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San Diego Plans Budget Cuts as Deficit Estimate Doubles

In November, officials estimated a budget shortfall of $86 million, but it turns out the actual numbers are much worse. Now the city must find areas to cut spending to adjust for the 10 percent gap.

(TNS) — San Diego, Calif., officials on Wednesday began discussing potential budget cuts and the possibility of burning through city reserves to help close a projected $154 million deficit, which is nearly double the $86 million shortfall projected in November.

The spike is the result of a nearly $50 million increase in San Diego's annual pension payment and the realization by city officials that their predictions of a post-COVID-19 tourism and convention revival this spring were too optimistic.

Some officials expressed optimism that Democrats taking control of the U.S. Senate will boost prospects for federal pandemic aid to state and local governments. Last spring, San Diego received $250 million in such aid.

City Council members said they will face unusually stark financial challenges and tough decisions without that aid, because the pandemic has helped create a roughly 10 percent gap in the city's annual operating budget of $1.5 billion. Mayor Todd Gloria has asked each city department to propose budget cuts, some as large as 8 percent, to help close the gap, and city officials say they plan to delay all strategic expenditures like building new fire stations and libraries by at least a year.

Councilman Chris Cate, new chairman of the council's Budget Committee, urged his colleagues on the committee to be intensely frugal regarding proposed new expenditures.

"The budget projections are grim, and as elected officials we must be honest enough to distinguish what truly are core city services and be strong enough to fight for them, and humble enough to delay other priorities until we have more favorable budget conditions," said Cate, the council's only Republican.

While council members acknowledged the city's financial challenges, a majority expressed support for targeted new spending on youth programs, small business pandemic relief, enhancing the city's tree canopy to fight climate change and boosting broadband internet access for the poor.

Eight of the council's nine members also expressed support for pay increases for city workers, despite the pandemic. They cited a recent city audit showing San Diego city workers typically earn less than their counterparts in other cities.

"We cannot forget about our city staff that is responsible for deployment of services as we talk about prioritizing core services," Councilwoman Monica Montgomery Steppe said.

A typical cost-of-living pay raise of 3 percent for all employees would increase the projected deficit another $18 million to $172 million, city finance officials said.

The only methods for closing the projected deficit that got support from a majority of the council were using the city's pension stabilization reserve and other reserve funds.

But while council members expressed support for maintaining the same number of operating hours at libraries and recreation centers, they didn't object to Mayor Gloria's requests for deep proposed cuts in those areas.

He has asked for proposals to cut 2 percent from what he calls core services: police, firefighting, homelessness programs, transportation, trash pick-up and storm water.

Gloria wants proposals for 4 percent cuts in departments that provide support for core services, and 8 percent in all other departments, including libraries and parks.

Council members suggested shrinking police funding by shifting some duties related to homelessness away from police toward social workers and mental health counselors.

They also expressed support for new police training in response to protests sparked by excessive force incidents involving minorities. The new training would focus on de-escalation techniques, unconscious bias and multicultural sensitivity.

In addition to using city reserves, other potential solutions suggested by council members include:

saving $11.3 million by suspending a requirement to spend a percentage of new city revenue on infrastructure projectsincreasing the city's cannabis tax, which the council already lifted from 5 percent to 8 percent in July 2019shifting some outside city contracts to in-house workers.The projected deficit increased more than 80 percent between November and January because of a $49.3 million increase in the city's pension payment and scaled down projections of hotel tax revenue in coming months.

The pension payment increased primarily because city workers are living longer and getting paid more.

City officials, at the urging of Independent Budget Analyst Andrea Tevlin, shrank projected hotel tax revenue in the fiscal year that begins July 1 from $200.3 million to $170.3 million.

Local hotels have seen fewer "leisure" travelers during the latest California stay-at-home orders, and 93,000 hotel room nights from January through March have been canceled, city finance officials said. In addition, conventions scheduled in April and May have begun to cancel, they said.

City finance officials are scheduled to provide another set of updated revenue projections on Jan. 29. It's possible those estimates will prompt Mayor Gloria and the council to immediately make service cuts instead of waiting until a new budget is adopted this spring.

Among the new proposed expenditures are creating an Office of Child and Youth Success and a youth environmental recreation program.

"For San Diego to thrive as a city, it needs to be a place where every child, youth and family is safe, healthy and empowered," Councilman Joe LaCava said in his budget recommendation memo.

The full council is scheduled to debate the city's budget priorities Feb. 2.

(c)2021 The San Diego Union-Tribune. Distributed by Tribune Content Agency, LLC.

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