The Morning Report
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Tuesday, Feb. 3, 2009 | During his recent State of the City address, San Diego Mayor Jerry Sanders expressed “great pride” in how far the city has come.
“Despite our hard work and progress,” Sanders said, “we’re not yet at the summit of that mountain.”
In many ways, the city’s situation is as dire as — or even worse than — when Sanders took office in late 2005. The economy has exacerbated the pension deficit. Services such as trash pickup near the beach have been slashed, leading residents to pile Subway sandwich wrappers and empty soda bottles where the trash cans used to be. And the possibility of closing libraries and recreation centers is likely to reemerge as the city seeks to close its budget gap for the upcoming fiscal year starting July 1.
“Going forward, we’re in poor shape,” said Steve Erie, a political science professor at the University of California, San Diego. “You can say a lot of that took place before Jerry’s watch, but it’s really hard to say that we’re better off.”
Sanders was elected in late 2005 on his promises to fix the city’s finances as City Hall reeled from a series of financial scandals. The previous mayor had resigned under the weight of crushing long-term deficits and local and federal investigations. In his first State of the City address, Sanders said first three years in office would be “rebuilding years.” But the tanking economy has added a new wrinkle to his endeavor, and it’s a matter of debate whether Sanders could’ve prevented the situation.
In last month’s address, Sanders said, “The problems we face now are no longer just the ones left us by our predecessors.” Still, he didn’t assign himself any fault in that and continued to heap blame for the city’s troubles on its past leaders and the economy.
Andy Berg, general manager of the local chapter of the National Electrical Contractors Association, said comparing the current situation to that at the start of the mayor’s term is difficult and probably unfair, given that the economic downturn is to blame for the city’s current woes.
“The economy was good,” he said, “now the economy’s in the toilet.”
Mayoral spokeswoman Rachel Laing said the question of whether residents are better off now is a difficult one to answer.
“If we had an economy that had stayed stable, I think we would be saying today that we are much better off, that we had gone a long way toward solving the structural deficit, we’re back on the bond market, a lot of the issues in the Kroll report have been addressed,” Laing said.
She said the mayor has made significant reforms, including issuing long-delayed audits that led to the restoration of the city’s credit rating. The mayor has eliminated more than 870 positions, the vast majority of which were vacant. But, she said, many of those reforms have been hampered by the decline in revenues.
Jay Goldstone, the city’s chief operating officer, said the budget has clearly improved, thanks in large part to increased efficiencies — a process dubbed business process reengineering — and the creation of a long-term budget outlook.
“It was close to a $100 million deficit when we took office,” Goldstone said. “Right now we’re looking at a $40 to $50 million deficit for 2010 and if it wasn’t for the economy, that number would be significantly lower.”
Before, Goldstone said, the budget was balanced only by underfunding critical areas such as the pension, deferred maintenance and the city’s reserves. With those areas added in, Sanders’ first five-year budget outlook, issued in November 2006, showed a $87.4 million budget gap.
But the city only closed an estimated $43 million midyear budget gap through methods such as eliminating skate park supervisors, trash cans and fire pits on the beach, though the fire pits were saved at the last minute through an anonymous donation. When the mayor submits this year’s budget, controversial methods such as closing library branches and recreation centers — which council members decided against this year — are likely to be up for consideration again.
Erie said the city’s services are being slowly eroded. “It will be the death of 1,000 cuts budgetwise,” he said.
In the State of the City address, Sanders said the positions he had cut had not come at the expense of “core services.” Laing said the services that have been slashed — almost entirely, she said, as part of the midyear budget cuts — were not essential.
Referring to the example of the trash cans, she said their removal is a noticeable inconvenience but not a “cause for outrage.”
“It means (people) would have to go to the beach and find a place to throw their Starbucks cup, but is it fundamentally something the city must provide?” Laing said.
Lani Lutar, president and chief executive officer of the San Diego County Taxpayers Association, said while services may have been reduced, “I don’t think the mayor ran a campaign saying he was going to ensure the city of San Diego was going to have longer library hours.”
She said the mayor should be judged on his financial reforms. Lutar said there have been setbacks, such as the stalled effort to put some city services out to bid, and missed opportunities, saying the mayor could have made deeper staff cuts sooner in his first term. Yet, she said the mayor has followed through on significant commitments, such as helping to pass a ballot measure requiring voters to sign off on changes to employee pensions and creating a trust for retiree health care.
“The controls and process have improved significantly,” said Lutar, citing the creation of an Audit Committee and other recommendations from the Kroll report. “That said, I think there’s a lot of work ahead of us, but the mayor has followed through on a number of significant commitments.”
Goldstone believes the city was on track to solve the city’s so-called structural deficit by 2010 or 2011 through measures such as streamlining departments and creating a five-year outlook. Then the recession hit, Goldstone said, upending the budget by decimating the city’s revenue sources.
Those original forecasts didn’t predict the slowing growth — or declining — of revenues that came with the downturn in the housing market and the accompanying general economic meltdown.
And the pension deficit, which stood at $1.4 billion in 2005, has now grown to $1.8 billion at the hands of investment losses, according to an unofficial city tally. Another recent estimate pegged the deficit at $2.78 billion.
“From a financial standpoint, we’re worse off,” Councilwoman Donna Frye said, “but I think we can soon be better off if the mayor is serious — which I believe he is at this point — in dealing with the pension issues.”
Sanders has funneled more money into the pension system than his predecessor and recently brokered changes to the pension plan that would make a 401(k) component a larger part of city employees’ retirement plans. Goldstone said the savings from that plan, estimated at a half-million dollars in the first year, will eventually grow to about $22 million annually in the long-term.
However, Frye argues that the pension reforms that Sanders has put in place have been limited and have been offset by Sanders’ decisions to give raises to police officers and firefighters in the midst of budget crunches. Goldstone estimated those pay hikes, which Sanders said were needed to stave off a crisis in retaining officers, cost the city about $10 million a year.
“You kind of can’t have it both ways,” Frye said.
In his State of the City address last month, Sanders derided “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.”
Berg said the pension system is in better shape now than when Sanders took office and will recover when the market does. “That’s just the nature of the pension,” he said of the recent investment losses.
Lutar said many of the changes Sanders has initiated are less visible than the things that were cut. She gave the examples of improvements to the city’s sewer system and an overhaul of the computer system, which she said will save the city in the long run if it’s implemented successfully despite its cost overruns.
“Ten to 20 years from now, the work he has done will be much more appreciated than it may be right now,” Lutar said.
Frye said talk about cuts to parks, recreation centers and libraries always provoke a passionate response from the public. This year is different, she said, in that people believe those cuts will be real and permanent this year — that a library that is closed won’t be reopened. That could affect their views of city officials.
“I think for council or any elected official who is in office when that decision is made, they will be remembered as the ones who closed that facility or shut down the recreation center,” Frye said. “But I can assure you that no one wants to do it. To some extent, it’s going to happen.”
Erie, however, doubted that there would be any political fallout for Sanders or anyone else.
“Jerry is termed out, the question is does he have ambitions for higher office?” he said. “The amazing thing is that San Diegans are so accepting. If you started to get this news in L.A. or San Francisco or Chicago, there’d be an uprising. Here everyone just goes to the beach.”