Dick Rider wants competition, Mike Aguirre wants bankruptcy

What to do about San Diego's unbalanced budget

There is a showdown coming. It might turn into a gunfight. Or at least a fistfight. There is a huge City budget deficit. To close the gap, the current council only wants to talk about cuts in services. It doesn’t want to discuss excessive labor costs, which are the major source of the financial affliction. And few are willing to talk tax increases. The incoming council, which will be even more in Big Labor’s pockets, will almost certainly be less inclined to address the real cancer.

At a special meeting of the council’s Budget and Finance Committee November 12, “We heard nothing about the biggest cost of operating the City: labor,” says Councilmember-elect Carl DeMaio. “We heard nothing about what we are going to do to trim labor costs. Instead, they [councilmembers] talked about cutting services. It’s mind-boggling. They are discussing library and rec center cuts and delaying water, sewer, and road-repair projects, but they are not willing to talk about excessive salaries and benefits that have become the third rail of San Diego politics.”

He predicts that taxpayers won’t put up with this very long: infrastructure is rotting as services lag. The economy is quite sick, and the general-fund budget deficit, pegged at $43 million in the current fiscal year (2009), could easily grow. Indeed, under an optimistic scenario, the City predicts it will pay $207 million to the pension fund in 2012 and, under a pessimistic forecast, pay a whopping $256 million that year. And deficits in years beyond could also balloon as the labor market and retail sales falter and the beleaguered state takes a bigger bite out of San Diego’s budget. Councilmembers “must cut services or face the labor unions that put them in office,” says DeMaio. Taxpayers, irate at potholes, library closures, and the like, “at some point won’t want more service cuts and won’t approve tax increases, so they will have to look into the issue of taking on the labor contract.”

It won’t be easy. The San Diego and Imperial Counties Labor Council boasts that in the new city council, “the one vote they don’t have is mine,” says DeMaio, though Donna Frye, with whom he works closely, has consistently opposed labor excesses.

Libertarian Richard Rider, chairman of San Diego Tax Fighters, has the same gripe about that November 12 session. Councilmembers “only talked about eliminating services but didn’t talk about how to better deliver services,” he says. Rider is a champion of managed competition, in which a government entity must prove it can do its job better than a private-sector enterprise could do it. There must be competitive bidding for government services — something DeMaio has long preached. Mayor Sanders wants to close some libraries and recreation centers. “We could put city-library services out to bid,” says Rider. “Riverside County did it years ago and saved 30 percent.” Such savings for San Diego would now be up to 50 percent, he believes.

“We should be putting out for bid vehicle maintenance, print shop, landscaping — any service for which competitors can be found in the Yellow Pages,” says Rider.

Like DeMaio, Rider proselytizes for labor reform. “City employees should make no more in pay and benefits than their private-sector counterparts,” he says. “The most obvious area for reform is pensions. The City of San Diego has two full pensions: full defined benefit and full defined contribution plans.” (A defined benefit plan promises to pay a specified amount to a retiree after a set number of years of service. A defined contribution plan provides a separate account for each person. Future benefits are based on the amount contributed. Private-sector companies are increasingly offering only defined contribution plans.) In San Diego, the combination of both “can give a general City employee a combined pension payout of 140 percent of their highest pay.”

Says Rider, “Most public-sector jobs pay 20 to 30 percent higher salaries than comparable private-sector jobs, and pensions are two to five times higher in the public sector.” City bureaucrats and municipal labor representatives argue that these outrageous payouts cannot be changed because they are baked into the contracts. Rider says they can be changed when the next contract comes up, “or employees can unilaterally offer to give up these advantages when faced with a loss of a job.” And he believes the monstrous deficits may persuade “even union hacks” that concessions are essential. Outgoing City Attorney Mike Aguirre thinks the City may have to consider tax increases; Rider points to polls showing San Diegans won’t approve them.

