The city of San Diego’s top has ordered municipal departments to suspend “nonessential” spending in the current fiscal year.
Chief Operating Officer Eric Dargan further instructed department heads to cut 2 percent of their budgets for the city’s 2024-25 budget.
Last year, then-county Chief istrative Officer Helen Robbins-Meyer warned of a potential for future belt-tightening as she presented her final budget after more than 12 years on the job.
“We are pushing up against our fiscal limits,” she told the Board of Supervisors in June before the approved a budget with an 11 percent increase over the previous year. “We have to dampen our expectations going forward. Hopefully that won’t happen. Hopefully the economy will be strong and continue to grow. But, if not, we’ll have to limit the growth.”
The economy has proved to be more robust than many analysts anticipated, and a widely expected recession didn’t materialize. Even if the economy stays the course, the county may not be out of the woods.
Like the city of San Diego, the county has created new programs and expanded others, added staff and increased salaries, which, in turn, boosts retirement benefits — resulting in larger budget contributions to the pension fund.
Federal pandemic aid, which boosted state and local government budgets across the nation, is running out, if it hasn’t been depleted already. That money not only shored up some agencies facing revenue shortages during the COVID-19 outbreak, but helped paper over long-term structural deficits where built-in spending regularly sures revenues.
The city has long had a structural deficit, sometimes patching through with one-time money — such as federal pandemic aid.
The county, which was a financial wreck decades ago, overhauled its finances, went on an austerity program and not only put its budget in order, but built sizable reserves that were the envy of other governments. (There was talk about whether the city should declare bankruptcy around 2005 because of its pension problems.)
Yet the Republican-dominated Board of Supervisors came under increasing criticism for skimping on public services and began loosening up the purse strings to better fund food programs and expand mental health treatment opportunities, among other things. Spending further grew as Democrats took over the majority of the five-member board after the 2020 elections.
The degree of financial pressure the county will face remains unclear as the budget dance has yet to begin in public.
Mayor Todd Gloria and the City Council, all Democrats, already have been making aggressive moves to lower, or put off, spending. A big jump expected in the city’s annual pension payment could squeeze other programs, and that sent officials to the city pension board seeking relief.
A week ago, a majority of the city’s pension board endorsed a plan that would lower pension payments for the next five years, while increasing them after that, according to David Garrick of The San Diego Union-Tribune.
But some pension board said their final vote in March “may hinge on whether city finance officials can present a credible plan for stabilizing San Diego’s finances in the long term,” Garrick wrote.
The city’s five-year budget outlook released in November forecast annual deficits totaling $1 billion over five years.
Dargan, who works for Gloria, said the fiscal 2025 shortfall is estimated at $171.9 million. That may not seem like much in a $5 billion budget, but it would have to come from somewhere.
“This projected shortfall is due to ongoing expenditures, primarily growth in personnel and non-discretionary costs, outpacing General Fund revenue growth,” he wrote in a Dec. 4 memo that was recently reported by Fox 5.
Dargan said departments must submit spending requests lowered by 2 percent. He noted that $56.5 million in “excess equity” projected at the end of the current fiscal year on June 30 could help with next year’s budget.
Dargan also ordered the suspension of all nonessential expenditures in the current fiscal year “effective immediately.” He described nonessential spending as “those that do not directly impact core City services.”
A lot could happen to alter the budget trajectory. The economy could continue to improve and grow city and county revenues beyond expectation, reducing the level of — or need for — potential cuts. Of course, a downturn or recession would deepen budget shortfalls.
Councilmember Raul Campillo and Gloria have been discussing putting a 1-cent sales tax increase ed by the San Diego Municipal Employees Association on the November ballot to fund city government operations. If approved, that could bring in nearly a half-billion dollars annually.
But there’s been curious radio silence about that of late, at least publicly. Gloria didn’t mention the sales tax idea in his State of the City Address on Jan. 10. The politics have become more complex because environmental groups and labor unions recently qualified a countywide half-cent sales tax increase for transportation for the November ballot.
Meanwhile, the fate of a city hotel tax increase is still pending in court. If ultimately deemed legal, the 2020 ballot measure could mean tens of millions of dollars for homeless programs and road repairs, along with even more money targeted for an expansion of the downtown convention center.
The main issue is whether the initiative was approved because it received a majority vote, or failed because it fell short of a two-thirds majority.
The budget reductions the city and county may face seemingly could be done around the margins and may not require substantial reductions in services.
That would contrast with the choices faced by Gov. Gavin Newsom, who closed what he said was a $38 billion gap in the state’s $291.5 billion budget by making cuts to climate change and housing programs. (Worth noting: The state Legislative Analyst’s Office put the deficit at $58 billion.)
Still, the city and county have made a lot of costly commitments in recent years — and built-in spending to make good on those promises will be hard or impossible to undo.
