San Diego’s budget crisis is prompting city officials to consider softening their policy on minimum financial reserves despite a new comparison study showing most similar cities already have more money socked away.
City finance officials say San Diego must abandon a plan to quickly increase its reserves to national standards because the city faces a $120 million deficit for the upcoming fiscal year and additional deficits in future years.
They contend there’s no point in having a policy the city has essentially disregarded by canceling scheduled reserve contributions every year since the COVID-19 pandemic began.
Finance officials are tentatively proposing the city scrap the existing policy and make no contributions during the next two fiscal years — fiscal 2027, which starts in July, and fiscal 2028 — and start making contributions in fiscal 2029.
“I don’t want to just have reserve funds sitting in an account for the sake of a positive percentage,” said San Diego Councilmember Kent Lee, “if residents and the city are losing out on the actual services they depend on.”
Question: Should San Diego scrap financial reserve requirements until fiscal 2029?
Economists
Caroline Freund, UC San Diego School of Global Policy and Strategy
YES: After years of being ignored, these are hardly “requirements.” While building sufficient reserves makes sense in case of a downturn, current conditions do justify pausing contributions. But the focus of these discussions should not be on a toothless rule; it should be on cutting expenditures and seeking new sources of revenue to balance the budget. And with new technologies, the city should be able to improve efficiency and deliver more services with fewer resources.
Ray Major, economist
NO: Eliminating reserves removes the city’s financial safety net and leaves San Diego vulnerable in the event of economic downturns and natural disasters. It does not address the core issue that the city overspends. Furthermore, potential downgrades to the city’s credit rating will cost residents millions of additional dollars for decades to come. Irresponsible fiscal management of the city’s finances is no excuse for scrapping a reserve that is meant to protect the residents during difficult times.
Kelly Cunningham, San Diego Institute for Economic Research
NO: Suspending budget policy would undermine fiscal discipline, especially when the reserve requirement is specifically intended to restrain excessive spending. Council members should not compound ever-increasing debt onto future city budgets that must be addressed by successors when they themselves are no longer in office. It is essential for the reserve requirement to be strictly enforced, ensuring annual spending remains manageable without burdening city budgets of the future with even greater financial obligations.
James Hamilton, UC San Diego
NO: Every week, the city comes up with a new tax, fee or gimmick to try to address its budget deficit. But no one acknowledges the real problem. The number of people working for the city has increased by 10% over the last five years, while the San Diego population has grown by less than 2%. San Diego needs leaders who will step up and be accountable for the growth in spending.
Norm Miller, University of San Diego
NO: Scrapping even modest reserve standards is “kicking the can down the road.” While tolerable in a growth cycle, San Diego faces a declining population and potentially shrinking future real (inflation-adjusted) revenues. Scaling back government services to match such declines is notoriously difficult. Instead of abandoning fiscal responsibility, the city should sell excess real estate and closed schools, earmarking those proceeds for protected reserve accounts to ensure long-term stability, while also moving the various stalled development projects forward.
David Ely, San Diego State University
YES: The city must prioritize the goals of maintaining the current level of services, resolving the budget deficit and building financial reserves. Fully achieving all three goals in the near term is unrealistic. Suspending contributions to the reserves until fiscal 2029 should be conditional on funds remaining above a set minimum. A plan to resolve the structural deficit while building financial reserves to a target level should be established by the city this year.
Executives
Chris Van Gorder, Scripps Health
NO: Financial standards exist for a reason. Bond and financial covenants in loans and financial transactions are an example. They exist to protect the lenders and investors. This policy exists to protect the taxpayers and should not be ignored, nor should it be eliminated. On the contrary, they should be enforceable. In the private sector, investors can take over an organization in default.
Jamie Moraga, Franklin Revere
NO: The city will set itself up for greater failure by eliminating or pausing financial reserve minimums. Doing so only deepens the deficit instead of forcing hard decisions to cut, pause, reduce or eliminate spending. Since COVID, the city has avoided accountability by delaying required reserve contributions, harming both residents and the city’s future. Running a city is like running a business. Living within your means and maintaining reserves is part of responsible leadership and management.
Gary London, London Moeder Advisors
YES: But this is a “soft” yes. My household and yours should always have a rainy day reserve. Cities shouldn’t be any different. However, we may now have arrived at that rainy day. No doubt our city leaders will be challenged with making sober fiscal decisions. Those decisions should be made with a commitment to replenishing reserves as soon as practicable. I also hope and expect that they will be made honestly, creatively and compassionately.
Phil Blair, Manpower
NO: A one-time use of reserve funds to cover essential services will allow the city to plan the coming year to live within its income. Extending use until 2029 would encourage bad habits.
Bob Rauch, R.A. Rauch & Associates
NO: Delaying reserve requirements until 2029 only deepens San Diego’s long‑standing fiscal imbalance. The city has spent beyond sustainable levels, and pausing reserves avoids the structural fixes needed. Instead of relying on incremental fees or short‑term patches, the city should evaluate surplus land, streamline operations, and consider whether some services now handled internally could be delivered more efficiently through outside partners. Real fiscal discipline requires rebuilding reserves, not abandoning them.
Austin Neudecker, Weave Growth
NO: Suspending reserve requirements would relieve near-term pressure, but weaken long-term fiscal resilience. The issue is not the policy, but the failure to adhere to it. Reserves exist for emergencies, and lowering standards risks higher borrowing costs and reduced ability to weather a downturn. The city should preserve a minimum buffer and design a plan with credible spending adjustments rather than abandoning the framework.
Not participating this week:
Alan Gin, University of San Diego
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