After a few years of a strong economy, good investment returns on the city’s pension fund (due largely to a high-flying stock market), and budgetary belt-tightening, San Diegans may have been lulled into thinking that the city’s fiscal woes are behind us. But the city’s pension deficit has not gone away, the quality of public services has suffered due to a lack of funding, and a downturn in the economy could put the city right back into fiscal crisis mode. More fundamental changes to the city’s finances are needed than the piecemeal approach of some budget cuts and rhetoric about efficiency in city government. Here are three specific proposals for long-term fiscal health in San Diego:

1.) Modify California’s real estate taxation system. Despite frequent complaints by residents, San Diego is a low-tax city: measured by local taxes per capita, San Diego is ranked 157th out of 232 cities with populations of over 100,000 (click here for the full list). Thus raising revenue though increased taxes would not put San Diego at a competitive disadvantage in terms of attracting businesses but could go a long way toward closing the pension deficit and leading the city back to fiscal health. The fairest way to raise additional revenue is to change the fundamentally unfair situation created by Proposition 13’s provision that real estate cannot be reassessed unless it changes ownership. This has led to the well-documented situation where two homeowners in near-identical houses pay radically different amounts in property tax because one bought their home last year and the other 20 years ago. If we were to modify Proposition 13 (through another ballot initiative) allowing properties to be reassessed absent a change in ownership it would rectify this unfair situation and at the same time raise additional revenue for the city, county and school district. We can keep tax rates at the same level, and thus recent homebuyers would not see a change in their property tax bill; only those who are not currently paying their fair share in taxes would see an increase.

2.) Phase out redevelopment areas. The central goal of a redevelopment area is to promote new growth in a defined neighborhood. The additional tax revenue generated through growth promotion is kept by the redevelopment agency to pay for their upfront costs and for infrastructure projects in the redevelopment area. Redevelopment frequently works, and in particular San Diego’s downtown project, administered by the Centre City Development Corp., has generated significant revenue through growth promotion. But now that downtown has been successfully redeveloped, it’s time the CCDC was dissolved and the tax revenue that currently goes to CCDC be given back to the county, city and school district. There is no reason that we need to continue to promote growth downtown, and thus should congratulate CCDC on a job well done, dissolve it, and allow for any future tax revenue to be used for other purposes (as a side note, redevelopment areas were never intended to be permanent entities and thus this is perfectly consistent with both the letter and spirit of California redevelopment law). If CCDC continues to exist, all the tax revenue generated by growth downtown will continue to be used to pay for projects downtown rather than benefitting the entire region. Even though CCDC spends its money on some worthwhile projects, such as affordable housing and new parks, that money might be better spent on other projects in other parts of the City, or to pay down part of the pension debt.

3.) View quality of life, rather than growth, as the key to economic stability. For a long time policymakers, and to some extent the public at large, have seen growth — new businesses, population increases — as the key to economic vitality. San Diego has successfully followed this path for decades, using new tax revenue generated by growth to pay for infrastructure and services. But we are clearly at the end of that era. Given the density of the city and the costs of new infrastructure, new growth may not pay for itself, as the costs of accommodating the growth will outstrip any new tax revenue generated. Instead of trying to grow our way out of the current fiscal crisis, we should focus on creating a vibrant economy through high quality public services that make San Diego an attractive place to live and work, retaining the residents and businesses already here. Given our natural advantages of location and climate, we can create a strong economy (using the tax revenue generated by No. 1 and No. 2) by focusing on quality of life issues: good schools, a good transportation system, and solid infrastructure. We don’t do this now; instead, we promote growth even if we are unable to support it with adequate infrastructure (example; Mission Valley). The reason policymakers focus on growth is that developers need growth to make a profit, and they have convinced policymakers that all growth is good for the city, despite significant evidence to the contrary. Getting our priorities straight could go a long way towards creating fiscal stability, but if we continue on our current path of growth at any cost, we could end up making our already dire fiscal situation even worse.

— BRIAN ADAMS

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