Magic budget fairy revived? Mayor finds $17.8 million ‘piggy bank’ to close budget deficit

How Mayor Jerry Sanders proposes to close the $60-million budget deficit, Reader’s Digest version: $30 million in concessions from city workers, $11 million in  fee increases, $3.8 from the Library Systems Improvement Fund, and $17.8 million from the Internal Stabilization Reserve. Yeah, no one else has heard of the Internal Stabilization Reserve before, either.

Chief Financial Officer Mary Lewis said the reserve was started in the 1990s by city managers when the city first entered the bond market to build the Convention Center. Since then, the city has used some of the tourism taxes it receives to pay off bonds related to the Convention Center and other projects. But each year, when times were better, it put aside some of that money to create the reserve, for when times might be harder and the city might have trouble making its payments.

“It’s the city’s piggy bank,” Sanders said at the press conference.

Sanders has long castigated the City Council and past mayoral administrations for spending down the city’s reserves and otherwise draining San Diego’s financial resources leading, at least in part, to the mess the city is in today. but the Internal Stabilization Reserve isn’t, technically speaking, a general fund reserve. San Diego, like many cities, accounts for its money by breaking it into different funds. Enterprise funds go for things like water and storm-water system repairs and other things. The general fund is the one that claims property taxes, sales taxes and tourism taxes as income, and pays for police, firefighting, worker salaries and most discretionary expenses. Sanders has been diligently setting aside millions of dollars to create a general-fund reserve that would meet with the approval of the bond market.

Since the Internal Stabilization Reserve is not a general-fund reserve, it doesn’t appear to count as “spending down reserves.” Sanders justified the use of the Internal Stabilization Reserves by saying that “one-time monies will only be used for one-time expenses.”  CityBeat columnist John Lamb years ago coined the phrase “magic budget fairy” to describe exactly this sort of budgeting when city managers used to do it in times of yore (we now know that the magic budget fairy’s favorite source of power used to be underfunding the pension system, but maybe she, too, has other reserves).

The City Council will have to approve a separate change to the law to allow the city to use the reserve for the expenses the mayor proposes, which includes five community-plan updates and a $1.6 million fire-alert system. If approved, the reserve will be empty by the end of the year.

In addition to the reserve, Sanders is looking to make up half the deficit, some $30 million, through a 6-percent across-the-board compensation reduction for every person on the city payroll, from Sanders himself on down to the painters and the dispatchers. Sanders said he’s told the city’s five labor unions how much money he needs from them, and he’s said he can be flexible in how they get there, whether it’s salary cuts, health-insurance-contribution reductions or retirement-contribution reductions. Sanders and the unions are currently at impasse, a term of art meaning they can’t agree on a deal, and the City Council will have to choose between them.

Then we have the fee increases. About $6.7 million will come from user fees, which the mayor has proposed be increased to cover the costs associated with each city service, whether we’re talking about massage-parlor permitting or building inspection. The City Council’s Budget Committee passed most of the fees up to the full council next week, but they indicated pretty strongly that not all the fee increases will be approved. The other $4.3 million comes from franchise fees, particularly a $1.7-million increase in the fee paid by trash haulers.

The Library System Improvement Fund is a pot of money the City Council used last fall to keep nine libraries open for an extra six months when budget shortfalls led to emergency cuts. They spent $3.1 million back then, and the city plans to spend $3.8 million next year on library improvements. This will empty this reserve as well, Lewis said.

Speaking about the budget in general, Sanders challenged the City Council and the city’s labor unions to accept his proposal.

“We have a choice,” he said. “We could lay off hundreds of employees and cut the services they provide, or we can ask all city employees to reduce their compensation. To me, the choice is clear.”

If all that sounds ugly to you, wait till next year. San Diego paid $150 million into the pension fund this year, but the disastrous showing on Wall Street this year could jack that payment up to $200 million next year.