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Pocket Change: Debating the Mayor’s budget cut plan

Two weeks ago San Diego Mayor Jerry Sanders released his proposal outlining how the city’s looming $179 million budget gap can be closed. With its focus on one-time cuts and barely touching on systematic problems, Sanders has been forced to defend his plan to the City Council, community leaders, and the public.

The plan would cut portions of police, firefighters, lifeguards, fire pits, libraries, parks, and even trash pick-up. It relies heavily on cutting 500 city jobs, 300 of which are unfilled at the moment.

In the last year and a half San Diego leaders have had to lower the budget four times.

The mayor has asked the City Council to adopt a new budget by the beginning of the year, months earlier than usual.

These are signs that something is systematically wrong and that requires a systematic solution.

Pocket Change commentators put in extra hours on this issue. Last week they exchanged a series of emails exploring the proposal and playing off each other’s ideas:

Erik Bruvold, founding president of the National University System Institute for Policy Research:

The mayor’s “plan” for solving the problem is, bluntly, depressing. It “solved” the majority of the gap through $90-plus million in one-time savings, questionable transfers, and risky deferrals. It once again creates the majority of “on-going” savings through shotgun-like elimination of open positions.

Where there are actual reductions, there is scant evidence that those cuts are the best option for servicing the public. Consider, over the course of less than 72 hours, we saw the mayor reverse course on closing certain branch libraries for a whole day and offer up the alternative of eliminating five hours at every branch. Shouldn’t the first decision have reflected some sort of thinking about long-term policy and how best to serve the public, and the second be something more than reaction to political pushback?

But don’t worry, we will be right back at the same place next year. The mayor’s own five-year forecast projects two percent revenue growth in FY 2012 and, given the one-time nature of most of the “solutions,” it means that budget is already $100 million out of balance IF the economy grows. Continued depressed levels of consumer and tourist spending will make the hole even worse.

You wonder if the administration even reads its own forecasts? The very design of the solution ensures that the perpetual crisis continues.

That has real consequences that go far beyond the cut backs announced. The financial triage we have been undergoing for more than half a decade is robbing the city of any ability to strategically plan and efficiently operate.

Take the much heralded Business Process Re-engineering Process (BPR). That was, in theory, intended to rigorously redesign departments and functions to make them as effective and efficient as possible.

But if the standard procedure is to eliminate open positions, aren’t we left with departments that most closely resemble Swiss cheese? Shouldn’t the BPR have allowed much more strategic cutting? What will “BPR II” look like as it tries to make sense of an organization where 1,500 positions were permanently cut, not because it made management sense to eliminate the positions, but because they happened to be unfilled when the budget axe had to fall?

The public is also ill-served by the perpetual crisis. They have been provided no information about what the forecasted levels of services will be over the long haul and have limited ability to weigh whether they want to make additional investments. The perpetual uncertainty about what the City will or will not do also, most likely, hurts the economy. For example, would you open up a coffee shop near a branch library? How could you when you had no certainty what even the short-term future was?

So we lurch along doing untold damage to a municipal enterprise which used to be rated by observers as one of the best managed in the country. Rebuilding from this mess will take herculean efforts.

Murtaza Baxamusa, Ph.D., AICP, director of Research and Policy, Center on Policy Initiatives:

San Diego is facing a truly monumental crisis unlike any in recent history. Our middle class is facing double-digit unemployment, increasing foreclosures and reliance on social safety net programs. Every public agency in the nation is gazing into the horizon for the first rays of the dawn of economic recovery.

The mayor is proposing an emergency plan in the spirit of an incident commander trying to limit damage using whatever resources he has at his disposal. The idea is to cut services in a controlled manner so that the system can be restored quickly, with any infusion of revenues. Thus, library hours are cut, but libraries not closed down completely; fire engines rotated rather than discarded; trash pickup schedules changed, rather than left to rot; and police response calibrated to the level of critical need, rather than chaos.

People come together and make concessions in an emergency. Indeed, the public is not served by a state of permanent crisis and an emergency plan that never ends. Therefore, away from the din of emergencies is required a calculated pursuit of structural changes that include an evaluation of runaway contracting costs, process reengineering that is truly systemic in its design, honest labor-management partnerships and a sustainable way for paying for all this together.

The 18-month budget opens the door to biennial budgets with longer time horizons. It could work if the code red is temporary, but it would be a disaster if we were left with unsafe neighborhoods, closed libraries, vandalized parks and trashed streets through June 2011.

Erik:

I wish I had Murtaza’s optimism that we could see an “infusion of revenues” that rights San Diego’s fiscal ship.

It better be a darn big infusion because Page 5 of the budget “balancing” plan indicates that even after all the cuts, in 18 months the city’s expenses will exceed revenues by $75.5 million. That is if revenue actually grows by three percent (Page 30).

Thus, to close the forecasted gap through revenue growth alone, revenue would have to grow by 10 percent. Maybe that is what Bernie Maddof’s economist would project, but it isn’t likely in a state with the third worst unemployment in the nation and in the midst of a financial crisis-fueled recession.

As readers may know, they called it the “lost decade” in Japan, not because they misplaced their calendars, but because Japan’s economy essentially did not grow for 10 years after that country experienced a financial sector collapse because of a real estate collapse. Frankly, there are good reasons to believe that this recession could look a lot like that one.

Thus the question that needs to be asked: if revenues don’t unexpectedly rise, then what? Tax increases on the general public (can you say trash fees) which would, in turn, further depress retail purchases? Business taxes? Extra tourism taxes at time in which that industry is deeply discounting rooms and many are pushing for TOT (Hotel Tax) increases to support a third phase of the convention center?

There is an emerging consensus, by those that have the luxury of being a half-step removed from the daily politics of City Hall, that San Diego faces a persistent and pernicious structural deficit. That view seems to be shared by a number of councilmembers who this week noted the need to tackle the long-term problem head on rather than rely so heavily on one-time cuts.

Here is hoping that they convince enough of their colleagues that now is the time to get a handle on the perpetual crisis that is the City’s budget, and that we soberly admit there is no dashing prince, 9th cavalry division, or unexpected revenue windfall that is going to rescue us from having to soberly, structurally, and fundamentally change how the City of San Diego operates.

Murtaza:

In the midst of raging fires, you do not begin re-roofing your house, with flying cinders putting everyone at risk. Nor do you start burning down your house betting that the insurance company will pay to build it anew.

The fires of economic calamity are raging all around us. This is the time to do what we can with extremely limited resources, and not talk about burning down the house through bankruptcy. Or to engage in an academic exercise on impracticalities that has little value in the immediate crisis.

Now, I completely agree with Erik, that the city’s fiscal situation is caused by structural problems that recur every single budget cycle, like a leaking roof in monsoon season. But we still have $900 million coming in this year, and have had a healthy annual growth of 7 percent averaged over the past five years. We need to save our house first, and fix it over time.

Steven Bartholow is SDNN’s multimedia editor and political reporter.