dollars every year. And it's going to get worse. The pain the mayor's staff says is on the way is only just the beginning.
So I said this on TV and I'll say this again: The mayor and City Council now deserve our understanding and sympathy because they're about to, finally, face down the most difficult financial situation they've ever faced. They will have to confront employees and taxpayers in ways that will take both courage and vision.
If they can pull it off, they will be municipal heroes. This is their opportunity and their challenge.
The mayor has a chance to be remembered for generations for guiding us through this period and reimagining a troubled city. He can use the intelligence and resources in his office to try to get out of it -- to try to do everything possible to avoid hairy decisions -- or he can chart a new course and change the city forever.
I got this comment from writer sdbuster after my post putting perspective on Mayor Jerry Sanders' speech point by point:
It is easy to be an armchair critic, much harder to put yourself out there with proposed solutions. So Scott Lewis...how would you solve the problems you have outlined? I agree with many of your concerns but your rant was in many ways a knee-jerk reaction to the Mayor. Offer your proposed solutions!
I'll point you back to my proposal in the spring. And back to the parable about the stone soup: Nothing will work but everything might. Nobody has the solution -- nobody has enough ingredients for a great stew -- but if each of us gives what we can, we'll be able to pull something together. Taxpayers must give. Management must give. Employees must give.
It's very simple:
1. There are legitimate taxpayer complaints about compensation practices and waste at the city. The mayor and council can identify exactly what reforms need to be made to the health care, pension and basic employee benefit systems so that they can feel OK about pursuing ...
2. ... a series of revenue enhancements and tax increases. The obvious first one is the trash fee. There are others: stormwater, TOT, etc.
As I've said repeatedly, neither dramatic cuts to employee compensation nor tax increases are attractive to workers and taxpayers. But both are more attractive when taken together. And the fact is, the city is so upside down, that you will need both to right the ship. We simply can't afford to pay the outlandish salaries that have been reported and we can't afford not to raise revenues.
If by going between the interested parties and floating this comprehensive solution, you're not able to get agreement, then you have to begin discussions about bankruptcy.
Bankruptcy is not a failure. It's the way you recover from a failure.
The most common complaint I get is that I just throw bombs and criticize without offering solutions.
Here I am proposing and arguing, for months and months, the three most difficult political things you put your neck out on: Major reforms of pension, health care and employee compensation at the city, tax increases and bankruptcy discussions.
The first two steps are politically dependent on each other. The third step is what you have to take if someone obstructs the first two.
These are all things that at one time or another as a candidate the mayor supported, but has either backed or sprinted away from under pressure.
I know it's not easy. But absent a big pile of money falling from the sky, there are no other routes to fiscal balance.
And if the mayor and his crew of cynics say this is not politically possible, then call him a naysayer defeatist, who views all progress with suspicion and doesn't believe San Diegans deserve a great city.
I've heard San Diego Mayor Jerry Sanders give speeches now for four years. There are few people more likable and few people who could so endear themselves to a group of people after saying the word "erection" instead of "election."
He's a genuinely good man, who I believe is sincere.
But this was the most divisive, most insulting, most unenlightened speech I've ever heard him give. Whoever it was who thought it was a good idea to try to shame San Diegans into being great rather than inspire them should never work in the speechwriting business again.
And yes, that's exactly what his speech was: I'm the mayor. Don't agree with me? You're a backward, short-sighted blogger (yes, he went after the "bloggers") who would have opposed the piping of water to the city when that was first proposed. Oh and you like inertia -- physics nerd.
Ulgh. I can go on, and will, but let's do this point by point.
The mayor started off, of course, in victim mode. Lately this has been his thing: always the victim. Whether it's the state, or the economy, or the unions, or the bloggers or the "defeatists," he -- and, therefore, we -- are being pummeled by things we can't control. There's really nothing as refreshing as a politician working hard to help you feel sorry for yourself and articulate your complaints.
It was a tone that set the mood:
I know these are tough times. We’re all trying to spend less money, use less water, and put something aside for the future. I feel for our city and what its families are going through.
Just last week I had the privilege to lobby on our behalf in Washington, D.C., where they can solve all of their budget problems by simply printing more money.
I know, those feds. Total losers. But...
We’re working hard to get some of that money for jobs and economic development in San Diego.
Yes, those really were back-to-back lines, essentially saying: Those irresponsible freaks can't manage money, so they're printing it. Don't worry, I've got my hand in the mix.
I'm hoping it was a joke that landed poorly. Otherwise it's just a really weird way to insult someone. Like a minister preaching at a thief and then asking for a cut.
And I’ve been defending our city in Sacramento, where their answer to budget problems is to steal our money -- and expect us to be grateful they didn’t steal more.
Victim. Goal? Deflect anger. Accomplished. He went on -- more whining, yes, but something to be proud of!
Well, in the 12 months since the stock market nose-dived, every city and county in America has been hit by the double whammy of plummeting revenues and skyrocketing pension costs due to investment losses.
So light bulbs are going on across the country.
And as they go on, publications like The New York Times and Governing magazine have reported that San Diego was already a bright spot.
This claim that San Diego is a model for fiscal recovery for the nation is based on this brief and this bizarre story.
The governing magazine story was a five-paragraph brief that concluded the city still had problems but was more stable. Yes, truly a light bulb confirming a dramatic recovery. The second story was just plain weird.
