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Mayor Jerry Sanders today announced that he “enthusiastically” supports a massive 121-point remediation plan laid out in the Kroll report earlier this month, calling for a fundamentally smaller government – in both employees and services – in order to fund reform efforts and bring the city’s basic costs in line with its revenues.

The plan, the mayor said, is a necessary step in returning the city to fiscal credibility. He stressed, however, that it would not solve the city’s financial troubles. Instead, it would satisfy the two auditing firms working on the city’s financial statements, a key milestone for a city struggling to regain its credit rating and return to Wall Street.

The recommendations would fundamentally alter the city’s financial structure with the goal of increasing accountability and quality controls in the wake of one of the worst municipal accounting scandals in modern U.S. history.

“For too long, San Diego has been held up as the example of how not to do things,” Sanders said today. “We now have an opportunity to embrace reform and serve as an example of how a city can credibly get its affairs its in order and move on to a very productive future.”

Before the release of the report, the Mayor’s Office had expressed trepidation about embracing Kroll’s entire anticipated remediation plan, reserving the right to disagree or postpone expensive recommendations. That tune changed today, as the mayor accepted carte blanche the recommendations of a group of consultants that he last month accused of holding a desperate city hostage.

The proposal would:

  • Appoint a monitor to oversee the remediation effort and report back to the Securities and Exchange Commission, which has been investigating the city and certain officials since early 2004. (Sanders said the monitor has not yet been chosen, but that his office has spoken with the past three SEC commissioners, including Harvey Pitt.)
  • Create a full-time audit committee – comprised of two mayoral appointees and one City Council member – to oversee the city’s financial reporting. The proposal would also create a mayor-appointed auditor general, who would serve a term of 10 years and be responsible for the city’s internal financial controls.
  • Identify the true costs of the city’s deferred maintenance backlog, which has been pegged at anywhere between $300 million and $1 billion, and has grown as the city has failed to properly maintain its buildings and roads.

The mayor conservatively pegged the remediation efforts at $45 million over a seven-year period. However, he also acknowledged a laundry list of additional costs that the city will face as a result of a batch of anticipated changes to its pension system. For example, the city will likely need to repay $41.3 million over the next five years to the pension system to comply with the Internal Revenue Service’s tax code, as it has been determined that the city wrongly used the pension system to pay certain obligations.

As he has in the past, Sanders dispelled any talk of tax increases, saying the public wouldn’t support such a measure. Instead, he said he will evaluate what core services the city can and should provide to its residents considering its financial situation. Sanders has previously said he will cut 500 positions from the city and said today that the figure could now grow.

“I think the cost of benefits that we provide to our employees combined with the costs of the services that we provide to our citizens are unsustainable,” Sanders said. “It’s simply not realistic to believe that we can continue to operate in this kind of chaotic budgetary environment. We end up doing nothing right.”

The mayor did not specifically target any services for cuts, he said a five-year budget plan is in the works and will be released in the fourth quarter of this fiscal year, which ends June 30, 2007.

The city has yet to fully account for its revenues, expenses and liabilities dating back to fiscal year 2003, a fact that has left it unable to borrow money on the public markets for basic infrastructure projects such as mandated upgrades to its water and sewer systems.

Sanders was joined at the press conference by Chief Financial Officer Jay Goldstone and Council President Scott Peters, who was found in the Kroll report to have “knowingly and improperly” caused the city to violate state and federal laws and been negligent in the city’s bond disclosure process.

“I must tell you the audit committee report was a tough read for me,” Peters said. He embraced the mayor’s reform efforts, although he said he didn’t agree with everything in the report.

City Attorney Mike Aguirre called an impromptu press conference immediately following Sanders’, panning a number of the remediation efforts and suggesting that Peters and Council members Toni Atkins, Jim Madaffer and Brian Maienschein cannot be trusted to take part in the reform efforts because of their previous roles in the city’s financial problems.

The City Council will have final approval over the mayor’s nominations to the audit committee and the auditor general.

Aguirre also took issue with a number of remediation proposals that would dampen his powers, such as his replacement as head of the Disclosure Practices Working Group. He also suggested the election of an auditor general rather than the appointment.

The mayor’s plan calls for the city to regain its credit rating in February and begin bonding in June.

ANDREW DONOHUE

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