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Saturday, April 29, 2006 | Mayor Jerry Sanders’ plan to borrow $374 million and inject it into the struggling pension fund should be stricken from his $1.38 billion general budget proposal because of uncertainty surrounding the ambitious plan, according to a report released Friday by the Office of the Independent Budget Analyst.
The mayor’s heralded $24.2 million boost to the Police Department budget in fiscal year 2007 is more accurately recorded as a boost of only $9 million, the report states, because the budget leaves about 17 percent of the department’s jobs vacant.
All said, IBA Andrea Tevlin’s report largely agrees with Sanders’ “time out” approach of trying to stabilize a city budget that has seen deep cuts at the hands of a mounting pension deficit. However, Tevlin, whose job it is to provide the City Council with independent financial analysis, did weigh in on a number of issues in the mayor’s proposal.
Sanders’ budget proposal is the first under the new strong-mayor form of government. The new structure went into effect at the beginning of the year; it shifted the executive duties of government from an appointed city manager to the elected mayor and also called for the council to hire its own independent budget analyst.
Tevlin, who came over from the city of Phoenix to fill the position, advised removing from the budget the most prominent and controversial piece of Sanders’ plan: a proposal to borrow $374 million in pension obligation bonds in 2007, which is one piece in the massive $674 million borrowing plan Sanders hopes will stabilize the city’s troubled pension fund.
The borrowing plan should be assessed independently of the budget and shouldn’t be included as part of the mayor’s overall spending plan, Tevlin said. A number of factors make the plan uncertain, Tevlin added, further emphasizing the need to bring the mayor’s spending plan down to $1.013 billion from $1.387 billion, the report states.
Without the borrowing plan, the mayor’s budget changes significantly. Sanders plans to use the bond proceeds to cover half of the city’s annual pension payment – the primary factor in the city’s previous tight budgets – and divert $50 million in savings into long-deferred maintenance and depleted emergency reserves.
“It would not be responsible for the City Council to approve a Fiscal Year 2007 budget that includes $374 million of bond proceeds without full consideration and due diligence relative to the Mayor’s Pension Obligation Bond proposal,” the report states.
The Mayor’s Office said it would remove the bonds from the budget but not give up on the plan. Instead, it will simply revert back to its original budget plan if bonds are let sometime in fiscal year 2007.
“We’re not backing away from idea of pension obligation bonds,” said Fred Sainz, Sanders spokesman.
Without the bonds, the city’s reserves would then remain at about 3.3 percent of its general fund budget, significantly lower than what is desired by credit rating agencies. Additionally, about half this year’s budgeted deferred maintenance would be lost.
The independent budget analyst also couldn’t locate in the budget about $9 million of the $26 million the mayor said he would put toward the city’s estimated $1 billion retiree healthcare deficit.
“We would need to know where you took that money from,” Tevlin said.
The Mayor’s Office said it was an accounting error that would be addressed.
Additionally, Tevlin’s report took issue with the budgeting of vacant positions within the police and fire departments, something that would significantly decrease mayor’s the much-heralded increases to public safety.
Earlier this month, the mayor announced an increase of $24.2 million to the police budget to cover a historical underfunding of overtime expenses and additional equipment, among other things.
“However, the IBA has found that true ‘additions’ to the department’s budget are closer to $9.2 million,” the report states.
The report says that the mayor’s budget accounts for about 150 to 200 sworn officer positions to go unfilled throughout the year, something Tevlin said was high. She said the current level is about 130 vacant positions, a number that should be reduced, not increased.
“A vacancy factor is a very common budgeting tool but it needs to be based on history, what you think is achievable, and this is just continuing more of the current situation,” Tevlin said.
Tevlin advised watching this number closely.
Sainz said the figure is appropriate given the recruitment problems being experienced in San Diego and nationally.
When he announced his budget, Sanders originally said the influx of cash to the department would allow police to finally fill all 2,100 officer positions. The budget analyst’s report took issue with that statement.
“The vacancy factor does not appear to be consistent with the press release that stated that the department is now able to staff up to 2,100 positions,” the report states. “Therefore, the IBA is raising a note of caution with respect to the Police Department Budget.”
Likewise, Tevlin took issue with the reported $13 million increase for the Fire-Rescue Department. The report states that while the mayor announced $8 million more would go toward fire overtime, perennially underfunded in city budgets of the past, the city was actually spending $3 million less on payroll expenses in the fire budget this year because of vacant positions totaling $11 million.
She said these “vacancy savings” offset much of the announced increases to public safety and can artificially impose hiring freezes by not giving departments sufficient funds to fully staff departments.
The IBA also calculated the city’s annual pension payment at between $168 million and $174 million, an increase from the mayor’s budgeted $162.5 million.
The City Council continues next week with budget hearings and plans to finalize a budget by June.
The city is currently unable to borrow money in the public finance markets until it regains its fiscal credibility. It’s unknown if it will regain its credit rating in the coming year, though the Mayor’s Office is banking on it. The city is still waiting for long-delayed investigations and audits to be released by private consultants.
Please contact Andrew Donohue at