The truth is the massive pension liabilities the mayor inherited are only getting worse. He's neither raised more revenues nor cut costs in a way that changes that dynamic. The city's infrastructure is being neglected, and small governments -- Maintenance Assessment Districts and Business Improvement Districts -- are arising across the city to pick up where the City Hall is leaving off.
The mayor and City Council have done so little, in fact, to deal with its long-term liabilities that we're about to face the largest pension bill in the city's history. And before anyone tells you that this is a "black swan" investment year -- a calamitous storm no one could have prepared for -- go back and read the Pension Reform Committee's final report from 2004. Better yet, go read the city's own financial disclosures and reports in 2003 and 2004.
I remember them well. I remember looking at them and noting that it would be 2009. In 2009, they said, when we'd face a pension bill as high as $200 million unless city officials changed something drastic.
Unless we raised taxes or made drastic cuts, we'd face a storm we could not imagine.
Hear that wind? A $200 million pension bill was unthinkable. Now we're about to eat it.
This is why the former mayor resigned. And it's why we hired the current mayor -- to help make the tough decisions needed to either pay for this or get rid of this liability.
He has not made anything close to decisions like that.
Which makes his next statement so difficult to swallow:
The secret to our success is simple: We don’t run from hard work, or from tough decisions.
True, nobody's running. They just never faced them in the first place. The mayor promised during his campaign that he would turn to bankruptcy if he couldn't change the trajectory the city was on through negotiations. At the very least, bankruptcy was a threat that would provoke these kinds of deliberations.
And if he didn't want to do bankruptcy and challenge employee compensation, then he was obligated to find new revenues. Yet he's never once even suggested what would have to happen before he raised any tax in the city. Hasn't made any significant cuts, refuses to raise revenues, discards bankruptcy as an option. What tough decision are we talking about?
He cites a "record of budget cuts" and the actual fact that they were able to pass a balanced budget last year. But that wasn't a tough decision -- there were no contentious service cuts.
Now, to be clear, the mayor and City Council did impose 6 percent compensation cuts on the city's blue collar and police union workers. The other two unions agreed to similar cuts. This was a tough decision, no doubt. But it was like pouring a pitcher of water into an empty swimming pool. The trajectory of the city is accelerating far too rapidly downward.
Sanders was hired to change this.
But remember, he's the victim here:
I feel like the guy who wins a pie-eating contest, only to learn that First Prize is more pie.
That pie has been there the whole time, J-Man. You told everyone you saw it and would deal with it.
As I mentioned, when the annual required contribution to the city's pension system comes due in July 2011, it will be the largest pension payment in city history.
There has been considerable speculation about what the size of that payment will be, but whatever the amount, let me be clear:
We will make our full pension payment, to the penny.
The Mayor and City Council do not determine the amount of the payment, nor should we.
Of course, they don't determine the size of the bill. But the mayor got an actuary and empanelled a private task force to make the case for a lower bill. And the pension board's former chairman said the city would simply be insolvent unless the pension system tweaked the rules and lowered the bill.
They say this is necessary to deal with an unprecedented financial crisis. This is, of course, the exact same rationale that the city used in 2002 when deciding to, well, I'll let him throw the previous mayor and City Council under the bus:
Nor should we repeat the mistakes of our predecessors and shortchange the retirement system so we can avoid making tough decisions.
Finally, we get to the capital projects. As I predicted before the speech, the mayor would tell us to build a new main library, a new City Hall and a new Convention Center. And, as predicted, he would decline to talk about the sacrifices needed to build these things.
What I didn't expect was that he would add, so forcefully, a litany of insults about those who had questions or opposed the plans.
Virtually every major project in the city has encountered opposition from groups who have no faith in tomorrow, who view all progress with suspicion, who don’t believe we deserve to be a great city.
If these people had their way, we’d still be riding ferries to Coronado.
There wouldn’t be a Mission Bay, or a trolley system, or a vibrant downtown with homes, shops and restaurants.
We might not even have clean water piped into our homes.
For the record, I'm a huge fan of water. It's key to my whole plan to stay alive.
Again, this was the most belligerent, divisive speech I've ever heard the mayor make -- and I'm including the campaign attacks he would will himself to make.
So if you don't believe that the city's highest priority is a Convention Center or that the best way to connect people to the internet is to construct a massive building than you don't want the city to be great?
This is paramount to saying that if you don't support a president's decision, you don't support your country.
There are legitimate and major questions about not only how a new main library would be funded downtown but whether it's the best investment for a city claiming to try to do three things: 1) create a valuable public gathering space; 2) connect people to the internet and; 3) build an architectural marvel for a city devoid of them.
But put all that aside and let's look at his speech:
In the case of the new Central Library, the funds for construction would come from sources that could not be used for daily operations, or for any other library project or branch improvements.
Let me repeat that: The funds for its construction would come from sources that could not be used for any other library project or, for that matter, any other City service.
There's no way you could word this in a more disingenuous way. No, the $80 million earmarked for the new main library could not be used for daily operations of other libraries. And it could not be used for other library projects. And, it could not be used for any other city service.
It has to be spent downtown.
But it could build sewer lines, fire stations, roads, sidewalks and on and on and on.
In fact, drum roll, the $80 million could also be used for the project the mayor declared was supported by a "virtually unanimous" (isn't it either unanimous or not?) unnamed group: the expansion of the Convention Center.
Which brings us to the end of the speech: Yet another real-time contradiction. I could hardly listen.
Remember, this is the mayor so averse to taxes -- the guy who wants us to step up and do something bold but refuses to even consider that these bold choices would require bold sacrifices.
