Fact Check: When the City Had No Reserves

Statement: “When I got elected with the city our reserves were practically gone,” San Diego City Council President Ben Hueso said at a Chula Vista candidates forum March 12.

Determination: Mostly True

Analysis: Reserves, or extra cash at the end of each year, are a key indicator of a city’s financial health. They show if a city can weather unexpected natural disasters or economic calamities by having enough money in the bank.

When Ben Hueso was elected to San Diego’s City Council in January 2006, the city’s reserves, at least in its primary account, weren’t so healthy. At that time, Wall Street had effectively shut San Diego out of the public bond market. The city’s weak reserves were one of the numerous reasons why.

Government accounting standards recommend that cities keep between 5 percent and 15 percent of the revenues that fund their day-to-day budget in a reserve. In 2006, reserves dipped toward 2 percent of revenues and city officials described that level as “very, very serious” and “very concerning.”

That year’s audited financial statements show the city’s reserves were as low as 2.8 percent. That translated to $24.3 million, which sounds like a lot of money, but it only would have covered roughly two weeks of payroll. Those statistics alone are good enough for Hueso to say reserves in 2006 were “practically gone.”

But it’s not that simple. In short, what people define as the city’s “reserves” doesn’t always include the same pots of money. This point is necessary context to Hueso’s statement, because sometimes the city has more extra cash than what it reports as its reserves.

Last year, for example, the City Council tapped $18 million from a reserve fund to balance its budget. But in its annual financial statements, the city listed that fund separate from its primary reserve account — the one used in 2006 to measure against government accounting standards.

That $18 million fund was around back then, too. So if the city had counted another $18 million toward its reserves in 2006 — almost a 75 percent increase over what it listed — it would be harder to say the city’s reserves were “practically gone.”

Since 2006, the city has put more money into reserves and created a policy that’s supposed to keep the money there. At the end of last year, the city estimated its reserves at $78.3 million, or 7.7 percent of revenues. In 2008, Wall Street resumed rating San Diego and has given it a stable outlook in its most recent reports.

But reserves again are under pressure this year. City revenues are so far under expected levels that the city will be below this year’s 7 percent reserve target unless it finds $9.5 million in savings by June. The Mayor’s Office has pledged to find the money, but has yet to say how.

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— LIAM DILLON