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Nary seven months ago, San Diego Mayor Jerry Sanders declared an end to the city’s decade-long budget crisis. No longer would the city face deficits because the amount it collected in taxes was less than the amount it needed to spend.

Now two recent events are putting the city back in the red.

In June, voters passed a pension initiative that could save as much as $1 billion in the long run, but costs money now. Last month, the pension fund revealed it returned 0.3 percent on its investments last year, far below its 7.5 percent target.

The city faces a deficit of $23 million to $27 million, based on the city’s financial outlook and the projected impacts of the initiative and the pension fund’s investment performance. To be sure, those numbers are just an estimate and if tax revenues come in healthier than expected the situation could be better.

But that deficit doesn’t count other big-ticket issues the City Council is considering.

The Police Department says it needs $66 million over the next five years to rebuild itself. The Fire Department says it needs 10 new fire stations. And the city needs an additional $30 million to keep its streets and other infrastructure from worsening next year despite a plan to borrow another $80 million for repairs.

The council had wanted to address all of it, Councilman Todd Gloria said, but this financial news makes it difficult.

“It’s a very different conversation,” said Gloria, who heads the council’s budget committee.

Gloria wants to discuss the fiscal problems now, far in advance of spring budget season. He called attention to the pension debts this week on his committee agenda. He plans to hold a hearing on the issue by the end of October.

“I think part of our past financial problems stemmed from people not wanting to stare reality in the face,” Gloria said.

The city does have a way to pay these costs without affecting services.

The city has $153 million in reserves, which equal 13.3 percent of revenue in its day-to-day operating budget. That’s much higher than its 8 percent target.

Sanders suggested this week that the city could spend reserves.

“We’re financially sound,” Sanders told Fox 5. “We’ll be leaving enough money in reserves to cover any problems with the pension system because of the low returns this year.”

Gloria also said that reserves could be an option.

But that approach has a downside.

Any material decline in reserves would likely hurt the city’s credit rating, the city’s Independent Budget Analyst said in a report released Thursday. A better rating makes borrowing money cheaper.

All this information is especially significant because both mayoral candidates are making lots of promises about service improvements after the November election. But this news continues to emphasize how difficult it will be to pay for them.

Liam Dillon is a news reporter for Voice of San Diego. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?

Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

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Liam Dillon

Liam Dillon was formerly a senior reporter and assistant editor for Voice of San Diego. He led VOSD’s investigations and wrote about how regular people...

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