And again, it's everyone else that is the coward, not him. He's the victim:
“If we do expand, who will pay for it?”
Whenever we ask that question, no one raises a hand.
Poor mayor. He goes on:
The people who don't recognize these opportunities -- or are scared off by any hint of dissension -- or are waiting for a consensus to develop among the bloggers -- often wake up one day to realize that their opportunity has passed them by.
Yes, San Diego, your opportunity to have everything you want without having to sacrifice anything to get it is passing you by. Soon, you'll have to sacrifice.
The city is fundamentally unbalanced. This will have to change someday through higher taxes or a realignment of employee compensation. In fact, both will probably have to occur and we should have a leader willing to talk about it -- not help us whine about it.
The mayor's big speech to the Taxpayers' Association is today. If you can't make it, Liam Dillon will be tweeting from it and we'll obviously have full coverage.
Expect to hear a lot of lecturing about the how it's been such a horrible economic year. And, of course, how horribly the state is treating poor cities like San Diego.
But Sanders is promising a twist of hope. "Building for the Future Despite the Economic Downturn" is the working title.
I'm maybe reading too much into the word "building" but no doubt he'll explain why a new Convention Center expansion is necessary. We've heard this. What he should explain is what we'll have to sacrifice (new taxes, other infrastructure and services or an actual goat on Mount Soledad) to build it. And, he should throw in a bit about why that's worth it. This is not the mayor's forte -- he doesn't like talking about sacrifice and cost.
It is no small irony that the city is in perhaps the most perilous financial position it ever has been and yet leaders have been drawing up the most ambitious list of major building projects in our history. The city has never owed so much and at the same time had such a decline in revenues. Yet, we're talking simultaneously about building the most costly project in the city's history -- a new Convention Center -- a new main library ($200 million), a new City Hall and an ambitious sewage recycling system. Oh yeah, and the Chargers want a new stadium but they're not even bothering to ask.
Many of us are uncomfortable with this. Boosters like to say this makes us skunks at the garden party or just plain naysayers saying nay for the fun of it. Nay!
But what we say nay to is not ambition or vision. What we don't want is to continue to build debt we neither have the money to pay down nor any plans to raise the money to pay it down. What we want is to look holistically at the entire city and prioritize those projects that will make for a brighter future for the greatest number of residents.
We also see the steady deterioration of basic day-to-day services and wonder how that will stop if even more money is tied up in long-term liabilities.
In other words, if this is the time to build all of these things, be proud of that and be proud of how we should pay for them.
How should we pay for them? This is part of what is so frustrating about the city's pension crisis. Yes, it's still a crisis. It didn't go away.
Consider this:
In 2002, the city of San Diego had to send $49 million to its pension fund -- the reserve set aside for the retirement payments of all its employees.
This year, the mayor and others are working furiously behind the scenes to figure out what the bill will be. But it will undoubtedly be near or above $200 million. For several years, it has hovered around $165 million.
Breathe that in for a second. These are big numbers that don't mean much. But you can tell that taxpayers are now paying triple what they had in the past. And we're not raising triple the amount of revenue.
Study after study, consultants after consultants -- from the Pension Reform Committee, to Mercer, to Kroll, to Vinson & Elkins -- have concluded that the biggest reason we've had to shoulder so much more burden is not the stock market (over time, it's performed as we'd hoped). It's that we gave away benefits to employees we had no way of ever paying for.
Ten percent of the city's payroll used to go to the pension system. This is now at about 27 percent of payroll (look at the horrifying chart on Page 11 of this document).
Now think about it like this: The employees had a good pension benefit. Imagine if we hadn't decided to enhance it dramatically. Imagine if we'd seen the county supervisors do that and we thought, I don't know, we might be a bit more fiscally prudent than they were.
And imagine, instead of shoveling $100 million to $150 million more into the pension fund, we were using it to pay off a massive infrastructure bond and we were using that money to build up San Diego's most important facilities. You could have water reliability, first class streets, libraries (or internet for all), Convention Centers and any street lights, trash cans and sidewalks you needed.
Instead, we face a bill we can't pay for benefits we can't afford. Even if we're able to somehow wrest some of the benefits from employees, we'll have to cut services and raise taxes to make ends meet.
And we won't have anything to show for it.
This is the long legacy of the pension crisis. This is why you should force elected officials to agree to come back into office five years after they leave -- so they can clean up the mess they left.
The mayor will say we need to build things.
But here's to hoping he'll also make it clear how we plan to pay for them.
It has been the weirdest off-season in the NFL in a long time. And it's getting even weirder.
From a public policy standpoint, one of the most interesting things to come up so far about San Diego has been NFL Commissioner Roger Goodell's recent comments that the city will either need to build a new stadium or (and this was the interesting part) completely renovate Qualcomm Stadium.
Howzat?! Those of us who have been watching this issue for several years have been working on the assumption that a renovation was completely unacceptable and unrealistic to the NFL and the Chargers. To hear him even float something contradictory was odd.
The Union-Tribune noticed the importance of this statement right away. Goodell said it during an interview he was giving to a guy named Rick Horrow.
What did Goodell actually say about San Diego? According to the Union Tribune:
"The team has been successful there," he said, according to a transcript e-mailed to media outlets by Horrow's publicist. "They have their challenges, as (do) other markets. It's clear the stadium needs to be either completely renovated or a new stadium built in (San Diego)."
The Chargers and their point man, Mark Fabiani, quickly said Goodell didn't imply, or shouldn't have implied that renovation, was an option.
