Monday, Oct. 27, 2008 | San Diego Mayor Jerry Sanders earlier this month used a major speech to m ake sure San Diegans were aware of the city’s dire budget situation, specifically a $43 million deficit that will require mid-year cuts in city programs and services.

Sanders didn’t mince words in his Oct. 14 speech to the San Diego County Taxpayers Association, saying “we almost certainly will need to curtail programs and close facilities that enjoy broad public support.”

But neither did he lay out the whole story, which could be far worse.

As things stand now, the city is not only an estimated $43 million in the hole this fiscal year, but has a projected deficit of close to $40 million in fiscal year 2010, which begins in July. So the real size of the gap the city must bridge between now and June is at least $80 million.

And that number could be optimistic given the downward spiral of property, sales and hotel tax revenue brought on by the housing bust and a worldwide credit crisis.

If the San Diego region is in a recession — and almost everyone agrees that it is — then next year’s budget deficit could balloon to $128 million, or about 10 percent of the general fund, according to an analysis done by former mayoral candidate Steve Francis’ San Diego Institute for Policy Research.

Independent Budget Analyst Andrea Tevlin said Francis’ estimate is credible. Jay Goldstone, the city’s chief operating officer, called it “superficial,” but he did say it would be within the realm of possibility if the city suffered a deep recession.

City officials also acknowledge that it is possible, even likely, that the state — which is falling billions and billions of dollars behind — will soon exercise its voter-approved authority to take up to 8 percent of property tax revenues from local governments statewide.

That would mean an additional $34 million from the city’s general fund, according to Tevlin’s office. Under Proposition 1A, passed by California voters in 2004, the state would have to pay the money back, but not for six years.

Regardless of what the actual number turns out to be, the impact on the budget will be staggering. And it will put to the test San Diego’s long tradition of promising its residents expensive programs and services, and its employees generous pay and benefit packages, while collecting less revenue per person than any other large city in the state.

Goldstone said layoffs of city staff are inevitable. Tevlin predicts “hard” and “drastic” cuts. Councilman-elect Carl DeMaio equated the city to a “heart-attack patient who gets an unexpected allergic reaction.”

“It’s going to be extraordinarily painful, what’s coming down the pike,” Francis said.

The $43 million deficit represents 7.3 percent of the city’s non-public safety general fund expenditures, and is equivalent to the combined current year budgets of the treasurer, auditor and comptroller, economic development and planning departments.

If the 2010 deficit ran up to $128 million, it would be equivalent to the combined library, trash collection and city attorney budgets. If the state takes another $34 million, the shortfall for 2010 will be nearly as much as the $169.5 million budgeted this year for fire and rescue.

Sanders has ordered each of the city department heads who report to him to propose cuts totaling 10 percent of their annual budgets. Those proposals are being submitted now, and the mayor is scheduled to present a package of proposed cuts to the public Nov. 5.

In perhaps a sign of things to come, a San Diego Police Department detective this week sent an e-mail to potential out-of-state recruits indicating that the department has put out-of-state hiring on hold, a significant step given the department’s officer recruitment and retention crisis. Department brass said this week that the e-mail was inaccurate.

San Diego’s budget crisis is not unique, said Chris Hoene, the director of policy and research for the Washington D.C.-based National League of Cities. The housing meltdown has decimated city budgets across the country. Hoene ticks off a long list of cities seeing red: New York City $1.5 billion; Chicago $400 million; Phoenix $95 million; Orlando $40 million.

But San Diego, which was in its pension-related financial crisis during the boom years while other cities were flush, is in a particularly vulnerable situation. Millions have had to be taken from the general fund in recent years to make up the pension deficit as well as shortfalls in retiree health and general reserve funds.

“We have sort of this sack of things that are sucking up the general fund at a more difficult time than before,” Tevlin said.

And Sanders has spent the past three years trying to make good on campaign promises to cut spending. He has already eliminated hundreds of jobs, and cut back on swimming pool hours and other popular services. As Goldstone puts it, “the low-hanging fruit is gone.”

Tevlin’s office recently released a laundry list of temporary cuts that could help close the current fiscal year deficit. Among them were freezing overtime, equipment purchases, outside contracts and even instituting a mandatory furlough for city employees. But those cuts, Tevlin acknowledged, are essentially to stop the bleeding until permanent cuts can be instituted.

Sanders, newly elected to a second term, has said he would not support raising taxes to solve the city’s financial crisis.

Hoene said the current crisis should be an “aha!” moment for the people of San Diego.

“San Diego is one of the nation’s great cities — but it is on a track that it is unable to financially sustain over time. This is a long-term fiscal problem that begs the question: what kind of city do people want San Diego to be, and are they willing to pay for it?”

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