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Statement: “All told, we will leave the next mayor with a combined surplus of nearly $120 million over the next five years,” Mayor Jerry Sanders said in an April press release. “That’s money that can be used for more library hours and to hire more police officers and firefighters.”
Analysis: Outgoing Mayor Jerry Sanders seems to be leaving on a high note.
The mayor has repeatedly said he’s proud to have helped steady the city’s once-teetering financial status.
His latest budget outlook, detailed in a late October report, predicted the city will see $199.4 million in surpluses in the next five years.
A report released Monday by the Office of the Independent Budget Analyst painted a far less rosy picture of the city’s budget, estimating that some expenses Sanders didn’t factor into his projection could actually leave the city with deficits in coming years.
That report says the city could see as much as an $84.2 million shortfall for next year; Sanders’ office projected $4.9 million in extra funds.
The report’s conclusions are in stark contrast with Sanders’ statements during a spring press conference where he celebrated the end of the city’s budget crisis.
“It’s over as of today,” Sanders said at the time. “I’m declaring. I decree.”
Sanders suggested the city would see $119 million in surpluses from 2013 through 2017.
The budget analyst was less optimistic. We zeroed in on a few key areas where the analyses varied.
• Sanders assumes the city Redevelopment Agency would cover $13.8 million in loan payments for Petco Park and the convention center, but the agency has been eliminated.
That means the city’s day-to-day budget may be hit with the $13.8 million, and as much as $16.3 million in annual payments in the next five years.
• The budget analyst’s report also pointed to additional pension costs not included in Sanders’ estimates, some of which are known and some that remain unclear.
As our Liam Dillon noted in August, the city’s pension system earned only 0.3 percent on its investments last year, short of the 7.5 percent that the city’s retirement system assumed. The outlook has since improved slightly but the Independent Budget Analyst’s report said the city could see as much as a $6 million budget deficit in its program this year, and up to a $22.7 million shortfall by 2018 if the multiple variables don’t end up favoring the city.
And then there’s the cost associated with Proposition B, which gives most new city staffers 401(k) retirement plans instead of pensions, and aims to put a five-year freeze on employees’ pensionable pay.
Back in May, former Voice of San Diego reporter Keegan Kyle explained that the citizen initiative could save the city money in the long run but is expected to require the city to pay more than $2 billion in pension debt more quickly than it would have otherwise.
The Independent Budget Analyst said that could cost as much as $21.6 million next year.
• Streets and other city infrastructure are getting worse. Dillon addressed that issue in a recent radio appearance.
Last year, city staffers presented options for dealing with an estimated hundreds of millions of dollars in necessary improvements. The City Council ultimately approved a five-year plan to slow deterioration.
The mayor’s budget forecast didn’t include the potential for more infrastructure spending.
If the city wants to stop all deterioration, it would need to spend $30.1 million next year, according to the budget analyst’s report.
• The mayor’s five-year forecast showed full funding for four police academies with 35 recruits over the next five years.
That’s an increase from the 30 recruits per academy that were initially planned.
The budget analyst’s report found that funding shortfalls will complicate the new plan because police department vacancies won’t offset the added police recruits, an approach that worked for the city this year.
Adding five recruits to each police academy will exceed the available budget for sworn police employees and require an additional $7.7 million in funding for next year alone, according the analyst’s report.
• The City Council recently approved a hike in funding for the city’s Commission for Arts and Culture that was not included in the mayor’s budget.
The commission, which relies on hotel tax revenues to assist local arts groups, will incrementally receive more funding in the next four years. The “Penny for the Arts” plan assumes hotel tax hauls will increase but that arts spending will remain flat, allowing hotel tax surpluses to flow into the general fund.
The budget analyst’s report added in the planned arts funding and estimated a $3.8 million budget deficit for next year and as much as a $10 million shortfall by 2017 and 2018.
Added up, the outlined items are likely to thwart Sanders’ assurance of future surpluses.
So why did Sanders say otherwise earlier this year? It’s fair to assume he was aware additional bills might be coming.
Many of these issues, including the pension and redevelopment expenses, were known when the mayor called his press conference in April.
In fact, Chief Operating Officer Jay Goldstone kicked off a Tuesday interview on KPBS’s “Midday Edition” by saying that no one should be shocked by the budget analyst’s suggestion of possible budget deficits.
“First of all, I’m a little surprised that this is a surprise among your listeners and the media,” he said.
Goldstone also said the Sanders administration included “known quantities” in its budget outlook.
For example, Goldstone said, the city won’t get a final update on its pension burden until early next year and the approval of Prop. B changed the rules of the game.
Goldstone also noted the $166 million available in the city’s reserve account that could be used to pay any larger-than-expected bills.
He said there’s enough money to cover potential year-over-year deficits from increased pension or redevelopment costs but the Independent Budget Analyst’s long-term estimates exceed the amount available to the city during the same period.
Sure, incoming Mayor Bob Filner and the City Council can use that money, known as a rainy-day fund, for unplanned expenses, but the Independent Budget Analyst and others have warned that drawing from it could increase the city’s borrowing costs.
The bottom line: We can’t predict the future and we don’t typically label projections false for that reason. But Sanders’ statements fail to account for expenses he could have — and should have — seen coming. Any discussion of surpluses should have included a mention of bills that might come due, even if they weren’t a certainty.
That’s why we’re labeling Sanders’ statement misleading.
If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.
Correction: An earlier version of this story incorrectly stated a possible impact of Proposition B. The measure aims to put a five-year freeze on city staffers’ pensionable pay.
Lisa Halverstadt is a reporter at Voice of San Diego. Know of something she should check out? You can contact her directly at email@example.com or 619.325.0528.
Reporter Liam Dillon contributed.
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