Fiscal Insanity

— The San Diego City Council recently adopted the city's $1.5 billion budget, drawing criticism from some quarters that the new spending plan wastes millions of dollars and will result in huge future sewer and water rate increases. One opinion was represented by Scott Barnett, executive director of the San Diego Taxpayers Association. Below are excerpts from an interview conducted last week after the budget was passed.

Q. What kind of financial condition do you think the city's in? The perception held by many seems to be that the city is flush with cash, the economy is up. In short, there is no problem.

A. Well, the economy is certainly better than it was. The city is receiving more revenues, but they're spending more revenues. They spend every new dollar they get, essentially. Their deferred maintenance is some $60 million of crumbling buildings and structures and things like that, [and] they have basically minimal to no emergency reserves in this city.

Q. You made some specific suggestions during this year's budget hearings, many of which were ignored by the city council. Can you run some of those down?

A. Sure. We felt that deferred maintenance is a major issue that's been ignored, and the fact that their emergency reserves are only $6 million, and they should be closer to $50 million. So we suggested two things. Number one, they do a hiring freeze. The city manager likes to say that the number of city employees has been reduced, but they are actually shifting them, primarily to the enterprise funds, so the general-fund employees have been reduced, but they have simply been moved over. They have been hiring, sprinkled through the budget, new employees, and these are primarily employees that are not giving service to the general public; they are bureaucrat staff, city hall staff.

Q. What is an "enterprise fund"?

A. Basically the sewer and the water system are an enterprise fund and should be operated separately and independently from the city budget. The city actually has several enterprise funds - sewer, water, airports, development services (which is the planning department), environmental services (trash pickup), golf enterprise. I may have missed one or two. The city manager has been going in the direction of creating these enterprise funds, but the problem is there is a lot less scrutiny of them by the city council. In fact, at the budget hearing, not one question, not one issue was raised about the enterprise funds, and that's the bulk of the city budget. Out of the $1.5 billion budget, two-thirds are enterprise funds.

Q. What's going on with the sewer and water money?

A. Since 1994, the City has siphoned off almost $50 million in water and sewer revenues - ratepayers' money - into the general fund and is proposing almost another $16 million this year. They're also proposing rate increases; sewer rates are going up 6 percent and water rates are proposed to go up 6 percent. If the $16 million would stay in the water and sewer fund, those rate increases could be reduced by a total of 3 percent. That's $16 million that would stay in the ratepayers' pockets instead of going into the general fund, and that is where we think it should stay.

Q. What do they do with all that money when they take it away from sewers? A. It goes in the huge general fund pot and is not earmarked for anything. It's just lost in the $500 million general fund somewhere. Our position is they should stop that $16 million siphon before they raise water rates as proposed in August and not after the fact.

Q. I guess the city manager would say, "If I can't have that $16 million, I can't balance the budget, and I'd have to cut." Is that a reasonable scenario?

A. Well, it's interesting. When we proposed this recently, the manager said, "Tell us where we're going to find the $16 million." The day before - actually the night before - at the council budget deliberations, the manager miraculously found $10 million of "new revenues," which had not before been found in the budget. All that money he suddenly suggested spending on various city programs. So there was $10 million that they could have used. Secondly, [this year's budget] is $29 million greater in revenues and spending [than last year's budget], so there was $30 million there, plus this additional $10 million. The money was clearly there if the council had given direction to the manager to put that money aside and stop the bleeding from the water and sewer system.

Plus, we went through and suggested a number of specific programs they could look at not funding, for instance $300,000 on upgrading their cable TV and creating their own TV channel here in San Diego. That money certainly didn't have to be spent this year. Hiring more employees, doing the so-called community service centers. You could buy a house in North Park for the amount they're spending yearly on outfitting these community service centers. There are other examples. Hiring special events people for the city manager's staff to deal with the Super Bowl: two people. Last Super Bowl, they didn't have that. Those were actually hired for the Republican convention, out of budget, and now they want to make them full-time for the Super Bowl. $150,000 for two positions that were brought on for the Republican convention, not on budget, and now they're going to roll them over for the Super Bowl and some other projects.

Q. We've heard a lot about deferred maintenance; it's kind of a buzzword now. Is there any estimate of the dollar amount of that, and what specifically does it involve?

A. It's approximately about $58 million. The City has six binders listing everything from changing the pipes on water fountains on Park and Recreation buildings to replacing roofs to the linoleum in lifeguard-tower floors - those are all issues of deferred maintenance. In some cases the public sees them directly and in some cases it's just a state of the working conditions of public employees. From our perspective, deferred maintenance is like a cavity. If you don't take care of it today, it's going to turn into expensive root canal work in later years, and that's what the City is facing, just like they did in the water system. They put off deferred maintenance in the water system; pipes are busting. It costs a lot more money ultimately to repair and replace than if they deal with the problem early on. That's a major responsibility of our public officials to deal with that issue. If you own a house, and your house is leaking, you don't take your roof repair funds and buy new VCRs and a TV set; you repair your roof, and that's what we want the city council to do; take care of our roofs.

