Wednesday, Aug. 9, 2006 | Much has been made about former Securities and Exchange Commission Chairman Arthur Levitt’s repeated comments to the San Diego City Council that what the city faces is not a financial crisis but rather a political crisis.
But then his firm’s long report on the city goes on to describe a fiscal problem of such magnitude, it’s hard to imagine what he might mean.
In our view, it means that while this region may have a strong economy, because of our immature brand of politics we haven’t successfully maintained a fiscally literate city government. And only strong political leadership can lead us from that kind of a situation to a more secure future.
Mayor Jerry Sanders, who might have thought he would merely be a witness to the revelations of the much-anticipated Kroll report Tuesday, ended up becoming a surprising target of the firm. In the nearly nine months since Sanders took office, Kroll says the Sanders administration is backwards in its accounting. More brutally, though, Levitt and his colleagues blasted the mayor’s financial recovery plan in terms with which we completely agree and hope the mayor takes to heart.
Sanders decided last spring to unveil a recovery plan that was surprisingly very similar to the one supported by his predecessors in city leadership – the people whose names fill the Kroll report next to words like “corruption” and “non-transparency” – and most poignantly for Sanders “denial of fiscal reality.” Sanders decided that the way out of the pension crisis was not to raise taxes to pay the massive deficit off, nor to make massive cuts to government bureaucracy, nor to send the city into bankruptcy. Sanders wanted to instead borrow a large amount of money from Wall Street.
His painless plan was to issue $574 million in pension obligation bonds – a second mortgage on a crumbling City Hall. It was a plan to incur even more debt than his predecessor had imagined at the behest of the employee unions. It would be a gamble of the highest magnitude, leaving the city open to the possibility that it could go into debt even more than it already was.
As Levitt and Kroll put it, it is not a solution.
“It has been suggested that the City address the deficit through the issuance of pension obligation bonds which would use borrowings from investors to increase pension assets, but which would not reduce the City’s underlying obligation to fund the pension liability. In doing so, the City would continue to push off the funding of these obligations to future generations of taxpayers while avoiding the difficult fiscal decisions that must be made,” the report states.
We’ve been saying something similar for some time. It is ironic that the city had to spend such an unrealistic sum – $20 million – to get a dose of fiscal reality like this.
But Mayor Sanders now has one last chance. This is an opportunity for him to stand up and lead us through those tough decisions. He doesn’t have to back away from his plan, he can take the advice of the highly paid consultants.
We continue to have questions about the cost of the report and we wonder exactly what city taxpayers got for their $20 million. We wonder why San Diego leaders continue to seek out layer after layer of proof for things that many have known about and publicized for years.
But if this report, finally, forces the city to accept that it has a massive deficit and that there are no easy ways out of the problem, it will be worth something. Mayor Sanders must realize at this moment that he has a clear choice: he can follow his predecessors’ lead and pursue a policy of perpetually searching for ways to delay the inevitable consequences of poor planning, or he can lead us to a new San Diego.
If Kroll did anything worthwhile, it was to have given our mayor that stark choice.