The city may face a $40 million budget shortfall next year due to increased pension costs and new charges associated with the state’s decision to shutter the city’s redevelopment agency.

That shortfall would be roughly the same size as the city’s library budget.

The deficit became all but official Friday when the city’s retirement system released the annual pension bill for the next fiscal year, which begins in July.

The San Diego City Employees’ Retirement System said the city’s tab would be $275.4 million, almost $40 million more than initial estimates.

The city’s day-to-day budget will cover nearly $215 million of the bill. Additional pension expenses will paid using other city funds.

A lower-than-expected return and the implementation of Proposition B contributed to the higher cost, though a court must decide whether the citizen initiative completely goes into effect.

The city’s pension system generally assumes a 7.5 percent return on investment over the long term but the return was only 0.9 percent this year.

Proposition B will be costly in the short run but will ultimately save the city cash if a court allows the portion of the measure that would put a five-year freeze on employees’ pensionable pay to go forward. The initiative, which also gives most new staffers 401(k) retirement plans instead of pensions, requires the city to pay off roughly $2.3 billion in pension debt more quickly than it would have otherwise.

The city is also set to pay $14.3 million to cover loan payments for Petco Park and the Convention Center, costs former Mayor Jerry Sanders didn’t include in his five-year budget estimates. There’s a possibility the city could be hit with other costs but state and city officials have yet to hash out the totals. (For more details on state actions that led to this new bill, check out this this post .)

In November, the city’s independent budget analyst predicted up to an $84.2 million shortfall based on factors Sanders’ budget projections didn’t consider. Among them were increased pension and redevelopment costs.

Now Mayor Bob Filner must cope with a deficit that may alter his plans for the city, a scenario he acknowledged at a December press conference.

On the campaign trail, he shared his vision for improvements to infrastructure, community plans and public safety services. All will cost money.

Soon after he took office, Filner called a press conference to discuss the city’s budget and shared a chart that predicted a $37 million budget shortfall as the worst-case scenario.

The mayor said he wanted San Diegans to be aware of the potential budget pitfalls.

“The expectations of a balanced budget, which would allow us then to make some gains in certain services that have been lost over the last five years, may not be realized,” he said. “I don’t want expectations to be too high based on the previous statements of a balanced budget, therefore library hours and rec center hours and potholes will be filled at a faster rate.”

But the budget picture looked even worse on Friday.

The Mayor’s Office did not respond to requests for comment.

Council President Todd Gloria, who chairs the budget committee, said a $40 million deficit would be far less dire than the triple-digit shortfalls of years’ past but that such a deficit could affect the city’s ability to improve services as quickly as residents would like.

“We cannot over-promise,” he said.

Still, Gloria emphasized that the city’s budget situation is far from certain and that officials may be able to tap into other funds or find new efficiencies or revenue streams that help the city avoid significant cuts. Though Gloria didn’t provide specifics, a deficit could mean decreased library hours or it could hamper the city’s ability to hire new public safety officers.

“I don’t want to close the door on service restorations,” Gloria said.

This post has been updated. 

Clarification: An earlier version of this post attributed Prop. B’s savings to the city to the transition to 401(k) plans. A city analysis found savings of about $963 million would come from the measure’s pensionable pay freeze, if a court allows it to go forward.

Lisa Halverstadt is a reporter at Voice of San Diego. Know of something she should check out? You can contact her directly at or 619.325.0528.

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Disclosure: Voice of San Diego members and supporters may be mentioned or have a stake in the stories we cover. For a complete list of our contributors, click here.

Lisa Halverstadt

Lisa is a senior investigative reporter who digs into some of San Diego's biggest challenges including homelessness, city real estate debacles, the region's...

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