City Financial Outlook Grim In Midst of Economic Crisis

$40M Revenue Shortfall, More Cuts Loom; Aguirre Demands Pension Fund Numbers

By Gene Cubbison
|  Saturday, Oct 11, 2008  |  Updated 10:51 AM PDT
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City Financial Outlook Grim In Midst of Economic Crisis

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 After five years as an outcast on Wall Street, and even with recently upgraded credit ratings, the city of San Diego still finds itself behind a financial eight-ball.

Major lenders are in short supply, and the global economic meltdown has dealt the city a $40 million blow in the form of a 3 percent shortfall in expected revenue from property, sales and hotel-room taxes.

"And when you've already made cuts for three years running, 3 percent ends up to be quite a large cut," Mayor Jerry Sanders said in an interview with NBC 7/39.

"We're going to be needing to streamline even more and make some very tough decisions that'll affect everybody in San Diego."

Sanders spoke of delaying construction projects, extending his hiring freeze, and further service reductions.

As for returning to the bond market, the mayor said the city's quest for $1 billion-plus for water and sewer system upgrades eventually may succeed, because infrastructure bonds backed by ratepayer revenues are still attractive to investors.

"You don't see those going belly-up," Sanders said.

Municipal finances also have been hamstrung by the need to escalate payments toward a $1.2 billion deficit in the San Diego City Employees Retirement System (SDCERS).

At a City Hall news conference, City Attorney Mike Aguirre demanded an immediate valuation of SDCERS' assets, which suffered a 5.2% -- $256 million -- loss for the year that ended June 30th.

"Are we locked into the stock market to the point that we have to follow it all the way down until it crashes?" Aguirre asked, rhetorically.  "Only San Diego, that I know of, has sat back and done nothing when you're facing the kind of difficulties that we are."

Predicting that the city will be obligated to put upwards of $300 million into the pension fund next fiscal year, Aguirre suggested that SDCERS might need to be reorganized.

If its assets-to-liabilities ratio falls to around 50 percent, Aguirre said, "it may be time to stop the (pension benefit) distributions at 100 cents on the dollar … you're bleeding out the cash that is available."

Told of Aguirre's statements, the mayor's chief financial officer, Jay Goldstone, called them "a knee jerk reaction -- probably reckless."

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