Let’s cut to the chase! Without a doubt, the city, the county, the school districts, and the state are approaching crisis positions as financial stability is threatened by structural deficits.
Expressed simply, a structural deficit exists when ordinary planned expenses (the budget) are designed to exceed expected available income. When a business or a family is faced with this common challenge, they will, by necessity, make changes to “balance the budget.” Governments, on the other hand, often look first to increasing income.
Raising additional cash is not always an available option, and if selected, will often have greater consequences down the road. Governments often resort to bond issues. Families load up their credit cards. Businesses get loans.
These are natural, temporary remedies to deal with large, one-time expenses, such as a major project, a business expansion, buying a home or a car. NEVER should these options be chosen to increase the cash available to cover normal, continuing operating expenses. Simply, this is not a sustainable strategy.
In the absence of a money tree, the only logical response to a budget deficit is to make adjustments on the expense side. Families do this. Businesses might try to increase prices for goods or services, but will likely be limited by market forces.
Governments are reluctant to cut back on various public support services and are expected to maintain a robust infrastructure. Politicians are sensitive to the voters and are apt to make financial decisions based on short-term political mileage as opposed to long-term sustainability. Most of them will not be in office when it’s time to pay the piper.
Judging by various reports and disclosures from watchdogs and independent budget analysts, that time has now arrived. The state has been hampered by a tax base that is very sensitive to the economy and to the investment market. California has consistently made the mistake of increasing its budget to respond to good times, but making long-term obligations makes it difficult to adjust to times of reduced tax income.
The preposterous proposal for a one-time tax on financial assets of rich Californians is contraindicated by any accepted financial strategy. If enacted, we can see a future where the state returns to the well on a regular basis and the main supporters of commerce and invention will be forced to flee the state.
Using a similar philosophy, the City of San Diego is targeting “non-primary” homes as a new source of ill-gotten income.
The liberals on the County Board of Supervisors are floating the idea of modifying its policy on reserves so as to make a substantial portion of this money available for ongoing operational expenses. This is a very dangerous violation of reserve philosophy. But bad ideas are endemic to the region, so now the city is contemplating a similar diversion of its reserves.
Government agencies typically define a reserves budget to be used “only” for disasters. By electing to take money from these reserves, are the supervisors and council members now forecasting that disasters won’t happen? In the face of the spate of recent fire and flood disasters, this is a blindness that must be rejected.
Our schools are in a rough position. The tinkering of school funding by the state has left the districts with a model that ignores funding for maintenance and replacement. The high-ranking Poway Unified School District is already in the doghouse for its “capital appreciation” bond. Authorized in 2008, the loan was initiated in 2011.
However, the start of the 20-year loan payback is deferred until 2033, making it difficult to justify a new bond, which is needed to cover infrastructure that is failing due to delayed maintenance. It is imperative that the state make systemic adjustments to school financing to address this major fault.
In a similar fashion, the city of San Diego has been short-changing its Capital Improvements Program. This is the budgeted reserve for long-term maintenance and replacement.
The issues for San Diego are voluminous and go back at least two decades, when the city earned the inglorious nickname of “Enron by the Sea.” Failed attempts to remedy the unsustainable pension model put the city in the position of looking for more income.
Several real estate blunders exacerbated the situation. And to add to that, attempts to turn trash services and parking into cash cows have met with extreme public push-back. Numerous schemes have been hatched using “best case” assumptions that were unrealistic.
San Diego’s budget woes are now at crisis level, with no reasonable remedy outside of significant reduction of forces or new sources of taxation. Based on data for 2024, as reported in the Annual Comprehensive Financial Reports for the 18 cities in San Diego County, San Diego ranked LAST in Unrestricted Net Position per Capita. It’s a negative number, signifying that the city is in the red by $1,380 per capita.
Compare that to Poway, ranked 5th, with a positive value of $809 per capita.
Unaddressed by all of this is the preferred option to improve productivity. The public would be better served if the politicians turned the business operations over to professional managers. Certainly, a key move would be for San Diego to revert to the City Manager model. In addition, future pensions need to be redesigned, personnel must improve productivity, and outsourcing of services should be prioritized if it’s economically attractive.
The imposition of new city, county or state taxes should be far from being primary options. Ditto for bonds for the purpose of filling shortages in operating budgets. These are not sustainable strategies.
A Rancho Bernardo resident, Levine is a retired project management consultant and the author of three books on the subject. Write to Levine at levine-rbnews@earthlink.net