Thursday, Nov. 27, 2008 | There are a lot of people looking at the local housing market and its effects on the local economy right now and gulping.
Local city leaders are worried like they never have been. Money from the sales taxes they rely on to fund city services is actually shrinking. They will be fortunate if property tax revenue merely levels off instead of shrinking similarly.
But perhaps no one in San Diego is as surprised about what happened as Mayor Jerry Sanders.
“I don’t think anyone thought it would be this bad,” he told me in an interview this week.
I pointed out we did — that a few of us were screaming about the obvious mania in the housing market and warning about the economic catastrophe that San Diego would experience when it subsided. Sanders said he didn’t know whether that was true or not.
“I don’t think anyone ever dreamed it would hit us this hard. You get six experts into a room and you get six different opinions on how hard it’s going to be,” Sanders said.
Did no one, really, dream of this? Exactly two years ago, the mayor’s staff itself expressed major worry, that the median home price in San Diego would drop below $550,000. Ha! Dataquick now puts the median home price in San Diego County at $323,500. And it’s still dropping.
In the report Sanders’ staff prepared toward the end of 2006, they also recognized that it wasn’t just property values and taxes that would be affected if the housing market turned south. They saw that it would kill retail sales too and threaten revenue from sales taxes. If they were worried that the median home price might drop to the unthinkable $550,000 what did they think when it dropped to $450,000? Or $425,000?
This precipitous drop should have sent them scurrying, I would think. I’m picturing alarm bells going off in the Mayor’s Office. Perhaps some rotating lights, papers flying, some high-pitched screams and maybe some quick gulps from hidden flasks of whiskey.
Apparently none of that happened. And the mayor was left “shocked.”
This is why he and his staff suddenly had to propose closing seven libraries and nine recreation centers just to keep the city running this year. This is why, when critics asked why he wouldn’t allow for even a bit more time to discuss such draconian cuts after years of sparing us such pain, he has replied with explanations like this one he gave me:
“I would have loved to have more time. Unfortunately, that’s not the way it works when you have a mid-year budget deficit of $43 million,” Sanders said.
Remember, nobody could have foreseen this.
It took a lot of courage for the mayor to propose such dramatic cuts to city services. He is, after all, a politician. And service cuts, like tax increases, win you few votes and can be packaged by your political opponents into brutal commercials and attack mailers.
What’s more, this is San Diego. We’re not so into the whole reality thing here. The mayor has spent the entirety of his term until now protecting us from the uncomfortable reality that our city is not set up to bring in as much money as it’s set up to spend. He could do this because, over the past few years, this fundamental structural imbalance at City Hall has been masked by the boom in the housing market and the strong growth in the amount of money coming into City Hall through sales and property taxes.
To go from telling us we don’t have to raise taxes, we don’t have to cut services and we don’t have to do anything else really uncomfortable for years to suddenly telling us we need to cut libraries and rec centers is a bit startling.
The mayor deserves praise for finally confronting reality. But it was a bit of a shock to see him do it so abruptly.
Unfortunately, it wasn’t the only surprise of the last couple weeks.
Every once in a while, the wool over many of our eyes is blown back by a freak gust and we all get a startling view of reality.
One such instance happened about a year ago. Andrea Tevlin, the City Council’s independent budget analyst — a smart, frank and helpful data cruncher — came out with a report that declared, in no uncertain terms, that the city of San Diego had a structural budget deficit. It was simply not set up to bring in as much money as it was set up to spend each year.
The declaration meant, simply, that we could do all we wanted to get by each year, but unless we changed that structure we will always struggle as a city.
She blasted the city for, every year, using one-time funds to pay for bills that will come each and every year. It’s as if City Hall would get a Christmas bonus and use it to pay the lease payment on its luxury car. We never worried what would happen when next month’s bill was due.
Tevlin declared that it was time to change that culture once and for all.
