The Morning Report
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Tuesday, Nov. 20, 2007 | Mayor Jerry Sanders recalibrated his predictions for the city of San Diego’s reentry to the public bond markets Monday, putting forward a timeline that, if it holds up, will barely allow him time to tout his success on a key campaign issue when votes are cast in June’s mayoral race.
The promise to return the city to financial credibility stood as one of the biggest issues in the 2005 election. But now, with Sanders again making the fundraising rounds and holding campaign barbecues, the goal remains unattained and the schedule for accomplishing it continues to be pushed back.
After several postponements, Sanders now says he believes the city will return to Wall Street by late April. To do so, the city will clear the last significant hurdle remaining — an outside audit firm’s blessing of the 2006 financial statements — by late January, Sanders estimated.
The announcement marks another hitch in an ordeal that’s been ravaged by delay. Most recently, the city was told by ratings agencies that they would not likely upgrade the city’s creditworthiness until the completion of the 2006 audit. Their pronouncements came after the mayor’s forecast just a few weeks earlier that the 2005 audit would suffice for the ratings agencies.
Sanders announced the newest timetable in an attempt to assure residents that he was still pursuing the goal despite the delays, which have been a frequent theme during his tenure.
“What’s been lost on people is when we found out 2005 wasn’t good enough, they think we’re just sitting here,” Sanders said, noting that he couldn’t abandon hope on that “fundamental part of my reform agenda.”
Normally, a government agency such as the city of San Diego, which begins its fiscal year in July, would be wrapping up its 2007 audit this time of year.
Reaching the public markets would be a long-awaited triumph for the city, as it is contemplating a slew of construction and pension bonds totaling more than $1 billion over the next several years. And for Sanders, regaining access is an accomplishment his campaign could point to as proof that he successfully managed the city back into the financial world’s good graces after inheriting a government rife with money problems.
The city has been exiled from Wall Street since 2004, when errors and omissions were found on the city’s financial disclosures. Since the then, the city has been forced to borrow for water projects and the employee pension system and refinance the Petco Park bonds through private loans, which cost the city more because of higher interest rates.
The exile from Wall Street was one of many factors dogging Sanders’ predecessor, Dick Murphy, when he resigned in 2005.
Sanders said Monday he wants to continue borrowing on the private market to make a combined $220 million in upgrades for the water system, streets, sidewalks, storm drains and city facilities while the city waits for its reentry to the bond market. After the city receives its invitation back to Wall Street, the mayor wants to issue bonds for improving water and sewer treatment, filling the city’s pension deficit, and fixing infrastructure throughout the city.
Since taking office in December 2005, Sanders has stressed that regaining access to the bond market was a priority for his administration. But the city has continuously incurred the delays of the federal government, private investigators, auditors and ratings agencies that have demanded the city repent and correct its past practices before it is allowed to step foot in the markets.
Sanders has often been careful about predicting the city’s return to the market because of the uncertainty he perceives to be involved when auditors review the city’s books. But the predictions he has put forward continue to be proved wrong, as the city’s record keepers, City Attorney Mike Aguirre and the companies who conduct the audits have often wrangled with one another over the municipality’s disclosure practices. For example, Sanders said in his State of the City address in January that he thought the city could resume borrowing in the financial markets by summertime.
On Monday, he hedged his prediction with the caveat that Aguirre’s cooperation will be vital for the city to meet the timeline. He accused Aguirre of delaying the 2005 audit by more than eight weeks by holding up paperwork that was necessary for the auditors to complete their work.
Aguirre said he will help Sanders’ staff prepare the financial documents that would be attached to private loans that the mayor wants to take out while the city waits to reenter the markets. But Sanders cannot make haste of reforming the city’s financial reporting system just to fulfill a political goal, Aguirre said.
“We are happy to work with the Mayor’s Office on financing matters, but the problem is you can’t put financial statements out that are materially misleading and false,” Aguirre said. “We can’t be driven by a political timetable.”
But the political pressure to resurface in the markets will surely mount for Sanders when he stands reelection. He’s tried courting the three largest ratings agencies and the financial press on the city’s behalf virtually since his inauguration.
When voters step into a polling place in June 2008, they’ll want to know how much progress Sanders has made on reaching a milestone that would indicate whether the city is repairing its financial machinations. It’s an issue that Sanders’ potential challengers, such as businessman and 2005 mayoral candidate Steve Francis, would likely raise if the goal goes unfulfilled.
Craig Benedetto, a business lobbyist who served as a consultant to Francis during the 2005 campaign, said accessing Wall Street “isn’t the only measuring stick the business community will use to gauge Jerry’s Success.”
But he said that voters will look to blame someone, be it Sanders or Aguirre, if the city can’t stick to the mayor’s timeline. Aguirre is also up for reelection in June.
“I imagine the mayor’s people have vetted this very carefully,” Benedetto said. “You don’t make announcements like this before an election and not have it come true.”