The Myth of Runaway City Spending

Editor’s Note: No debate has so defined politics for San Diego city government as the perpetual question of whether the city raises too little in revenue from its citizens or whether its financial problems are due to waste, lack of productivity and over-generous employee compensation. UCSD graduate student Vladimir Kogan submitted the below analysis and voiceofsandiego.org solicited a response from Councilman Carl DeMaio.

Friday, June 5, 2009 | The city of San Diego stands on the brink of a financial apocalypse. Closing a likely deficit of $120 million in the next fiscal year without raising new revenues would require elected officials to slash more than $1 out of every $10 currently spent by the city’s general fund, resulting in devastating cuts few citizens can imagine.

However, this is largely the strategy that has been urged by City Councilman Carl DeMaio and his allies, including the Union-Tribune again, and again, and again — opposed proposals to increase city fees, arguing that local officials must instead redouble their efforts to end municipal waste and cut excessively generous employee compensation.

Local media outlets, including this newspaper, have often parroted DeMaio’s claims about out-of-control city spending, though none has attempted to confirm that these allegations are indeed rooted in facts rather than the councilman’s rhetoric and imagination. Fortunately, new data released last month by the California State Controller’s Office allow us to put these claims to the test. The report presents financial statistics from California cities for the fiscal year that ended in June 2007, before the start of the recent financial crisis and the adoption of budget cuts by the City Council last year.

These new statistics on municipal expenditures provide an important counterpart to the ongoing debate about the adequacy of city revenues that has raged in recent years.

The data speak for themselves. During the fiscal year covered by the report, San Diego spent just over $1,600 for every resident living in the city, a third less than the average for California’s 10 largest cities. (San Francisco, a city-county, is excluded from the analysis. Including it would push the average even higher.) Indeed, Anaheim, Oakland, and Long Beach all spent more than twice as much as San Diego did per capita. (Click here for a full graphic illustration of this.)

Breaking the expenditures down, San Diego trailed the 10-city average in six of seven major categories of spending. The one exception, health services, says much about the state of the city’s finances: Almost 90 percent of the health funding went toward wastewater treatment, in response to decades of lawsuits from the Environmental Protection Agency and local environmental groups over San Diego’s previous practice of systematically underfunding capital improvements to its sewer system and dumping raw sewage in the Pacific Ocean.

The city also trailed other major California cities on spending for many specific services, including police and fire protection.

Of course, per-capita spending can tell only one part of the story. But, like test scores released every year by the state, it captures an important dimension of local finance and allows us to carry out some comparative benchmarking. These data also raise serious questions about any strategy that aims to close next year’s deficit primarily through cuts.

How is it that, despite exorbitant fringe benefits, excessive employee compensation, and overly generous pensions, San Diego has been able to deliver vital city services at a lower cost per resident than most other major California cities? The data suggest two potential answers: (1) The scope of waste and corruption is far smaller than local critics allege; or (2) San Diego, at least in recent years, has provided local public services at levels far below its peers.

Though intelligent people can debate the relative merits of these explanations — and I suspect both are certainly true — they both point to the dangers of attempting to close the budget gap solely through reductions in city expenditures. Put simply, cutting the “fat” will not close a $120 million hole, because there is not that much fat sitting around. Instead, reductions will most certainly cut to the bone of vital public services, threatening public safety, local health, and our world-renowned public park system.

While it is clear that major cuts will be necessary, it is incumbent on elected officials — including Mayor Jerry Sanders and DeMaio — to provide true leadership and engage local citizens in a dialogue about the tradeoffs that have to be made to balance the budget. For example, residents must understand that failing to enact fees for trash collection, as urged recently by the San Diego County Grand Jury, will have a serious and detrimental impact on the quality of life in San Diego.

For all of the focus in recent years on the city’s pension underfunding, most local observers seem to have forgotten that the impetus for these schemes came not from greedy employee unions but from city administrators, who attempted to balance the citizens’ demands for more spending — Republican National Convention? Yes! New downtown ballpark? Yes! Convention center expansion? Yes! — with citizens’ opposition to higher taxes needed to pay for it.

As the City Council works to pass a final budget next month, local residents must come to terms with the truth: You can’t expect to live in America’s Finest City while providing public services on par with those in Fresno.

The data used to generate the tables in this article can be found here.

Vladimir Kogan is a doctoral student at UCSD’s Department of Political Science. He is a co-author of a forthcoming book about San Diego politics and its pension crisis. His e-mail address is vkogan@ucsd.edu.