Mayor Backs Away from Financial Pledges

Thursday, May 7, 2009 | Shortly after Mayor Jerry Sanders took office, he pinpointed eight areas that he said were critical to the city of San Diego’s financial health and vowed to sink money into them at an unprecedented rate.

Now, with the city’s revenues falling sharply because of the recession, Sanders is backing away from some of those original pledges, setting aside less money than was originally planned.

In other areas, the money that has been budgeted has been in line with the original promises, but it’s largely gone unused. The city has yet to spend most of the money set aside to prevent stormwater pollution and has completed a small fraction of the projects meant to make city sidewalks and facilities accessible under the federal Americans with Disabilities Act.

Stormwater pollution prevention and ADA compliance are two of what Sanders dubbed the “eight significant areas,” the parts of the budget the city needed to fund in the name of compliance with the law and financial stability.

The others areas the mayor identified as his priorities were funding the pension system and retiree health care; bolstering the city’s main reserves and its reserves for worker’s compensation claims and lawsuits; and repairing streets, sidewalks and city facilities.

Lani Lutar, president and CEO of the San Diego County Taxpayers Association, said

it’s reasonable for the mayor to make reductions from his original plan, given the global economic crisis. But she said it’s important to make sure modest reductions don’t become significant ones — especially for the pension, one of the eight areas.

The mayor is paying the full annual required contribution, but Lutar is worried about plans to set up a committee to study a pension provision that, if changed, could drastically lower the city’s pension payment.

“We have made significant steps forward in addressing the pension situation in San Diego and we can’t afford to take even a minor step back,” Lutar said.

In some instances, the mayor is socking away less money for his eight significant areas than was originally envisioned.

For instance, much like the city receives a calculation of its annual pension payment, it also receives an estimate of what it would have pay each year to pay down its liability for retiree medical care.

Originally, Sanders had planned on paying that entire annual payment by the 2010 fiscal year, which starts July 1 because the city wasn’t saving to pay for benefit in the long term. The annual payment would amount to $113 million in the upcoming year; instead, the mayor is now proposing to set aside $57 million in the upcoming year.

The city isn’t required to pay off the full amount, though it must reveal the full liability — estimated at more than $1.2 billion — to investors on its balance sheet.

Lutar is at least encouraged that San Diego plans to put aside some money. For retiree health care, the minimum the city must pay this year is $32 million needed for premiums in the upcoming year; the mayor is proposing setting aside $25 million more for future costs.

For the upcoming year, the mayor has proposed putting away $7 million into the public liability reserve — less than the $10 million that was originally planned for, but enough to meet the goal of having a fund reflecting 15 percent of the outstanding claims.

Similarly, the proposed budget calls for a $5 million contribution to the worker’s compensation fund, which would meet this year’s goal of a 22 percent reserve.

However, in both cases, Sanders’ administration had originally planned to build both funds until they reached 50 percent of the outstanding claims in 2014. The city’s most recent financial report said those goals were being “reassessed” given the economic downturn and the city’s declining revenues.

In some areas, the city hasn’t been able to spend all the money it’s set aside. The city’s program to comply with state and federal regulations to prevent stormwater pollution has an annual budget of $43 million this year to pay for things like street-sweeping and public outreach.

But the IBA’s office recently noted that more than eight months into the fiscal year, the department had yet to spend about $30 million of its budget. The department also has $6 million in money that hasn’t been spent from the 2007-08 financial year, according to the IBA’s office.

The department’s spending — or lack thereof — is likely to come under scrutiny because several City Council members have said they want to explore the idea of asking voters to approve increased stormwater fees.

“It’s really hard to make a case for higher stormwater fees if they’re not spending the money they’ve got,” Councilwoman Marti Emerald said.

In a recent City Council hearing, Storm Water Department Director Tony Heinrichs said the department had 42 vacant positions that went unfilled because of hiring freezes. He also noted that most of the department’s spending occurs through contracts that can take from six to nine months to award, even without a formal bidding process.

Heinrichs told the council that the department should be fully staffed for the upcoming budget year.

The IBA office also flagged the sluggish pace of city projects meant to make city sidewalks and buildings comply with the federal ADA law. Of the projects that were identified in the 2008 fiscal year, only five projects — 14 percent — have been completed, the IBA’s office said. In the current fiscal year, only one of 25 projects has been finished.

“Clearly, it would be common for some projects to take longer than a year,” said Andrea Tevlin, the independent budget analyst. “But it seems to be more than you would normally anticipate.”

In an e-mail, Patti Boekamp, the city’s engineering and capital projects director, said ADA projects have been delayed because much of the funding depended on the sale of city-owned land. She also said contracts have been delayed because of “contracting bid protests” and refinements in the “detailed scope of work required for these projects.”

The IBA’s office raised similar questions about the city’s implementation of deferred maintenance projects, many of which still haven’t started construction. Aside from Boekamp’s e-mail, the Mayor’s Office didn’t respond to requests for comment. But in the past, city officials have said that some projects were delayed because of funding difficulties such as ex-City Attorney Mike Aguirre’s refusal to sign off on a $103 million infrastructure bond.

Tevlin suggested that with areas like stormwater pollution prevention and ADA projects, city officials need to evaluate how many projects they can realistically complete and adjust the budget accordingly. She said that could mean that projects should be spread out over a longer period of time.

If city officials want to set aside money now for future years, Tevlin said, it might make sense to put that money in reserves and earmark it for specific uses instead of continually rolling over unspent money year after year, which makes it difficult to track.

“It’s just more transparent and responsible budgeting,” Tevlin said.

One aspect of the mayor’s proposed spending plan that has drawn criticism is his proposal to tap $22 million in reserves to balance the budget, mostly from funds created to provide a cushion for debt service payments

One of the mayor’s “eight significant areas” has been growing the reserves for the general fund, the city’s main account, which pays for public safety, parks and libraries. Glen Sparrow, a professor emeritus at San Diego State University, noted that healthy reserves are essential to the city maintaining low borrowing rates.

The Mayor’s Office has said it’s able to meet its goal of a 7 percent reserve this year because the funds Sanders has proposed using this year were never counted as part of the main reserve.

“That just raises the issue of how confusing is this budgeting process,” Sparrow said. “When is a reserve not a reserve?”

Please contact Rani Gupta directly at rani.gupta@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.