Aguirre says the City should study filing for Chapter 9 bankruptcy. Rider disagrees: “Bankruptcy is a crapshoot,” he says. “A bankruptcy judge has all kinds of options — might negate labor contracts, but might tell the City to sell property to pay obligations and might try to impose higher taxes.”

In its new five-year outlook, distributed to councilmembers at the November 12 meeting, the City might be making some optimistic revenue forecasts. For example, it expects property tax receipts to rise 3.2 percent in the current fiscal year, then rise 1 percent in each of the next three years. The City concedes sales taxes will drop 4 percent this year and be flat in 2010, but then it expects them to begin rising again in 2011, going up 4 percent in each year from 2012 through 2014. Transient occupancy (hotel) tax receipts will fall 1.8 percent this year but then rise between 4 and 6 percent until 2014. In each case, there is a high and low estimate.

Erik Bruvold, president of the San Diego Institute for Policy Research, worries that some of these estimates are Pollyannaish. If many people opt for property-tax reassessments, as is their right under the law, “These reassessments can dramatically reduce [property tax] receipts,” says Bruvold. Then there are sales taxes. “Ford’s October sales were down 30 percent. Circuit City filed for Chapter 11 bankruptcy. If durable goods sales keep taking it on the chin, the City may have to reanalyze sales tax estimates.” As to the hotel tax, “A quarter of our room nights are business travel. As companies look at a pretty significant recession, they won’t be sending people to conventions and meetings if they can avoid it.” Those transient occupancy tax estimates may be on the high side; indeed, tourism is already slowing sharply.

Hotel-tax receipts fell between 2001 and 2004, and the property-tax take trended down from 1994 through 1996.

Bruvold thinks there can be some other savings. For example, Andrea Tevlin, the independent budget analyst, pointed out that if nonunionized City employees take a voluntary 10 percent pay haircut, there could be a savings of $1.4 million. “That isn’t much,” says Bruvold, but it might substitute for library and recreation-center slashes that voters hate.

All told, three things are clear: (1) The downturn will be worse than the City has planned for, (2) revenue estimates are too rosy, and (3) one way or another, labor costs must go to the guillotine, but politicians are afraid that if they dare tell the truth, they will get their own heads chopped.

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There will come a time when the ownership of Balboa Park will be less important than paying the necessary costs of public safety and fire protection in San Diego.

The time is coming because... well, just because.

Neither the public employee groups nor the taxpayers want to give ground, and so the disposal (for more liquid assets) of city properties in various degrees of sentimental value is inevitable.

Rider disagrees: “Bankruptcy is a crapshoot,” he says. “A bankruptcy judge has all kinds of options — might negate labor contracts, but might tell the City to sell property to pay obligations and might try to impose higher taxes.”

Richard is wrong on this one. A BK judge does not have the legal authority to sell real property of a muni in a Chapter 9, that is not an option. Orange County proved this in 1994 and Vallejpo proved it in october. neither muni sold any real property.

I also doubt that a judge could order a tax increase either.

I would suggest that a muni is no different than the airline industry, and to look at that industry as an example. They never were forced to sell assets or raise ticket prices. They had their union contracts voided and had their pensions slashed. Vallejo will be getting the exact same treatment.

The simple fact of the matter is you cannot pay 20% of the population Cadillac wages and benefits while the other 80% cannot afford food, clothing, medical care or shelter.

Chapter 9 is strictly a csh flow bankruptcy, NOT an asset/liability bankruptcy.

Wow, I never knew we had 240,000 city workers. That is 20% of the population, isn't it, Johnny? City workers are <1% of the population of SD.

You are correct when you state that a municipality cannot be forced to sell property in a Chapter 9. Of course, certain properties in SD have already been hawked to the pension system, so it may be a little different here.

