San Diego Sell the family jewels cheap and then go into the tank. That's Mayor Jerry Sanders's secret long-term plan, say more and more observers of city hall. His strategy is, first, to sell or lease San Diego's valuable land to his developer buddies, who are also his major contributors. Then do the inevitable: take the City into bankruptcy.
Sanders and the Union-Tribune say a tax increase and bankruptcy are off the table. But that's a fairy tale and an admission that there is no Plan B, C, or D. The City recently issued a five-year plan. It is called "City of San Diego Five-Year Financial Outlook." The name really should be "We're Broke. Help!"
The document says that between 2008 and 2012, the City's annual pension/health-care contribution is projected to grow from $200 million to $218 million. Total deferred maintenance and capital-improvement projects come to $800 million to $900 million, not including Water and Wastewater needs, which are the most critical. The combined pension and health-care deficits are close to $3 billion, and there are no reserves for the latter. The general-fund deficit for the five-year period is a cumulative $800 million.
The mayor says he can come up with almost $400 million in savings over five years through such plans as the outsourcing that voters okayed in the last election. But even after these and other phantom savings, the City's deficit will be $25 million in 2008 and nearly $100 million in each of the next four years. Sanders hopes elected officials and bureaucrats will come up with more cost cuts.
Bankruptcy specialist Scott B. Ehrlich, professor at California Western School of Law, wrote an article in spring of 2005 saying the City had to go bankrupt because there was no money to cover unmet needs, including deferred maintenance and capital projects. "Everything has gotten worse," says Ehrlich now. "We're just in terrible shape financially."
And the mayor and the U-T would have you believe that neither a tax increase nor bankruptcy is under consideration? Puh-leeze. "The mayor will sell off assets to his select group of business interests that backed him," says activist Norma Damashek. "We will see major sales and transfers of property, but it will still not be sufficient, and we will hear, 'We have tried everything; we have no choice,' " and bankruptcy will follow.
What might be sold? Smaller properties will go. Then will come golf courses and airport sites such as Montgomery and Brown fields, she says. She knows "some of these can't be turned over without going through hoops." Federal money has poured into the airports, complicating any transfers. Some property sales might have to go to voters. Oftentimes, these problems can be averted by dumping the property through a long lease rather than an outright sale. The Torrey Pines golf courses will probably go that route.
"Even if [City Attorney Mike] Aguirre prevailed" in his attempt to roll back fat benefits (a prospect made more difficult by a recent superior court judge's decision), "we are still so far behind that bankruptcy is in the works," says Damashek. "The five-year plan is nonsense. So far he [Sanders] is getting away with it. Until something happens -- say, a police or fire emergency that the City can't respond to -- the public won't take notice." Sanders hopes such a crisis won't take place before the 2008 election, in which he intends to make charter changes that strengthen the mayor's office and weaken the city council, says Damashek.
"It is irresponsible of the mayor to issue a paper projecting such staggering deficits and then say we aren't considering any tax increases or bankruptcy," says Jim Mills, former president pro tem of the California Senate. He agrees with Damashek that "They are putting off bankruptcy while they take care of some of their friends. They shouldn't put off bankruptcy with the financial condition deteriorating as rapidly as it is now." Sanders says he will eliminate 125 positions a year for three years. But will these people be pushed into retirement, where there will simply be costs of a different kind?
"They are living in a dream world," says Steve Erie, professor of political science at the University of California, San Diego. "They are just backloading the problem -- a hallmark of San Diego politics. They are pushing back the problem as far as they can. But the day of reckoning will come; they will face tax increases or bankruptcy. Aguirre is doing due diligence on the road to bankruptcy. He can go to court and say, 'I tried every avenue to reduce the liability.' "
Voters in the fall gave the nod to the idea of managed competition; city departments have to compete with the private sector to see who can come up with the best bid to handle a task. "Savings from managed competition are illusory," snorts Erie. "If you want to see what is going out to bid, check the mayor's campaign contributors. This is a mayor that gives contributors everything they want, including the upper two stories of a high-rise building near Montgomery Field. [Sanders] wants to repeal the rules of arithmetic. If you have to have a balanced budget, there is no way you will extract the savings from managed competition. It's not about efficiency. It's about rewarding the fat cats."
Damashek's scenario "could very easily be what is going to happen," says Erie. "They will sell [or lease] things at fire-sale prices to their fat-cat friends. But these are one-shot deals. Once it's gone, it's gone." He is wary of the proposed "public-private" deal for Balboa Park. The city-owned Torrey Pines golf courses are quasi-private already, with high greens fees and favoritism for hotel guests, he points out. "All these deals might do is delay bankruptcy until 2014."
Ehrlich says the City must go bankrupt. "Somebody has to recognize that we cannot pay the outstanding pension debt and run the city of San Diego. There is just not enough money," he says.
He doesn't understand how Sanders can insist he is not pondering a tax increase or bankruptcy. "If this were his personal finances, he would have to do one or the other: either increase his income or file for bankruptcy," says Ehrlich. He doesn't know whether Sanders plans to dump assets and then go into the tank, but the professor does say, "Never sell capital assets to pay off debt." And, he adds, "A really long-term lease is no different than disposing of the property."
Councilmember Donna Frye agrees that there is too much dirty linen on the line to dismiss higher taxes or bankruptcy. "I don't know how they are going to do it. It's unrealistic," says Frye. She notes that the five-year plan is misleading: "Nobody wants to tell the public how bad things are. We have over half a billion dollars' worth of non-public-safety unfunded needs as of August of 2004 that I didn't see anywhere in the five-year plan."
In its ongoing shell game, the City is still hiding the pea from the public. The announced annual required contribution to the pension fund is questionable. The public deserves to know "not just the number we can get away with, but the real one, with all the contingent liabilities -- how much it is for this year but also for the years thereafter until it's paid," says Frye.
Activist Mel Shapiro thinks voters might resist most tax increases but could be persuaded to go for raising the transient occupancy tax, or hotel room tax. The tourist industry mobilized to defeat it in fall of 2004, but the public is now more aware of the City's dire straits. San Diego's hotel tax is only 10.5 percent, lowest among California's major tourism destinations. (The rate is 15 percent in Anaheim and 14 in San Francisco and Los Angeles.)
Both Shapiro and Frye say there is money to be picked up from the redevelopment agencies, such as Centre City Development Corporation. The agencies owe the City $200 million, and "at least $20 million is unrestricted and could be spent now, without restrictions," says Frye.
Shapiro thinks Damashek's scenario "is a possibility, although if he [Sanders] raises money through lease or sale of assets, it may not be necessary to go bankrupt," he says.
Scott Barnett, president of TaxpayersAdvocate.org, thinks the budget can be balanced over time without bankruptcy and maybe without a tax increase. But fat sewer- and water-fee increases are already in the works, and the storm-water fee will have to go up, he says. He is counting on the City getting back to the capital markets and selling half a billion dollars of infrastructure bonds. And he does think a hotel-tax boost might go through if it were earmarked for infrastructure -- not pensions. Bankruptcy "won't undo the pension problem and won't undo debt service," says Barnett. He is counting on asset sales, leases, and privatization -- for example, giving a long-term lease to a company to operate Torrey Pines golf courses.
Of course, there's another alternative that might fit with the San Diego mentality: let the joint rot and hope nobody notices.