But the year went on. And after the mayor won re-election, he promptly informed us that the times, they were dire. The structural budget deficit Tevlin described would finally be a problem. It had been masked by the growth in revenues from a booming housing market until this year.
Now, the housing market is collapsing. And so were the city’s revenues. The mayor warned that we wouldn’t even have enough money to make it through the end of the year. Even Scott Peters, the City Council’s perpetual optimist, sounded a note of doom and gloom.
So the mayor decided that to make it through the year, and to stop playing the shell games Tevlin had derided, he would recommend the city simply shutter seven libraries and nine recreation centers.
Regardless of how you feel about cutting libraries, the mayor could not have made the reality of the financial picture more clear.
In response, rather than embrace the fact that the mayor had come closer to her and was now proposing a structural change that would get us nearer to balancing our structural deficit, Tevlin did something shocking: She recommended the city play some more shell games. She recommended that the city use one-time funds to keep the libraries open.
The mayor instantly calculated that another $10 million in trouble was being passed along to next year’s budget.
Tevlin had suddenly done exactly what she had bemoaned. She was a hypocrite.
I was a bit taken aback. How could Tevlin — whose frankness last year had won me over like a smitten groupie — betray reality like that? It’d be one thing to save the libraries by raising a fee or by cutting something else. But she simply handed a Power Bar to City Hall as it tread water in the ocean. Was that really Tevlin?
I asked her what she was thinking. And she in turn gave me something to think about.
The mayor had not long ago purchased land to expand the Ocean Beach library he now wanted to close. A new library was opening up in Logan Heights.
Tevlin was flabbergasted. The city has — until this very moment — obviously been planning a different future for its library system. Is the mayor somehow trying to hold onto that vision at the same time he guts it? Is this how a sophisticated city deals with long-term planning — by not doing it? Did he honestly expect us to, in one month, decide to shutter a bunch of libraries?
She had a good point. Here the city was still nominally supporting a new downtown library. It was cutting hours at many libraries at the same time it was planning a grandiose main library in the city’s urban core. The libraries to be closed seemed to come at random according to the whims of a new library director. Was there no comprehensive plan for the future of the system?
That’s why she flip flopped. That’s why, she said, she embraced what she once disparaged: a one-time shell game to push off painful decisions.
“We recommended a stop-gap funding approach to take us back and give us time to say where are we going with our library system? How did you pick these libraries to close?” she said.
She’s right. The city may indeed need to cut a huge percentage of its libraries, but we should have a plan in place so that we can ensure that we revise the whole system and make sure it’s as efficient as possible.
The mayor doesn’t disagree.
Sanders too wished he had more time, he said, to deal with the libraries and plan for a long-term system. He said that, during the truncated debate about his cuts, he learned, for example, that many of the people who were so upset that libraries were being closed didn’t really care about the books. They were worried about losing access to the internet and periodicals. This surprised him, he said, but it made sense.
In other words, he was confessing that the ephemeral public process he engaged in to close the libraries actually made him think twice and wonder if they couldn’t try to revise the library system. Maybe they leave the Ocean Beach library, for instance, without a single book but try to keep the computers going. Or who knows what else they could do.
But, he said, there was simply no time.
This, however, isn’t sitting well with everyone. Couldn’t the mayor have known that the city would be facing this kind of trouble if the housing market collapsed and the economy faced trouble? And, if so, couldn’t he have been preparing for years for this kind of pain.
“I have to be critical of the mayor for not only not being better prepared but also for not communicating to the public his rationale for cutting specific libraries and recreation centers,” said Lani Lutar, the CEO of the San Diego County Taxpayers Association.
She pointed out that, for instance, it’s taken the mayor three years to eliminate the pointless Office of Ethics and Integrity. I fought that battle years ago. No one could ever tell me what the office’s purpose was. How many millions could have been saved if programs like this were abandoned earlier as per recommendations or if they were never begun?