Q. And that's about $58 million?

A. According to the City, it's approximately $58 million, and I think in this budget originally the city manager put aside less than $1 million [toward deferred maintenance], and I think the mayor and the council adopted maybe another $1 million or so. We have a long ways to go in order to meet the needs. Every year that goes by, new items get added to the list, and the old items get in worse condition, so it's just going to cost us more.

Q. You've called for a hiring freeze - rejected by the city council - that would have gone into effect this year?

A. Would have gone in July 1. Basically it would have been for employees that were on staff but not budgeted last year - for instance, the employees hired for the Republican convention - or new employees that have not yet been hired; we excluded public safety [police and fire] from that. We thought it was a discipline the council should embark on and have the city manager come back and justify why he needs these new employees that he's recommending hiring; justify why every department needs these increases, why they can't go another year at the same budget level.

Q. Generally it sounds like you're kind of skeptical regarding the way the council has been examining the city's finances.

A. The whole budget process is in serious need of change. Basically the manager releases the budget quite late in the process, I think it was getting close to May this year. The council then scrambles around at the last minute, trying to find funds for their key pet programs, which are important for their district, and they really don't watch the broader issues. Also, the last day, all the councilmembers - or four or five of them - submitted memos. They wanted changes. The mayor submitted a memo; the city manager submitted a memo saying they had $10 million in new money. There was no time to examine that at all; the public had no time to examine it. It was all done at the last minute, slapped down on the last day when they were going to finish the budget, and that is not a good public process. We believe they should give these broader policy directions early up front to the manager.

We sense that the manager has really been running this process. He's supposed to run the city, but the city council sets the direction of spending in the city, and the manager has set up the process that the council is reactive to instead of proactive, and that's unfortunate. In all frankness, a lot of councilmembers don't take a keen interest in the budget process; they're more interested in getting a street paved in their district. They consider the budget process to be more like dental work, something they want to avoid. And when it's over they say, "Good, I don't have to deal with that for another year." That's unfortunate, because that's the key to them effecting where the money comes from, [money] to take care of their districts, to take care of the city.

Q. You also want to cut something called "community service centers" and save $400,000. What are those? I know that they're popping up in shopping centers around town. City branch offices, aren't they?

A. The community service centers are like mini city halls, bringing government close to the people. Well, my impression is that people don't want government close to them. They want to be able to have government stay away from them and leave them alone. When they have a problem, they want to be able to pick up the phone, say, "I have a problem, solve it for me quickly." You're looking at outfitting a wonderful place with new desks and chairs and computers and equipment...almost $100,000 for each one. Like I said, you could almost buy a house in North Park for what they're going to spend in one year on these things in rents and services. It's a new process: it hasn't been tested out yet. They haven't really seen how supported it is by the public, and they really should at least defer it for a year or so.

Q. Any other examples of wasteful spending?

A. A couple of others, real quickly. Public Information Officers. I don't know the budgeted amount, but the City has at least 15 employees, excluding the mayor and council staff - and this is 15 they'll admit to - whose sole focus is public information. In addition, other employees do assist in public information activities. We feel they should be at least consolidating or eliminating some of these positions. Couldn't deputy or assistant city managers or department directors act as press spokespeople when issues come up? So there are at least 15 positions doing this throughout the city in different departments.

They also have a "Development and Endowment" department, which spends about $228,000, up $35,000 this year. These people basically look and try to get endowments and donations for the city. If you did this on commission, these people would have to raise three to four million to justify their salary based upon what the private sector does on commission. They don't raise that much, and most of the money that was raised last year, at least on the development side, was related to the Republican convention, once again, which was sort of a one-time issue.

Another area, small, but $75,000 for a municipal government fellowship program, basically paid interns. It's important to bring young people in, but do we have to pay $75,000 for this program? Another couple of issues: they have a bicycle coordinator for $70,000 with the City, and they have a telecommuting coordinator, someone who coordinates, apparently, people working out of their homes, at $80,000 budgeted toward that position.

Q. So that's what happened this year. What about next year?

A. Our goal for next year's budget is to get into it really early, starting in the next couple of months, so we can have a lot more scrutiny early on. Also we have a new city manager coming on. Hopefully he will be more proactive in finding a way to get the council involved in setting these policy and spending issues.

Q. Specifically, could the budget be released earlier?

A. Sure. March or April would be ideal. The other option to look at, which we've supported in the past, is to go to a two-year budget. The council would review the budget, and it's a two-year spending plan. To change it in the second year would take a two-thirds vote of the councilmembers if they want to change it. Most of these programs are ongoing, and they don't change an awful lot year to year; they go through a lot of staff time putting these budgets together, thousands of staff hours. Councilmembers don't like it, and it would ultimately be more effective to look at a two-year budget.

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