Again from the U-T:
Fabiani said, "It's just not feasible, either technically or financially, and that's something that has been proven over and over again by anyone who has looked at it over the years."
Three things: 1) Goodell doesn't just say anything. Just like high-level lawyers don't just say things. They know their words mean things. This thought was in his head for some reason. 2) He seems kind of spooked about the economy. Note his well publicized decision to cut his salary by several million in a sign of good faith. The economy's problems were a main focus of the off-season NFL owners meetings. Goodell et al have also made it known they are worried about the possibility of blackouts coming soon -- when local sports fans will not be able to watch their teams on television because the economy will hamper ticket sales.
And finally, 3) As far as I know, Goodell hasn't retracted this statement. It appears he hasn't been terribly anxious to retract or clarify the statement -- and the Chargers don't seem to be terribly anxious to get him to.
I called Fabiani to see if Goodell had made things more clear to the team. Fabiani pointed me to this statement.
Fabiani said the lead paragraph came almost directly from NFL headquarters.
According to the Commissioner's Office in New York, the Commissioner was not advocating a renovation. He was simply acknowledging the Chargers need a new stadium somehow. The means of reaching this goal are to be determined by the Chargers and the community.
Hello! That's not a retraction at all. Could have easily said "the commissioner was mistaken when he indicated that renovation was an option. He now wanted to clarify that it is not."
Is this their version of a trial balloon? Is the NFL spooked about the economy and coming to terms with how hard it would be to build a new stadium in California right now? Cities are burdened by historic deficits and it would take a lot of courage (or stupidity?) to build new condominiums or commercial developments these days -- and yet that was exactly how the Chargers' hoped to finance a new stadium in lieu of a direct taxpayer subsidy.
You have a mayor here uninterested in talking about a new stadium and efforts in Chula Vista, National City and Oceanside have failed. No proposal has been on the table since Andrew Donohue had big hair.
Perhaps, as with his salary, Goodell is bending to harsh economic realities?
Fabiani told me to go to him if I wanted more explanation.
I got on the phone with Greg Aiello, the NFL's vice president for public relations. Aiello called it a "complete non story." OK, so I asked him to clarify once and for all that renovating the stadium is not an option.
"[Goodell] wasn't taking a position of advocating anything. It was an option that was considered and didn't work. It was considered. It's not an option that works," Aiello told me.
I told him I didn't say that it looked like Goodell was advocating a renovation. I said San Diegans have been working under the assumption since 2002 that another renovation was unacceptable to the team and the league. And so, it was news to us the NFL would consider renovation acceptable. After all, it was Goodell's predecessor who warned San Diego it would never get another Super Bowl unless it got a new stadium. Was this position changing? Was another renovation an option to get back in the good graces of the league?
"The Chargers have made that clear and I'm saying it on [Goodell's] behalf. It's not an option if the Chargers say it's not an option," Aiello said.
I asked him if the NFL would consider bringing the Super Bowl back to San Diego if the stadium was only renovated.
He said that it would be "up to the owners."
"[Goodell] was explaining what needed to be done one way or the other," Aiello said.
One way or the other? That clear it up? Seems a lot more complicated than it has to be.
Finally, about the economy. It appears likely that some or many of the Chargers' games locally will be blacked out unless ticket sales pick up. On ESPN's SportsNation recently, snark-man Colin Cowherd blasted San Diego fans while talking about the NFL's explanation that the economy might cause these blackouts.
Cowherd didn't buy it.
The economy is a lame excuse. It's like these retailers who say 'Sales were down because of cold weather in the Northeast.' It's always cold in the northeast. You either buy a coat or a dress or you don't buy a coat or a dress.
The economy is a lame excuse and here's why: The economy is not great in Buffalo -- they sell out a huge stadium. The economy is not great in Pittsburgh -- they sell out their games. It's not great in Cleveland -- they sell out their games. The economy is not great in Chicago -- they sell out their games.
San Diego's economy is no worse than anybody else's, either is Jacksonville's. They don't care enough. Those fans don't care enough. Even when San Diego is great, Charger fans have always struggled to fill the stadium early enough to lift the blackout. The economy can be used for a lot of things. This? It's lame.
Ouch. For a team hoping for a new stadium, the last thing it wants is a reputation for apathetic fans.
Fabiani's response? First, San Diego has sold out regularly for the last half of the decade (though the team's been aided by television stations and other local businesses hoping to avoid blackouts at times).
"People outside of the state might not appreciate the depths of the economic problems here. Things are really bad in California. Evidence is clear that the economy is really hurting in California almost more than anyplace else," Fabiani said.
There's a saying in new media circles: Do what you do best and link to the rest.
I had planned to continue the discussion to about the proposed Convention Center expansion to answer this question from my first post:
The True Economic Impact: Call us crazy but a lot of us are just not ready to drink the lemonade some consultants sell us. We've been burned a few times before. So what is the truth about how much more money we'll all be bathing in when we have a bigger Convention Center?
I thought Liam Dillon did a superb job taking us all through a complex situation and explaining it in a way that everyone can understand. He analyzed what was known and what we didn't know. He wanted to understand the economics of the expansion and he took us through his process with him.
Just a great piece, I thought. So read it and you'll know as much as most anyone about what's going on. Send me your thoughts and we can keep the discussion going.
There has been some fallout since then.
You'll remember in my last post, I chided a reader for calling an expansion booster a "joker." I was proud of the tone of the debate we had hosted. There were some negative digressions but overall some fantastic perspective and insight had emerged from all sides.