There are certain places where managed competition could work in the city. So let's look at Rider's "Yellow Pages" analogy. The US Forest Service recently contracted out repair work on it's fire engines. The contractor hired had no experience with large truck repair. (Incidentally, this is a huge national company that also advertises contracted homeland security, personnel services, traffic management, etc.) All of the government owned tools were given to the contractor to assist with their new endeavor. The contractor refused to fix fire engines that were actually at fires or anywhere not in their own garage. The contractor eventually defaulted, but kept all of the tools. And all of the former government mechanics were promoted to contract inspectors. Since they were promoted, they could no longer work on trucks after the contractor defaulted. Not one was laid off -- rather all got raises. Yep, that's a heck of a way to save money.

Bruvold has a point, but the non-union employees have already had a 7% pay cut. I'm not sure they'd stand for an additional 10%.

The city has added more libraries than fire stations in the past 10+ years. That's just amazing to me. When it comes to the bottom line -- life and death -- which should be closed first?

Wow, I never knew we had 240,000 city workers. That is 20% of the population, isn't it, Johnny? City workers are <1% of the population of SD.

20% of the working population is employed by government (I didn't say "city"), at the local, county, state and federal level.

Government is the largest employer n the nation JF. Government employees 20% of the working population. In fact that is an old number and it is probably higher now.

I'm sorry you didn't seem to know that fact, or take the time to do the reserch needed to learn it.

He look, we're on Pesnion Tsunami today!!!!


Just to clarify the comments attributed to me in the article. They are accurate, but due to the natural limitations of such a piece, some of my comments were not included.

I do not reject bankruptcy -- it's just that it's the last choice we should consider. Well, next to last -- tax increases pulls up the rear. As I view it, BK is the nuclear option -- the last arrow in the quiver (to mix metaphors).

Before we go to BK court, we have to push solutions. We need to negotiate with the greedy employee labor unions, holding the BK threat over their heads. We need to aggressively pursue contracting out, costing government employees their cushy jobs (and again forcing labor concessions).

If the city went to BK court today, the judge would toss out the plea. We haven't yet pursued all options. Only after those options fail (and for political reasons they may indeed fail) should we finally go to the BK crap shoot.

Before we go to BK court, we have to push solutions. We need to negotiate with the greedy employee labor unions, holding the BK threat over their heads. We need to aggressively pursue contracting out, costing government employees their cushy jobs (and again forcing labor concessions).

Do you think Sanders has the guts to go to the PD and FD and ask for cuts????? Won't happen. Not in a million years. Sanders is in so far over his head he cannot even see daylight.

The public unions would NOT agree to cuts anyway-they would force a BK filing. Vallejo is the perfect example of a typical greedy PD/FD union-they will not budge in any serious manner on lowering their Cadillac pay and pensions-even if it is destroying the City because they come FIRST-everyone else comes second.

I have stated on here repeatedly that it is too late to avoid BK at this point.

The pension system was 58% funded 3 weeks ago-the stock market has fallen another 10% since then and if the pension followed suit then that would be a funding level of 48%.

We cannot dig out of this hole, and it gets deeper everyday because the cause of the hole-the pensions-are still in full force and effect.

I'm being honest here. I am really sick and tired of how lazy, slow moving, unconcered people that work in the city government are. Everyone drags thier feet, the don't return phones call,s when you are in their offices they'd rather run around pushing papers or chatting with a co-worker than help people at the counter. It must be an infectious lazyness.

No one enjoys going to these courts, planners, license agencies or any other government office. It feels like time comes to a standstill. Yet these people who would be fired in a heartbeat in a private firm, get the highest salaries, huge benefits and an amazing pension. The get every holiday off. Most don't have to worry about overtime, because they shut up shop a 5:00 on the dot.

It's painfully obvious that cut backs in labor can be made if they'd just get half of these clowns to get their butts moving.

