Too Much Waste AND Not Enough Cash

We had a shortened format for the Sunday radio show last week and my colleague, Andrew Donohue, was away from the office so I brought on Vladimir Kogan to have a back and forth about local government revenues.

You might have caught Kogan’s op-ed debate with City Councilman Carl DeMaio the other day. They argued the central question about whether government — specifically San Diego city’s — has enough money and, if it does, whether it just wastes it through overcompensation and inefficiency.

Both DeMaio and Kogan’s pieces were very convincing. So how do you reconcile them?

Kogan’s central premise is that when you compare San Diego’s city government revenue and spending with other California cities, it appears as though San Diego does a lot with a little. DeMaio said that’s like comparing GM to Chrysler — both are bankrupt.

DeMaio pointed to a list of what appeared to be obvious inefficiencies in city government and pointed to a chart that showed how fast revenues to the general fund have grown — as fast as incomes, he makes clear.

Kogan said that doesn’t take into account how much money may have been transferred into the general fund (a practice DeMaio has lamented) and it doesn’t consider the fact that although revenues have grown, San Diego didn’t start from a healthy place at all and countless major projects were built without raising revenues to pay for them.

But on the radio show, I tried to pin Kogan into a corner. As he makes clear, his big worry (just as everyone’s should be) is what’s coming next year. The brutal decline in sales and property tax revenue along with heightened liabilities appears ready to generate an eye-popping deficit next year — one that even the most skilled manager won’t be able to avoid.

As I pointed out though, it’s clear that the biggest source of the deficit next year will be the inflated bill the city will have to pay to its retirement system. And many many audits and studies have made it clear that the source of the various pension benefits granted employees between 1996 and 2002. Those are just the facts.

So if the deficit is the worry and the burgeoning pension bill is the single biggest contributor to the deficit, why is it not valid to say that the problem is the pension benefits that were granted without a source of revenue implemented to pay for them?

Listen to the show to see how it went.

How can we understand all this? I think there’s really only one way: Both DeMaio and Kogan are correct. You have to eliminate waste and inefficiencies in city government. And some of the benefits granted to employees got out of hand and they were not paired with proportional increases in revenue. At the same time, the city does not bring in enough revenue for the size and scope of city operations.

We have to move into a new paradigm in this discussion where we aggressively work to cut waste and bring compensation into line with a respect for city employees and yet an eye on sustainability. And this must be paired with an aggressive evaluation of revenue sources and how they can be maximized strategically.

Both DeMaio and Kogan are right — as are the people who commented in support of their points. But nobody wins if they continue to argue the other is completely wrong.

— SCOTT LEWIS