Tuesday, April 18, 2006 | For the first time in San Diego’s modern history, an elected official proposed to the City Council on Monday how the city’s money should be spent for the coming year. Mayor Jerry Sanders, assuming the new powers bequeathed to the Mayor’s Office on Jan. 1, put forth a $3 billion budget outline that now heads to the public and council for nearly a month and a half of dissection.
The proposal kicked off the city’s first budget season under the new strong-mayor form of government, a system approved by voters in Nov. 2004 that removed the mayor as a voting member of the council and created what is essentially the city’s executive branch. The budget release comes at a historical time for other reasons, too, as Sanders now begins the tough task of enacting the plan he said would extricate the city from its financial woes during last fall’s mayoral campaign.
The mayor and Chief Financial Officer Jay Goldstone presented the City Council with the spending plan Monday, and the council largely held their comments and questions until upcoming budget hearings.
Also on Monday, City Attorney Mike Aguirre said he would release a legal and financial analysis Wednesday of one of the lynchpins of Sanders’ proposal: a plan to borrow $374 million in 2007 and $200 million in 2008 and infuse it into the pension system.
The borrowing plan, along with a modest increase in city revenues, has given Sanders the breathing room to begin financing long-neglected needs and avoid the deep cuts felt in recent years’ budgets. Sanders said attorneys have assured him that the structure of the deal is legal, but concerns have been raised about a piece of the plan that calls for bond proceeds to cover about half of the city’s annual pension bill.
Independent Budget Analyst Andrea Tevlin said she will deliver to the council her preliminary analysis and recommendations on April 28 and a final report later in May. The council will finalize the budget May 30, although if the mayor vetoes the council’s decision, the process could stretch into mid-June.
“It’s going to be a busy couple of weeks for everybody,” said Councilwoman Toni Atkins.
Also Monday, the City Council unanimously approved the mayor’s recommendation that no salary or benefit increases be granted to employees or elected officials for fiscal year 2007, which begins July 1.
Sanders told the council that the budget was a key piece of his financial reform package and spent a healthy portion of his speech addressing various criticisms of the budget, which the mayor slowly released throughout last week.
He said that his proposals were offered in good faith, without “arrogance or ill intent,” and that he would be willing to work with anyone with suggestions on how to fix the city’s problems.
“The city’s financial problems and many crises are manageable, in my estimation, given the proper reforms and a great deal of discipline,” Sanders said. “I realize this will tick some people off, but I was elected to tell the truth.”
Council members kept their comments brief. A number of council members applauded the mayor for his plans to begin to replenish the city’s depleted emergency reserves, although doing so relies on the success of his bond plan.
Council members also congratulated the mayor for condensing the budget into one 85-page volume, compared with past budgets that spanned as many as seven volumes.
“Given what we’ve had in the past, it must have been a quite a challenge,” Frye said to the mayor.
Frye expressed concern regarding the $162 million bill that the pension system has provided the city, joining a group of pension critics who believe the number does not accurately reflect the true costs of the city and only allows the pension deficit to grow.
Sanders hopes to make this number largely academic, as he plans to pay about half of the bill with cash and add another $374 million to the system in loans. The mayor appeared to be in that group of critics questioning the $162 million number when it was released last month, admitting at a press conference that it didn’t likely cover the city’s obligations.
However, he said Monday that those questioning the numbers were a limited number of people and said he was prepared to pay simply the $162 million out of the 2007 budget if his bonding plan does not go through as planned.
Frye also applauded Sanders’ decision to hire an actuary to analyze the pension system for the city alone, rather than relying on the pension system’s actuary.
Faulconer and Councilman Jim Madaffer asked questions regarding the financing of the $374 million in pension obligation bonds that would be released under the mayor’s plan in fiscal year 2007.
Goldstone, the CFO, said that the Mayor’s Office is monitoring interest rates and the mayor said he would only go ahead with the plan if rates were advantageous. (Pension obligation bonds are based on the premise that a municipalities can expect to borrow money at raters lower than the investment return they plan to make off of the money.)
“I think this is a prudent and rational way to get money into the system,” Goldstone said.
The bonding plan is predicated on the assumption that the city will regain its credit rating and access to Wall Street in fiscal year 2007. The city’s credit rating has been slashed or suspended by the major credit rating firms, leaving it unable to borrow money competitively in public markets for basic projects in the last two years.
The Mayor’s Office hopes to have long-stalled investigations and audits of the city’s finances wrapped up in the coming months and rejoin Wall Street by the end of the calendar year.
Critics say the borrowing plan only reconfigures the city’s debt and doesn’t address its core problems.
Both Madaffer and Councilman Brian Maienschein also asked the mayor to consider switching to two-year budget cycles, saying such a scenario would eliminate the time-consuming budget hearings every other year and allow the city to do multi-year financial planning.
Madaffer also said he respected the need to hold the line on certain budget costs, but hinted that he would be seeking more funds for libraries and parks.
“This is just the first part of this budget process and now council’s trying to look this over with the help of the” independent budget analyst, Council President Scott Peters said.
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