Lutar said the mayor deserves praise for having the courage to propose such difficult budget cuts.
Again, she’s right. The mayor does deserve credit for having the guts to propose closing libraries and recreation centers. Political consultants cringe at that kind of thing. And it was no wonder that the mayor’s supposed ally on the City Council, Kevin Faulconer, wanted nothing to do with the plan. Faulconer has ambitions and he is worried about his image in the neighborhood.
It takes courage for the mayor to confront San Diego with this reality. But had he found that courage earlier, he could have prepared residents for the storm.
The mayor could have spent the last two years preparing the public for major service cutbacks. The economy was not going to shelter us anymore.
If he knew that his first drastic, painful cuts would target libraries, he could have laid out a vision of a 21st century library system. Perhaps such a vision would include a warehousing system in a relatively cheap facility in the Kearny Mesa area. For those who want books, we could set up a Netflix-type system. You already have to order most books when you go to a neighborhood library, why bother with the neighborhood library at all? For those who want the experience of a facility to surf the Internet and read the paper, we could set up smaller, easier-to-manage options.
We could have discussed all of this. He could have held meetings and learned about what people really used libraries for and found better, cheaper ways to provide those services. And he could have, after all that, come down and said these libraries here, here and here have to go.
He could have abandoned, years ago, the notion that we could afford a new library downtown at all. The money set aside in downtown redevelopment funds for the project could have been sent, years ago, to fund other downtown needs, sparing the city budget the trouble.
Yet it’s only now with the “shock” of the economic storm that we’re able to face that reality.
We are preparing for a major budget storm. He could have told Joe Resident this. We can’t do it like we have in the past. He could have drilled that into our heads.
This could have happened over months, if not years. By the time we really did face a shortfall, we could have a whole new library system to look at. It might be much smaller, as far as number of facilities, but it would be cheaper and it could perhaps deliver better services.
This is what could have happened had we dealt with the reality of our structural budget deficit and our flimsy economic situation much earlier.
But we waited. Now what?
Undoubtedly the T-word will come up. Taxes. The city’s two main sources of revenue are sales taxes and property taxes. The third is hotel-room taxes. Sales taxes hit the poorest residents hardest. And in order for increases in sales taxes to work, there have to be, you know, sales. With retail activity dropping precipitously, an increase in sales taxes might do little more than cushion the fall and it might even accelerate it. An increase in property taxes too might only provide a feather bed for our falling revenues as thousands of San Diegans scurry to have the tax assessors revalue their property downward.
The hotel owners already boosted the hotel-room taxes and unbelievably were able to ensure the extra revenue funded their own promotion efforts while freeing the city of many fewer liabilities than they could have.
It is difficult to imagine the City Council putting tax increases like these on the ballot. But if they did, the structural deficit would remain.
For the next year, the city will have to evaluate every service it provides. It will have to imagine what kind of library system, what kind of parks, and what kind of a police department it wants in a world where revenues are much lower than they have been in past years.
The mayor must not waver from his recent commitment to wrestle with reality. But he’s also going to have to deal with everyone’s surprise about this unexpected seriousness.
We have an opportunity to imagine a modern city. Perhaps the delivery of information in books and on the internet can be done more efficiently than our current library system does it. Perhaps we can make it easier to get books, in fact, without having to maintain so many libraries. Perhaps it would be better to invest in information storefronts to help people access the internet.
Maybe we could finally pass, collectively and definitively, on the idea that downtown needs a beautiful new massive library and invest the money set aside in other vital infrastructure needs, sparing the city’s general fund more pain. The mayor is leading on this front.
Maybe we could unify the city and county governments — or parts of them. Are there really no overlapping efforts?
I don’t know if this is what Councilman Tony Young was thinking when he complained that the mayor’s proposed cuts were “unimaginative.”
But it’s what I mean. We have to modernize our city, not to make it more interesting and beautiful, but to make it simply sustainable in this new reality.