Wednesday, Jan. 14, 2008 | Mayor Jerry Sanders emphasized the need for sacrifice in his fourth annual State of the City address on Wednesday, tempering his usual optimistic notes with cautionary words about the city’s budgetary woes.

Speaking to a crowd at the Balboa Theatre, Sanders sounded familiar notes about the problems he had inherited from his predecessors and painted himself as a fearless truth-teller and accomplished cost-cutter. Still, the city is staring down a stark budget deficit, and Sanders said employee unions and the public at large must make their own contributions.

“If you take nothing else away from this evening, hear this: There is no role here for the forces of obstruction or denial, or for selfish posturing by those who think they can do their share by suggesting sacrifices others can make,” Sanders said.

As in his first speeches after being elected in 2005 as the man who would solve San Diego’s financial problems, Sanders chronicled the way previous administrations had left the city with a “legacy of debt and disorganization.” Sanders emphasized the changes he’s made during his time as mayor, noting the city’s recent return to the public bond market this week after the city’s credit rating was stripped.

Sanders detailed financial reforms such as a streamlining of city services known as “business process reengineering” that he said had saved taxpayers millions.

The mayor’s staff said the process had saved nearly $43 million, but it has been the subject of some debate. Independent Budget Analyst Andrea Tevlin has said it’s impossible for her office to tell whether savings came directly from the business process reengineering, or from other budget cuts.

“There may have been too much credit to business process reengineering,” said Lani Lutar, president and CEO of the San Diego County Taxpayers Association. “But there has been significant reduction in positions, so maybe we ended up in the same end position in a different way than was anticipated.”

The mayor did note that the city workforce has been cut by more than 870 positions during his time in office. Most of those came from cutting vacant positions, Sanders spokesman Darren Pudgil said.

Sanders also referenced managed competition, a process in which city departments compete with private companies for city work and one of the signatures of his mayoral campaign. Voters approved that initiative in 2006, but its implementation has lagged, in part because of a successful union legal challenge and a costly and vague contract with the company designated to oversee the design of the program.

The mayor said Wednesday that he plans to bring a managed competition guide to the City Council this year.

Sanders also said he had done his part to slash city pension obligations, noting an agreement with the unions to rework the employee retirement plans to include 401(k) components.

The mayor said he and his staff had become “experts in streamlining government,” painting his cost-saving reforms in stark contrast to the financial practices of previous administrations.

The pension payments that continue to drain the general fund, Sanders said, were “the legacy of previous administrations, which recklessly underfunded the pension system so they could continue to expand popular programs and give out pay raises without accepting responsibility for those costs.”

But Sanders has also given out raises for police officers and firefighters in the midst of budget crunches without adding new revenues. Sanders said after his speech that there are always “exceptions,” noting that the city was facing a crisis in hiring public safety personnel because of its lagging wages. He also said the city had revenues at the time to fund those salary increases, which he said placed the city in the middle of the pack salary-wise.

Councilman Carl DeMaio said the mayor deserves credit for many reforms — including the city’s first bond offering since 2003 — but doesn’t think “we’ve achieved the efficiencies we need in city government.”

“We’ve made some progress, but there’s a long way to go,” he said.

In many ways, the city’s financial situation is as precarious as when Sanders took office, if not worse. The recession and the housing crash has diminished the city’s property tax revenues, resulting in the city’s projected $54 million budget gap for the financial year starting July 1. The flagging stock market has also hurt the city’s pension fund, which has dropped 20 percent since the beginning of the fiscal year.

In his speech, Sanders cited the city’s “ever-widening crater” between the city’s annual pension contributions and its liabilities. He praised employees for working with the city on pension reforms — an agreement reached after the sides were at an impasse — but said further cooperation is needed.

“I caution that neither labor nor management can afford another impasse because the cost of business as usual will be paid through service cuts and layoffs,” he said. “Failure to craft a resolution covering retirement benefits will be detrimental to public employees and public services alike.”

Much of Sanders’ speech was dedicated to the idea that the public must be willing to pitch in. He said while San Diego’s quality of life draws people here, “many view our quality of life as a birthright, rather than something that needs to be sustained through determination and even sacrifice.

“The challenge we face today,” Sanders continued, “is maintaining services established in an era when labor costs were low and our tax stream was not being diverted by the state or siphoned off by expensive mandates and pension payments.”

That emphasis made the speech popular with attendees such as Lutar, who called the speech the best of Sanders’ annual addresses. The taxpayers association had stressed the use of volunteers as part of the city’s midyear budget cuts, and Lutar said Sanders was candid in his assessment of the challenges ahead.

Sanders mentioned the Retired Senior Volunteer Patrol program that aids police. The mayor said he’s also asking those volunteers to take on the extra responsibility of monitoring foreclosed and abandoned homes and working with the City Attorney’s Office to “hold lenders accountable” for maintaining the properties.

Sanders added that the RSVP program works in large part because “they have been warmly welcomed by the Police Officers Association, which rightly saw the program as an asset, not a threat.” Volunteer programs can be a bone of contention with unions if they replace paid employees.

After the speech, the mayor said he was trying to convey to the unions that such programs would help — not displace — city workers. He said such programs are much easier to put in place if the unions embrace them.

Lorena Gonzalez, secretary-treasurer of the San Diego-Imperial Counties Labor Council, said union members are willing to work with the city. But she said Sanders’ speech focused heavily on concessions that unions would be asked to make and said it “would have been nice for him to mention someone besides labor.”

She said Sanders should have called on other groups to contribute in tough times. “I’m interested to see what he will be asking business to sacrifice because he’s asking labor to sacrifice,” Gonzalez said.

Sanders also cited the need to increase revenues, noting that the city is looking at fee increases, which he pledged to support only as long as they covered the cost of services.

He also mentioned creating long-term tax revenue through good jobs, such as those in clean technology, singling out a new program to help residents install solar devices on their homes and pay the costs over 20 years. He said the program wouldn’t cost the city, but would create “clean, well-paying jobs” in the solar industry.

Sanders didn’t mention taxes, but some thought the speech laid the groundwork for support of taxes. After the speech, Sanders stuck to his previous statements that the public will signal when it’s ready for a tax increase. But he said that the volunteerism cited in his speech may reflect an increased faith in city government — something he said is a prerequisite for the public to agree to higher taxes.

Sanders also said an expansion of the Convention Center is needed. He voiced guarded support for a recent proposal that could save the downtown library through a partnership with the school district. Sanders noted the money could help make up a funding shortfall and create a model downtown high school, words that drew applause from the crowd.

But Sanders also said the city’s general fund shouldn’t pay for the library, which he said should not “unduly burden future city budgets.”

“It’s a concept that deserves a full and fair hearing,” Sanders said. “But it’s an opportunity, not a done deal. First we need to understand the true cost.”

DeMaio said he was disappointed with the mayor’s mention of the library, saying the city doesn’t have the “financial bandwidth” to support it. But he was at least encouraged that Sanders “left the door open” for the project not to happen.

Sanders’ focus on clean technology and his words that residents must conserve more water given the region’s shortage impressed environmental-minded council members such as Sherri Lightner and Donna Frye. In general, Frye thought this year’s speech suggested Sanders wanted a good working relationship with the council.

“Maybe we’re just growing on each other,” deadpanned Frye, Sanders’ one-time campaign opponent.

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