And then, who would have imagined, but it wasn't one of my commenters who took the debate back to the gutter.
It was the Convention Center's vice president for public affairs, Steven Johnson.
The thorn in the side of the mayor's task force exploring the expansion (and readying a recommendation to do it) was one Heywood Sanders, an academic from Texas. (If anything, I was more of a yappy, annoying dog. "Hey, guys, did you think of this??") Heywood Sanders actually commanded such concern from the task force that a three-person committee trying to draft a report about the task force's conclusions dedicated much of it to rebutting his testimony and comments.
Sanders claimed that he had been mischaracterized by the draft report.
Johnson responded with a simple explanation for why Sanders was wrong: "He's a whack job."
Classy!
We have more cantankerous anonymous commenters who wouldn't go that far. In fact, I will make note that Johnson now has no standing to ever complain about any worthless reader comment.
No matter. The task force, Monday, voted 15-1 (Taxpayers Association CEO Lani Lutar voted no) to essentially recommend that the mayor figure out how to pay for it and figure out how to get it passed.
I was away last week at a fascinating roundtable discussion in Aspen about the future of media. There were some heavy hitters there. And then there was me. I wrote a bit more about it in the Morning Report (have you signed up yet?) and if you're really into it, you can actually watch the four-day discussion here.
While I was out, I noticed that Lani Lutar, the CEO of the San Diego County Taxpayers Association, issued a rather brutal assessment of the Convention Center expansion task force of which she is a member.
From Liam Dillon's blog The Hall, where Lutar made it known that she wouldn't be voting for the task force's recommendation:
I thought the mayor wanted us to dig deep into this and I don't think we've fulfilled that duty. It's unfortunate because the process has put a cloud over the merits (of the expansion) and it didn't need to be that way. If the information would have been presented in a more straightforward fashion, if we had a better understanding of the tradeoffs, it would have been more beneficial to the mayor, the council and the public.
This is a big deal. Her criticisms speak to a higher problem with what the mayor put in motion. He doesn't want to deal with cost. He wanted someone else to. The task force threw that potato back at him. They all want this thing but nobody wants to be seen as the one asking for money for it.
On the bigger question of whether it's even the priority on which the city should be focused, it looks like we had another interesting back and forth in the discussions spurred by the previous posts.
I thought it was overall a healthy exchange.
Steven Johnson, the vice president for public affairs of the current Convention Center, had a tough response for, Kevin Carroll, who had complained that the discussion was yet another example of downtown interests ignoring the "true" economic engine in San Diego: the tech industry:
It is nice to see my old colleague Kevin Carroll back in the mix, however, his comments are only half truths. Government (and I know as I lobbied for HP beside Kevin when it was called AEA) subsidizes his business with multimillion dollar tax breaks both at the local, state and federal levels. There is no doubt that technology is a strong economic sector but to compare the entire payroll of all tech companies against the simple tax revenues generated by the Convention Center alone is absurd math. Look at the ENTIRE tourism and visitor industry revenues, payroll, etc., not just the Convention Center. Those who compare a $1000 visitor spending to a $100k salary are equally at fault. What about comparing the salaries of the restaurant owners, the hotel managers, sales executives, etc. to the salary of the tech employee? THAT is fair.
Is it? Isn't this something that a true task force on the San Diego economy could do: Start to put these things in comparison so we could decide, as a community, what we really need to do to create he city we want?
Yes, the discussion is lively.
But it did devolve at one point. A writer, Fred Williams, attacked Bob Nelson, who supports the expansion and is on the task force. Williams called Nelson a "joker" who was using "phony" numbers to boost the plan.
I'd like to make something clear: I believe Nelson and most of the other supporters of the new Convention Center expansion are sincere. There's no doubt the conventions that come to town bring in big dollars and a city that scoffs at the people who want to visit and spend money is not a city I want to be a part of.
It's natural that there is an anxious group of boosters hoping to do everything possible to make sure we are as attractive a destination as possible.
My perspective comes from just wondering whether this is the highest priority for the city right now. The boosters are having trouble identifying from where the money to pay for it is going to come. The city, of course, has none. In fact, it has less than none.
There are downtown redevelopment funds supposedly available but many of those are being reclaimed by the state and/or being held in trust for a new major library downtown. Yes, that is our other most important priority right now.
So my point is that obviously we have people in charge who have no idea what they really want.
Yet on the discussions go.
Kevin Carroll and the tech community are pleading for reliable water, good, clean attractive neighborhoods and public transit. And they are imagining what they could do with a $750 million investment into these kinds of things.
Obviously, not everyone can get what they want from a city so burdened with bad decisions. But that's kind of my point: With limited resources, we need to make each dollar count perfectly. We need to set priorities and vision.
There is none of this, obviously. I don't understand why we can't expect the city's main leader -- the mayor -- to explain regularly, easily and clearly why he's pursuing a Convention Center expansion (the most expensive construction project in San Diego's history) and new main library over all these other infrastructure needs. And he'd have the courage to talk about what sacrifice all of these things will require from us.
No matter, these discussions went on longer than I had imagined. There is true dissension from the idea that this is the city's top priority right now.
But the task force was told to ignore this. And it will be deciding Aug. 31 whether to endorse the plans to expand the Convention Center and tell the mayor to go forward with the most costly construction project in San Diego's history.
