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Mayor's Budget Solution Not a Mystery to All

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Posted: Friday, April 17, 2009 12:00 am | Updated: 7:03 am, Thu Dec 3, 2009.

Thursday, April 16, 2009 | When Mayor Jerry Sanders announced his spending proposal this week, one of the saviors was a reserve fund that the mayor said could be tapped to cover nearly $18 million in expenses.

"It's something I didn't know existed," Sanders said Wednesday. "I can only speak for myself."

But the fund has been disclosed in the city's annual financial reports and was well known among the city's finance officials, including Chief Financial Officer Mary Lewis.

"This has been out there, talked about," Lewis said. "The financial people know about it. The policy people wouldn't know about it."

On Monday, Sanders unveiled a funding proposal to close a $60 million budget gap. Half of that came from cutting compensation. A significant chunk came from one-time funds called "internal stabilization reserves."

Those funds had been set aside as the city issued debt paid by hotel-tax money, including the financing of Petco Park and the Convention Center expansion. It was meant as a cushion to pay the bond payments if the city's hotel-tax money ran low in a particular year, but is not part of the city's legally required reserve, which is typically kept by a third party and to be used for emergencies.

Sanders suggested the funds may have been set aside by former city managers, and that he didn't know about the fund until his chief operating officer, Jay Goldstone, brought it to his attention after seeing a January report from the Independent Budget Analyst's Office that suggested consolidating those reserves with the city's normal reserves.

But the funds are also disclosed in other documentation, including the past few Comprehensive Annual Financial Reports, which document the city's financial health and are used by investors. The 2005 report said the city creates "policy reserves" to make payments if there are "unanticipated fluctuations" in hotel-tax money. Subsequent reports make similar statements.

Goldstone said while he's reviewed the financial reports, the internal stabilization funds didn't stand out in a 300-page report and a $3 billion budget.

"I never stopped to focus on those numbers to say what is this specific reserve for to know that it was basically discretionary dollars and not a restricted reserve," he said.

Goldstone said he and the mayor have been busy dealing with the city's other financial problems.

"Staff was well aware of it," he said, "but as you're focusing on so many things to right-size the ship, I never asked the question and it was never brought to my attention that if you are looking for available resources, there is this pot of money."

During a City Council committee Wednesday, Councilman Todd Gloria noted that in the fall, the mayor had suggested shuttering seven libraries and nine recreation centers to close a $43 million midyear budget gap, a move the council ultimately rejected.

"I shudder to think what would have happened if the council consented to doing that only to find $17.8 million that is currently available," Gloria said.

Lewis said the idea of tapping the internal stabilization reserves didn’t come up then because the mayor was focused on cutting expenses. He had asked departments to suggest cuts totaling 10 percent of their budgets.

"In prior budgets, we were looking at how do we right-size the city," Lewis said. "It was just a different policy discussion about the budget and balancing the budget."

This year, Lewis noted, the mayor had made clear he did not want to cut services or staff.

"There are few options, given those parameters, in terms of how do we balance," she said.

Though Sanders stressed when unveiling the budget this week that he is using those funds to pay for expenses that don't recur in future years, the mayor's spending proposal does call for using other one-time funds for ongoing expenses — those in a fund for library improvements.

Sanders has proposed taking $3.8 million from that fund. He said the decision was made at the last minute because increased parking meter revenue had been factored into the budget. However, the City Council kicked back the plan to allow rates of up to $3 an hour and charge on Sundays. Council members said the mayor should rework the plan and send it through community groups.

A standard budgeting principle is to use money that recurs in future years, such as property and sales tax revenues, to fund expenses that occur every year, such as running libraries and fire stations. Using reserves or one-time funds creates a problem because when that money runs out, the city has to find another way to cover the costs the next year.

The city's prolific use of one-time funds has been noted in the IBA's report on the city's structural budget deficit. And it was a practice Sanders has criticized, including during the council's decision to keep libraries and recreation centers open by using one-time funds.

Sanders said that was the right recommendation at the time, noting that "situation has changed in the last six months" and he is trying to avoid layoffs. He's also still hopeful the council will sign off on the parking plan.

"I still believe we'll have a funding source for that," he said, "but this happened so late in the budget cycle we didn't want to make the cuts and add people in after they went through the angst of thinking they're going to lose their jobs."

Please contact Rani Gupta directly at rani.gupta@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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