Tuesday, April 12, 2005 | As the San Diego City Council sits down today in cavernous Golden Hall to debate raising the wages of its lowest-paid employees, the underlying theme of the conversation will likely become a familiar one in the coming years in San Diego: Whether or not it is appropriate to add costs to future budgets with the city mired in a financial crisis.
Indeed, that question dominates two ongoing policy debates – the living wage ordinance to be considered by the council today and the new main library planned for downtown. In both cases, opponents point to colossal payments due to the city’s pension system and future retiree health care bills as the primary reason for each project’s infeasibility.
It’s recommended that nearly one-quarter of the city’s $900 million general fund budget go to paying down its pension debt in the years to come. The city’s pension deficit sits at $1.37 billion, while it is also on the hook for an estimated $500 million to $800 million in future retiree health care costs that have to date gone unfunded. Such payments are likely to annually crowd the already-tight budget, which goes toward covering the day-to-day costs of running the city, such as the operating costs for police, fire, parks and libraries.
For some, that’s reason alone to kill any talk of adding costs to city rolls. Others acknowledge the city’s plight, but don’t believe the overarching problem should overshadow progress.
“I believe over the next four to five years every dime of new revenue that comes into the city needs to go into paying the pension deficit,” said accountant April Boling, who studied the city pension system as chairwoman of the Pension Reform Committee.
The proposed fiscal year 2006 budget serves as a timely example. Of the $965 million budget anticipated, $160 million of that alone is slated to go to the pension system – and some believe that payment still falls considerably shy of keeping the deficit from growing. Even with that payment, a budget gap of between $38 million to $50 million must be closed through service cuts and layoffs in May budget deliberations.
Living wage is a minimum of $10 an hour
“It is a cost to the city, it does impact organizations that do business with the city, but it is the right thing to do,” said City Councilwoman Toni Atkins.
Supporters say taxpayers pay for the costs of low wages one way or another, through subsidized health care and other social services funded by taxpayers. As examples of where the additional money could be found, City Councilwoman Donna Frye pointed to city civil engineering contracts that pay secretaries and clerical help between $55 and $75 an hour.
Opponents of the living wage ordinance, such as Mayor Dick Murphy and the San Diego Regional Chamber of Commerce, say the proposal is simply irresponsible given the city’s fiscal realities.
“The demand for fiscal responsibility must be heard, and it must come from all corners of the community, not just the business community,” said Jesse Knight, Jr., chamber president.
Opposing sides differ vastly on the financial impact, both immediate and future, of the proposal. According to a report issued Friday by the City Manager’s Office, the ordinance would add costs of $3.4 million to the 2006 fiscal year, which begins in July. Officials at the progressive think tank Center on Policy Initiatives, which is leading the charge for the ordinance, dispute those numbers. They say the majority of the fiscal impact won’t be felt until 2007 and 2008 and will be considerably less than anticipated by city officials.
The proposed downtown library
The project was passed as part of a $312 million overhaul of the library system in November 2002. Supporters said the project wouldn’t impact the city’s general fund, as money would come from private donations, state grants and the city’s downtown redevelopment arm.
But, construction costs have risen considerably in the last two-and-a-half years and the city’s financial situation has taken a turn for the worse. Additional maintenance and staffing costs have been calculated to add $4 million to the city’s general fund budget when the new downtown library is completed in 2008.
Bruce Herring, deputy city manager for special projects, said the construction price tag remains the same. The original price contained some buffer to account for price increases, and planners have also deferred the construction of an auditorium and tenant improvements on two floors that will be rented as office space until the library expands.
He said the city has become “a leaner and meaner machine” since the library plan was passed and said city officials will search for ways to minimize the financial impact of the new library.
“It’s very hard to get people to talk seriously about the pension issues and all the budget problems we’re facing while at the same time we’re talking about building a new library when we can’t even keep our branch libraries open,” Frye said.
To fund construction, the Centre City Development Corp., the city’s downtown redevelopment arm, has pledged $80 million and the city has received a $20 million state grant. An additional $3 million has been raised in private donations.
That leaves $47 million more to be raised in private funds; city officials say they need $27 million of that by this summer or the library plan can’t go ahead. City officials are in talks with at least one philanthropist to raise a large chunk of the $27 million needed.
“I’m not suggesting we build a monument to anybody, but I do think that San Diegans care about libraries,” said Atkins, who supports the building of the downtown library.
Cut services and raise revenues
For now, the city remains stuck without access to capital markets for projects short-term and long-term. That will be the case until its long-delayed fiscal year 2003 and 2004 audits are released. The audits are on hold in the wake of revelations that city disclosure statements to investors contained errors and omissions regarding the pension deficit.
The eyes of investigators, credit rating houses and investors remain fixed on city’s movements. And as long as the pension deficit exists and this level of scrutiny remains focused on City Hall, legitimate questions will surround any new project.
“[The living wage ordinance and downtown library] both mean new expenditures – future expenditures that we have no business making as long as we have this outstanding pension problem,” Boling said. “It’s the wrong message. I don’t think we should be so foolish as to think that nobody’s noticing.”
The City Council will consider the living wage proposal at 2 p.m. today at Golden Hall in the San Diego Concourse, located at 202 C St.
Please contact Andrew Donohue directly at