How to Drown 'Enron By the Sea'
January 2, 2011
by Liam Dillon
In September 2004, The New York Times bestowed a nickname upon San Diego that the city has yet to shake: Enron by the Sea.
Though Enron, the famously corrupt Texas energy company, is long gone, the reference to San Diego's financial failures remains. Just last month, the national media revived it when discussing San Diego's reputation in stories about Mayor Jerry Sanders' plan to foist 401(k)-style retirement plans on most new city employees.
Like many folks, I wouldn't mind seeing "Enron by the Sea" go to sleep with the fishes. But how? The most surefire way is to end the city's series of budget problems. Deficits now stretch back a decade and most observers point to 1996, the year the city hosted the Republican National Convention and began underfunding the pension, as the beginning of the city's modern money woes. Budget problems predate the most recent recession, though the economic downturn certainly hasn't helped matters.
Here are five issues the city should address before it can declare victory over the many-headed hydra that is the city budget. All of them will be discussed in one form or another in the coming year.
Solve the Pension Problem
This one is a no-brainer. But as the last six years have proven, meaningful pension reform can be one of the hardest changes to make.
What could happen in 2011, though, is that city leaders could decide what the pension reform endgame looks like. Decide to develop or pursue legal strategies, such as forcing employees to share investment burdens. Decide to cut salaries or exclude certain compensation from pension calculations — if it's legal. Decide to lobby state and federal officials to change rules guaranteeing certain pension rights or for a negotiated bailout.
It's clear that the city's annual pension payment will continue to put a crushing burden on its ability to provide basic services over the next 15 years. City employees also deserve to know when leaders will stop going after benefits that have been promised to them and perhaps stop with misleading attacks.
Also worth noting is the city's $1 billion-plus deficit for another retirement cost: health care. Negotiations on reforming this benefit, which doesn't enjoy the same guarantees as pensions, are expected this year.
Solving the pension problem doesn't mean resolving everything at once. Lawsuits, for example, often take years. But the city needs to develop a clear finish line.
To figure out that San Diego is broke, you need to look no further than at what is broken. Estimates of the city's backlog of repairs for its buildings, streets and sidewalks approach $1 billion. Fixing streets alone will cost $377.5 million.
Despite an infusion of new bond money, streets continue to deteriorate to the point that people are filling potholes on their own.
A comprehensive report on the city's maintenance backlog was expected over the summer, but has yet to materialize. Getting a grip on needed repairs will help determine how much San Diegans must pay to maintain the parts of the city they touch and feel every day. The quicker the better. Spending $1 on street repair now, according to an estimate in a recent city audit, will eliminate or delay the need to spend $6 to $14 to fix streets in the future.
Restore Some Services
In summer 2013, San Diegans will celebrate the grand opening of a new downtown main library. As long as it's not a Saturday.
Budget cuts made over the past decade have degraded city services already. Operating hours, for example, at branch libraries have decreased by 30 percent to 36 hours a week over the past decade. The main library now is closed Saturdays.
Restoring at least some of the library hours and other cuts, most notably the rotating closures of city fire engines, will be central to the city's full recovery.
What Will Redevelopment Pay For?
Both our own Scott Lewis and the Union-Tribune editorial board have noted that redevelopment — the subsidizing of private sector development to fix rundown neighborhoods — has become the City Hall flashpoint.
And why shouldn't it? Time and again, people ask me how city leaders can consider $2 billion worth of big building projects while begging for new taxes to keep police officers and firefighters on the streets. The answer always is that redevelopment dollars are separate from the dollars that fund police and fire services, and redevelopment money can pay only for things like schoobraries and Chargers stadiums.
Now, even with downtown redevelopment continuing for 20 years longer than expected there's a growing consensus that redevelopment money still can't pay for everything. City leaders are going to have to make choices, and they won't be happy ones. Have redevelopment money take over debts, freeing up cash for police and fire services, or build a Chargers stadium?
Add lingering questions about the fiscal impacts of last fall's downtown redevelopment state legislation on other city neighborhoods and you have an issue central to San Diego's financial future.
Define the Role of the Public and Private Philanthropy
Catch nearly anyone who has spent time studying the city's budget for long and they'll tell you, most of them privately of course, that the city should charge all residents for trash pickup and collect greater fees for storm water. Together, according to a recent estimate, the city would collect an additional $60 million-plus a year if both fees were in place.
Given San Diego's reputation as an anti-tax city and recent history, both of those ideas don't appear to be coming soon. Still, no current city leader has made a sustained push to explain why San Diegans should consider these fee hikes for equity or other reasons.
At the same time, the role of the private sector in city affairs has increased, though in fits and starts. Funding for fire pits on the city's beaches, a national cause célèbre, now appears to come from philanthropy after years on the budget chopping block. A plan to create a gathering place in Balboa Park relies heavily on private financing. Opportunities for greater direct involvement from the private sector to provide city services, notably through volunteering, exist.
The definition of the city's structural budget deficit hinges on the word "structural." San Diego's structure is such that the city is set up to spend more money than it collects. Though Proposition D, a sales tax/financial reform measure failed in November, the potential fix to the problem remains simple. The city must cut costs, increase revenues or do some combination of the two.
Until that happens, San Diego will continue to drown in Enron's sea of red ink.