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The disconnect between outsider observers and budget makers at the city of San Diego couldn’t be wider. The unanswered question is whether those observers are going to demand action by their political leaders or allow the city to continue to uncontrollably drift toward insolvency.
San Diego’s budget mess, at its core, is not all that complicated. A combination of poor decisions by past city officials and an aging workforce and retiree pool puts serious upward pressure on expenditures. A city that is not growing as rapidly as in the past and a broken system involving state and local finances puts constraints and limits on new revenues. The result has been that, for almost a decade, nearly every cent of incremental revenue growth had to be spent on keeping up with increasing liabilities such as pension obligations and long-deferred maintenance. There was no money left for anything else.
Just think, can you actually remember the last major new general fund program launched by the city?
In good economic times, this fiscal house of cards wobbled but didn’t fall. While never enough money to actually improve services, during the first half of the decade, and even though it faced relatively austere budgets, this Madoff-like edifice of betting on rising revenues allowed City Hall to muddle through. Libraries might see operating hours reduced but they were never faced with closures. Police might not get the raises that would bring them to regional averages but compensation and staffing came close to what was required to keep the city safe and the department adequately staffed. The Fire Department couldn’t open new stations but generally maintained staffing levels.
But in the aftermath of financial collapse of 2008, we are in new territory. The downturn in the economy meant revenue growth flattened while the expenses continued to grow. Without structural reforms, the budget became severely unbalanced. Declines in investment markets, which actually may be a return to historic norms rather than the exuberant bubble of the 1990’s and early 2000’s, increased pension obligations.
As I said, this isn’t too complicated. Outsiders who have looked at the city budget have independently reached a general consensus. Over a year ago, the city’s independent budget analyst wrote that, “the structural imbalance confronting the city is by nature persistent” and that “structural deficits require structural solutions.” A task force (which might or might not have been blessed by the mayor) concluded in a draft report that the city of San Diego required, “major fiscal changes that are structural” and that it ”must not delay developing a permanent solution to what seems to be a perpetual emergency budget deficit cycle.”
Scott Lewis, CEO of voiceofsandiego.org, wrote that “the city is fundamentally unbalanced. This will have to change someday through higher taxes or a realignment of employee compensation.” When I ran for mayor I argued in an March 13, 2008 interview with the Union-Tribune that “if the financial issue is not dealt with, it’s going to relegate San Diego to a third-rate city.”
Inexplicably these different voices are not yet registering with the administration. In a move that can only be characterized as financial malpractice, the mayor proposes to close a $180 million gap by at least $97 million in one-time cuts. Contributions to the city’s various reserve funds will be suspended. San Diego will take out a loan to finance a legally required contribution to the pension fund over the next five years.
Like a teenager looking for date money under the sofa cushions, the city will once again transfer money from funds promised for certain infrastructure spending to prop up general fund operating expenses.
Have no doubt, these are one-time measures. After next fiscal year they must be backfilled with new cuts, exuberant revenue growth, and/or dramatic improvements in the financial health of the city’s pension system.
This is the equivalent of deciding that, rather than cutting expenses, a family faced with red ink should close out its savings account and go to the Del Mar racetrack and start playing the ponies. I guess City Hall could hit the daily double and come out smelling like roses in 2012. The city’s economists could be better than 99 percent of their brethren and we might see rapid declines in unemployment, significant increases in discretionary spending, and resulting spikes in TOT and sales tax receipts.
Much more likely, however, is that that in about a year from now the city will once again be trying to do financial triage to close a $100 million shortfall, having wasted another year without a long-term strategic plan on how to rationally par down expenses. In all likelihood that “plan” will be released the day before Thanksgiving with the cynical hope that a compressed timeline will mean no alterative emerges and criticisms lag the news cycle.
Sadly, what we have is the kind of shell game that has characterized present day Sacramento’s worst “get-out-of-town” budgets. Unless sanity prevails, it will be so easy to “support the mayor” and pass, with only minor tweaking, this plan of action and kick the can down the road another year.
The courageous stance would be to reject the proposed “solution.” Interested observers should demand a new plan that closes at least 75 percent of the gap with on-going reductions. A hard conversation needs to take place between the council and the administration over every general fund department and what services are being funded that are “nice-to-haves.”
To kick things off, I would ask how in the world can the city propose to continue to spend over $6 million to subsidize arts organizations while adopting a budget that is balanced by “browning out” fire companies in a city which fails to meet national standards in respect to response times, under invests in fire protection compared to surrounding communities, and which has suffered two of the worst fires in California’s history in the past five years?
By what conceivable logic leads the administration to propose spending $500,000+ to open new facilities when the city will be suspending fire and police academies? Why in the world is upper management not taking additional pay cuts in FY 2010 and FY 2011 when so many taxpayers are out of work and so many more have had to take pay cuts and accept unpaid furloughs?
No one “likes” cutting budgets. The mayor is right to point out that a reduction of $180 million out of the FY 2010 and FY 2011 general fund budget will be devastating and widely felt. But the painful logic of budgetary accounting is inexorable.
At some point, real cuts are going to have to be made. The question is whether, when the piper finally has to be paid, the cuts are haphazard and done for political expediency or whether they reflect a sober effort to, once and for all, address the structural deficit and make reductions in a strategic and smart way?
Here is hoping that during the next two weeks all the observers that have looked at the budget stand up and loudly yell “enough!”
Steve Francis, the founder and former chairman of AMN Healthcare, ran for mayor in 2005 and 2008.