SAN FRANCISCO — San Diego, the second-most populous city in California, faces a $179.1 million deficit in its general fund budget for fiscal 2011 as a continued slide in tax revenue and growing pension costs force the city to consider its most painful cuts in public services yet.
The projected budget deficit is 14.4% of projected expenditures of $1.24 billion. The figures come from a new five-year financial outlook released by Mayor Jerry Sanders’ budget staff last week. It shows deficits continuing across the forecast horizon.
Sanders and the San Diego City Council have closed $175 million in deficits over the past 15 months, but they’ve mostly insulated the public from the pain of closed libraries and reduced public services by cutting pay for public workers, tapping unallocated reserves, and eliminating vacant jobs.
“A deficit this size is so significant that we can no longer shield the public from its impacts,” the Republican mayor said in a press conference last week. “I can tell you that every city department — including police and fire — will be impacted, and there will be layoffs.”
Tough economic times hit San Diego just as it had dug its way out of years of financial scandal that cost the previous mayor and most of the city’s top administrators their jobs. The Securities and Exchange Commission sanctioned the city for securities fraud in 2006 for failing to report growing unfunded pension liabilities.
Sanders, now in his second term, has made restoring the city’s bond market access and financial health a major goal of his administration. The city returned to the public municipal bond market in February after a five-year hiatus.
An $89 million jump in pension funding is a big part of next year’s deficits. The city’s annual required contribution to its pension funds from the general fund could rise to as much as $182 million next year from $125.3 million in the current fiscal year, thanks to declines in stock market values.
The city also owes a final $31.7 million pension payment from a class action lawsuit over its previous failure to fully fund pensions.
Meanwhile, San Diego also continues to build its designated general fund reserves as part of its financial recovery. Sanders’ budget staff plans to add $4.2 million to the reserve to bring it to $79.6 million, or 7.5% of general fund revenues, next fiscal year. They project reaching the city’s 8% goal in 2012.
Officials blames declining taxes and other revenues for another $67 million of the deficit.
They projects that sales taxes will fall 4.9% for a third consecutive year in fiscal 2011, which begins July 1, 2010. Licenses and permits revenue is expected to drop 9.4%. Hotel occupancy taxes will rise an anemic 1%, while property taxes, the city’s biggest revenue source is expected to be unchanged.
“The ongoing national recession continues to have a significant impact on cities across the nation, and the city of San Diego is no exception,” Sanders said.