So let's give them a hand. Tomorrow and for coming days, we'll gather everything we can about that second main theme I listed in the first Plenary Session:
The True Economic Impact: Call us crazy but a lot of us are just not ready to drink the lemonade some consultants sell us. We've been burned a few times before. So what is the truth about how much more money we'll all be bathing in when we have a bigger Convention Center?
So if you have thoughts on this that you haven't sent (or that you think I lost!) send them along. I will try to make sense of what I can and link to the rest.
Sorry for the delay from the last post (on the internet, a week is an eternity, I know).
Plenary Session Part IV
Again, I'm very impressed by the level of discussion in the lastthreeposts. This is a true convening.
The first three posts have been about that basic philosophical question about the future of our city: Is spending $750 million -- the most expensive construction effort ever in San Diego -- on an expanded Convention Center really the highest priority right now when we consider the infrastructure we need to have the most robust economy possible?
I'm going to review this question at least one more time because, again, the response to the last post was as impressive as before.
The most interesting comment, I think, came from Kevin Carroll, the regional director for TechAmerica (formerly the American Electronics Association and the Information Technology Association of America). I say it's the most interesting comment not just because I think I'm rapidly coming to the same conclusions he is but because it confirms what I suspected was a feeling of disenfranchisement in the tech community.
Here was his post (emphasis mine), in case you missed it in this discussion:
Yet another example of how little respect the true economic engine of this region gets in City Hall. Technology companies have a payroll, not fuzzy multipliers, but a true payroll of almost $10 Billion ... with a B. Stack that against ANY regional economic interest -- be it sports, tourism or anything else -- and you start to see how regional decisions are made without thinking how this cluster can be encouraged. Legislators talk about how much they support tech in the region, however actions speak louder than words. One needs only to look at the lack of transit options for the tech clusters as evidence of this. It is time we begin to look past entrenched special interests and ask the core question "How can we help this cluster" I can guarantee you none of them are going to suggest spending $750M on a Convention Center Expansion.
I don't think you can get it more clearly. The city is moving forward with this massive project out of a sense of urgency and using arguments that it is vital to the local economy. But if you talk to truly bright prospects of our local economy, they would have much different priorities and they're simply being paid lip service.
It's at this point, that the argument becomes not about economy but about reality. With boosters arguing that this is the only thing we could do to support our economy, not the best. Witness Bob Nelson's post in that same discussion.
Nelson, of course, is a proponent of the expansion of the Convention Center and a member of the mayor's task force.
Based on 20 years of performance data, several experts predict Convention Center expansion would generate $700 million annually in economic growth, 7,000 permanent jobs, and $17 million in new city general revenue. What alternative development model would generate comparable revenue for the city, jobs, or economic growth? And how will this alternative be financed? In the case of the Convention Center, the most likely potential sources are from a "coalition of the willing" -- hospitality businesses who might agree to new assesments. Is there another source for $50 +/- million annually? Neither the Port nor CCDC can legally fund projects outside their realms. And [Business Improvement Districts] can legally only assess businesses that are benefited by the assesment, so that leaves out a hotel tax for anything other than visitor generating investments. With all respect, the "alterntative" argument is built on false assumptions.
Nelson says there that the only potential source of revenue for any other kind of infrastructure improvement is the hotel tax and, remember, hoteliers demand to see a "nexus" between any more raiding of those funds and their bottom lines or they will kill any hope of an increase there. This, again, is perfectly reasonable.
By the way, is it not ironic that the hoteliers, largely a staunch Republican anti-tax constituency, believe that the largest government investment in a downtown project ever made is what they say their industry needs to compete? Why can't the free market pull this one off? Why do they even need the mayor to do anything more than help them zone the expansion or something?
Obviously, it's because government is going to be asked to do much more. Whether it's the port, CCDC, the city's taxpayers or the city's future taxpayers, this is a massive collectivist effort.
What we're saying, and what Kevin Carroll said quite well, is that if we're going to go about collectivism in support of our future economy, there are a lot of constituencies, a lot of industries, that should be at the table.
In case you hadn't noticed, there's been a tremendous amount of discussion about the Convention Center expansion underneath my last twoposts. We've had discussions take off like this before, but I've been encouraged by the civility and quality of the insights made.
So, thanks. (If you're just joining us, go to that first link to catch up).
In this post, let's continue with the philosophical question of whether the expansion is the top priority of a city ostensibly seeking a bright economic future.
You've all done some excellent research on both the economic impacts and cost of the project. And we'll get to that. But obviously, the question of what we want to be as a community should guide us throughout the whole effort.
With that in mind, I want to stick with that first theme for a bit to highlight some of the best of your comments made.
My favorite comment came from Paul who quoted something that a member of the mayor's Convention Center expansion task force, Bob Nelson, said to me (quoted from that first post):
"It's San Diego's thing, he said. ... Given our climate, entertainment and cultural amenities and proven ability to outperform competitor cities, expansion of the convention center is smart and timely."
The problem is that it is NOT "San Diego's thing," it is Bob's thing (and his backers)! Here is a challenge for Bob: Go to the top economic engines of San Diego: UCSD, SDSU, USD, Qualcomm, SAIC, Northrop, Raytheon, NASSCO, Solar, Jack in the Box, etc, plus the many smaller tech companies fed by our universities) and tell them you have $750 million to spend on a project to spur the economy in San Diego, and ask them for their top five ideas. Let me know how many of them list expanding the Convention Center.
