San Diego can absorb 36% police pay hike, agency says

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LOS ANGELES — A two-year contract ratified by San Diego’s police union Monday giving officers up to a 36% boost in pay over the next two years is not expected to have budget implications, according to a Fitch Ratings analyst.

The AA-rated city has strong reserves and the additional cost cited by city officials as $66 million over two years equals roughly 2.4% of the city’s fiscal year general fund expenditures on an annual basis, said Alan Gibson, Fitch's director of U.S. Public Finance.

“While this obviously adds to expenditure pressures going forward, the city ended fiscal year 2016 with an unrestricted general fund balance of over $227 million (almost 16% of general fund spending that year) and had access to ample borrowable resources,” Gibson said.

Police officers ratified Monday a tentative agreement struck by San Diego Mayor Kevin Faulconer and Councilmember Chris Cate with union leaders last week.

"San Diego continues to be one of the safest cities in America, but we can't take that for granted," Faulconer said.

The City Council still has to give its approval next month, before the pay raises would take effect on July 1.

Fitch formally reviewed San Diego’s ratings in February and upgraded the Issuer Default Rating to AA from AA-minus with a stable outlook, Gibson said.

Fitch was aware when it upgraded the city's ratings "that the city was considering how best to respond to police recruitment and retention problems after its pensionable pay increase moratorium ceased at the end of fiscal 2018,” Gibson said.

“Future year remuneration cost increases are certainly going to be higher than previously envisaged at the time of our review,” based on information contained in the city’s press release, Gibson said.

“However, we acknowledged both future expenditure pressures and offsetting credit positives,” he said. “ Most notably, the city has “exceptionally strong gap-closing capacity and satisfactory reserves resulting from its strong general fund revenue performance, solid expenditure flexibility, healthy economy and tax base, conservative financial management policies, and strong financial planning and disclosure practices.”

The hike in police salaries is necessary to compete with other California cities with similar populations, Faulconer said.

“With this new contract, we’re moving from the bottom of the pack to the front in pay compared to other law enforcement agencies, bolstering our efforts to hire new recruits and retain experienced officers,” Faulconer said.

San Diego has struggled to hire new recruits and keep experienced officers from retiring or leaving for other law enforcement agencies largely due to higher pay offered elsewhere.

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