There is a movie scene from the late sixties, early seventies (I cannot remember for the life of me what movie) where the main character walks into the DMV and waits in line. When he finally gets to the front of the line, the lady behind the counter puts her "out to lunch" sign up and starts eating, totally ignoring the man. He says "hey lady" several times and she continues to ignore him. He finally gets fed up and screams "HEY FAT LADY!" at the top of his lungs to get her attention. That scene sums up to perfection what "customer service" is like at government facilities. Nothing has changed in 30 plus years.

Response to post #1: First, an explanation: I should be able to respond to past questions for at least a week. Long term, the problem still has not been solved. As to asset sales: unfortunately, you may be right. But remember, any private sector buyer would probably need financing. And it won't be available in the foreseeable future. Best, Don Bauder

Response to post #2: I have not looked into the options of the BK judge. But if he or she could void labor contracts, that's the main thing necessary, because that's the big expense. Best, Don Bauder

Response to post #3: Outsourcing certainly can have its down sides. I have often thought that San Diego is too corrupt to be trusted with outsourcing work to private sector cronies. Best, Don Bauder

Response to post #4: Government labor unions have become so strong because there is almost no foreign competition. Private sector unions (steel, autos, etc.) have been clobbered by foreign competition. Best, Don Bauder

Response to post $4: I'm not sure there is time to make BK a last resort. Best, Don Bauder

Response to post #6: Agreed: Sanders has neither the intelligence nor intestinal fortitude to take the necessary steps. Best, Don Bauder

Response to post #7:They have big salaries, retirements, job security. Why perform? Best, Don Bauder

Response to post #8: See response to post #7 above. Best, Don Bauder

They have big salaries, retirements, job security. Why perform? Best, Don Bauder

Why do you write, Don? I know it's hard to believe, but many city workers (myself included) love our jobs. I talk to employees from other departments all the time who like being city employees. Not for the pay and benefits, but for the job itself.

JF said: "I talk to employees from other departments all the time who like being city employees. Not for the pay and benefits, but for the job itself."

Trouble is that you are constantly harping about pay and benefits for firefighters, which puts the lie to your statement.

I do think Don overstates it at times, because I believe the vast majority of city employees are hardworking and do the best job they are allowed to do. There is lack of leadership at the top, however, along with far too many people who do game the system. If you look at the list of highest salaries in the city, JF, you have to admit that the number of police and fire making $140K+ and up is waaaay too high.

I also think that outsourcing is almost never a good solution for a city, because a corrupt city cannot be trusted with outsourcing, while a well-run city doesn't need to consider large-scale outsourcing.

And not the pantywaist liberals. GET TO KNOW THE DIFFERENCE.

Time to look at fire/police. They take the bulk of city salaries/pensions.

why else would one man be so lame in his hard-on for the police and firefighters who,everyday do something heroic,whilst everyday paul(rhymes with not tall)does something lame and stupid.

Gee, I don't know why else, but since Paul also ryhmes with tall, I guess you are going to have to dig a little deeper and find out. Do you think short Mr. Bunyan could create a fire break with that little axe of his??

Fumbler, are you the one that holds up the "SLOW" sign? I am referring to the folks that work in our finest city's institutions , such as the Tax Assessor's office. And the DMV. I am not knocking what the firemen are paid. Would you want someone with the typical attitude of a city worker putting out the fire on YOUR house?

Response to post #17: If you love your job so much, you shouldn't resist taking sharply lower pay and benefits when the city goes BK. Best, Don Bauder

Response to post #18: Me? Overstate? Best, Don Bauder

Response to post #19: Fumber weighs in. Best, Don Bauder

Response to posts #s 20 and 21: Is the word "pantywaste" another fumberism? Another manifestation of his obsession? Best, Don Bauder

Response to post #22: Russl points out the difference. Best, Don Bauder

Response tgo post #23: Yes. It's the old obsession. Best, Don Bauder

Response to post #24: Agreed. Best, Don Bauder

Response to post #25: Paul makes posts to this blog that are anything but stupid. And they're not lame. Best, Don Bauder

Response to post #26: Good point. Best, Don Bauder

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