I'd add more businesses to that list but what a fantastic exercise that would be! And it brings up a good question: Isn't this something the Chamber of Commerce or Economic Development Corporation actually should do? Shouldn't these entities produce that kind of survey or data for us so that we know what kind of infrastructure priorities the Qualcomms and SAICs and others want?
Alas, we needn't waste our time waiting for those two organizations to do anything useful like that.
So how else can we find out what their top ideas would be for how to use $750 million? We can call them ourselves. It's going to take me a while to get to that, but if you represent these types of companies, why not send me your thoughts and we'll get them up posthaste.
Next comment I found most interesting in this aspect of the discussion came from Erik Bruvold, the president of the National University System Institute for Policy Research.
Unfortunately the task force has not, at least formally, ever addressed the question about "opportunity" costs that your question #1 implies. A question in this vein, for example, would ask whether the region would be better off using the $750 million to seed a mezzanine financing instrument to help technology/biotech companies survive and thrive in the new world of post-venture capital financing. The task force members shouldn't claim that they have actually started to the clean economic development slate -- instead they focused on a narrower question - if the center is expanded, do we think it will increase room nights (and in turn the taxes and economic impact associated with them). Too bad. A city-wide discussion of where we really should be putting significant investment would have been good.
Exactly! How interesting would it have been for the mayor not to convene a new Convention Center task force but a true congress on what the city should do to create the best possible economy locally? What infrastructure is needed? What kind of city do we want to create? What kind of innovative things could San Diego do at this crucial time in history?
This is at the heart of my and others' frustration. Perhaps a new expanded Convention Center is a crucial piece in what is the long-term puzzle of San Diego's progress. But we have no idea because the mayor's putting it forward saying "validate my decision that this is a good thing."
This is where it got good. Lani Lutar, the CEO of the Taxpayers' Association responded directly to Bruvold's point:
Erik - I actually raised the issue of opportunity cost at several task force meetings. I kept asking the question because the answer was not clear. Ultimately, a decision was made to only look at funding sources with a nexus to the convention center which would narrow the opportunity cost. In other words, then you would only compare what else you could've invested in from new taxes and fees from hotel/restaurants/(rental) cars/etc. The thought being that the industries would not support, for example, a hotel tax to support the biotech industry. See my other posts in Part I for my additional thoughts on financing and funding sources. I agree with you that the starting point was flawed.
That makes three of us.
Finally, a comment from reader Bob caught my eye for its eloquence:
Three of our four largest business sectors exist here solely because of location, topography and climate; our own natural resources. They are real estate, tourism and the military. The fourth, the now-called innovation industry, is here by choice. The other major sectors: healthcare, retail, education and even government survive on the production of the top four, although, ironically, government also allocates the natural resources needed by the top three. (This is why these sectors are at the heart of every major civic dust-up.) Sure it's right to expend billions of bytes on who may be behaving badly on this one but to deny expansion of the convention center would be to deny expansion of a natural, and by the way, free, local industry with unlimited worldwide appeal.
I think he puts it well, but I just simply disagree that just because we have a nice place, it's inherently the only thing we can build on. Cabo San Lucas is a nice place too. But you venture outside the tourist areas and the infrastructure is pretty sad.
If The Dissolving City doesn't want this to happen here, we simply have to have broader vision.
OK, we appear to have touched a nerve. I was on the phone all morning and have been parsing through all these comments.
Let's organize the discussion. To me, there are three main themes on to which people seem to be latching in this discussion about the Convention Center.
The City and Its Future: I've mentioned my view about the city being decentralized before but you guys have really reacted this time unlike before. Perhaps the term "The Dissolving City" catalyzed something it hadn't before.
It's really the only way to understand how a city can simultaneously be worried about bankruptcy and yet also be considering building a new Convention Center. As the city crumbles, interests are banding together to protect and improve what they care about.
Regardless, the point is the same: We all want a place with plentiful jobs and a sustainable, booming economy. Is this really the way to get there? If we have $750 million to invest in something to help us along, is this really what we would buy? I'm asking and you are thinking a lot about it so we'll keep that discussion alive.
The True Economic Impact: Call us crazy but a lot of us are just not ready to drink the lemonade some consultants sell us. We've been burned a few times before. So what is the truth about how much more money we'll all be bathing in when we have a bigger Convention Center?
The Money: Of course, right? How could we pay for this Convention Center expansion? Is the task force trying to recommend financing options it thinks will work or is it merely just handing the mayor some kind of menu of choices?
We'll get into each one. No. 2 particularly will be interesting to discuss.
But let's start at the top. The mayor has blasted right past that first point. He's convinced that expanding the Convention Center is a top priority. And he is the city's leader so that's kind of what the leader gets to do: frame debates like that.
But think about it for a second.
If the end goal is to create jobs, is this the effort in which we want to invest so much money? Why are we prioritizing the hotel and visitor industry? Do the biotechs or universities, or the clean tech industries need infrastructure improvements we could build with such a massive investment?
I asked this question of a few people: If we have $750 million to spend on creating the best economy we can, is a huge building our best bet?
First up was Lani Lutar, the CEO of the San Diego County Taxpayers Association and a member of the mayor's task force.
"I'm not sure that's the best use of our tax dollars," Lutar said of the Convention Center expansion. "I've asked, If the objective is just pure economic development, could there be other areas of public investment that would be more important to this community and that could achieve more economic development?"
The answer she got is the answer I heard quite a bit: there would have to be a "nexus" between the revenue source and the benefit received.
In other words, yes, there might be other areas of investment in infrastructure that would have an economic impact. But good luck trying to pass a tax for them. The hoteliers pushing for a new Convention Center expansion are very clearly telling the city not to look to their industries for fees and taxes to support anything but those improvements that will directly benefit their bottom line.
This, of course, is their right. But again, a question: Are we really in a situation now in the city where you can't pass a tax unless the people with the political power can actually see a direct financial benefit to themselves in doing so?
So let's understand this: Everything's on the table except what we know what the hoteliers won't like.
Let's turn to a project booster -- someone who cares about San Diego and who thinks this is the best investment for its economy.
First up on this list is Bob Nelson. I talked to Bob at some length about all this. He's a communications strategist for a lot of corporations and labor unions. He's also a member of the mayor's task force.
So why should San Diego do this ahead of all other priorities. It's San Diego's thing, he said. And he followed up in an e-mail:
If we were a rural Rocky Mountain community, we would invest in a ski resort; if farm country, more irrigation water. Given our climate, entertainment and cultural amenities and proven ability to outperform competitor cities, expansion of the convention center is smart and timely.
I think you get the point. Yes, we have other important needs in San Diego but not building a larger Convention Center would be like say not taking care of our beaches. We have this great place. People want to come here, so we should squeeze as much out of that as possible.
Finally, I asked Port Commission Chairman Steve Cushman, who is the task force co-chairman, what he thought about this. He's made some investments in the past, is this the best investment San Diego could make in its future?
He said he thought the task force was trying to come to a definitive conclusion about whether indeed it is the best investment for our economy.
So I asked him what he, himself thinks. He seems pretty close to concluding that this is the best investment of our resources. But he also has flat out declared he would oppose any investment of Port Commission dollars into the expansion.
Does he think it's the right investment for the community?
"It's not about what Steve Cushman thinks," he said.
So, it may be the right investment for the community but not for the port.
What do you think? If San Diego has $750 million to spend on infrastructure to prime the economic engine, is this the best way to invest it? Is the mayor right to simply assume yes and move on?
No matter what, to evaluate any investment, we have to know what the cost is. This is where the most technical of your comments came.
I have been brewing a theory for a while that the as the city of San Diego continues to struggle financially, there will be a directly proportional rise in a decentralization of core government services and infrastructure efforts.
Plenary Session Part I
Neighborhoods will start to look after themselves and provide what they need or want in parks, amenities, even public safety. To be even clearer: If you care about, say, a skate park in your neighborhood you'll form a little group, collect money, pay for its upkeep and then look across the park at something else the city is neglecting, etc.
Let's call it "The Dissolving City."
This is already happening, of course. The city has dozens of business improvement districts, each of which basically exist to pick up where the government has left off. The area's hotel owners have banded together to pass their own tax to market the region and fund pet projects. This is how the San Diego Convention and Visitors Bureau, in the midst of a severe budget crisis, has found itself with more money to spend than ever before.
So when I heard about the task force being formed to study whether the city should (not "could") build an enormous expansion to its already very large convention center, I started to ingest the news with this preconceived notion in mind.
Here the city is, falling apart, but somehow preparing itself for the costliest construction project it has perhaps ever undertaken.
Either we're nuts, or some are gathering together, getting ready to pass the collection plate to make sure that while the city sinks, something they care about survives.
This is smart on their part. Whether I or anyone else disagrees, we should all understand what's going on. So I've spent as much time as I could spare the last couple of days talking to people involved about the Mayor's Citizen Task Force on the Convention Center Project.
Notice, first off, the name of the Task Force: It's the Mayor's Task Force on the Convention Center Project. The most important part of the discussion, whether it should be a project at all, is already decided and framed appropriately.
Steve Cushman, the chairman of the Port Commission and a co-chairman of the task force, wanted me to know it's not a given, yet, though, that this is a project the city's leader will pursue no matter what.
"The mayor said: 'Tell me if this doesn't make any sense. If you do, I will drop the issue -- never bring it up again," Cushman said.
My guess is that the task force will not tell the mayor that it doesn't make sense. Over coming days, let's try to figure out whether we think it does.
I've done a few interviews and have been reading a bunch of documents, and over the next few days I'll roll out what I could collect.
But if you all give me a hand, we might come out with more insights. I'll repost all the best comments and observations.
So! Insight posse, let's get to work. Here are some documents I need help reviewing:
The Draft: This is the most important one right now. A trio within the task force itself is trying to take everything the group is doing and synthesize it into a draft recommendation. The trio is obviously supportive of expanding the Convention Center -- they are: Mike McDowell, the vice president of the Lodging Industry Association; Lorena Gonzalez, the secretary-treasurer of the Labor Council; and Vince Mudd, a businessman and active leader of the Chamber of Commerce. Their document is located here. What do you see in it? What's interesting?
I found a couple of things and have some thoughts. How about you?
Here is a presentation consultant Piper Jaffray made to the task force outlining a proposed expansion, its cost ($750 million!) and potential ways to pay for it.
As I said, I did a bunch of interviews and have a lot to share, but what do you see in all this? If the city has $750 million to spend on stoking and sustaining its economy, is this really the best way to spend it?
The Scott Lewis on Politics blog, abbreviated cleverly as SLOP, is a collection of observations, insights and the occasional scoop on public affairs in San Diego. Please feel free to e-mail Scott at scott.lewis@voiceofsandiego.org.
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Howzat?! Those of us who have been watching this issue for several years have been working on the assumption that a renovation was completely unacceptable and unrealistic to the NFL and the Chargers. To hear him even float something contradictory was odd.
