San Diego Mayor Jerry Sanders this week proposed a fiscal 2009-2010 general fund budget that cuts spending by $10 million, or 0.8%, to $1.15 billion in California’s second-biggest city.

The city’s capital improvement program budget would fall 18% to $481 million from $587 million.

The general fund operating budget closes a projected $60 million gap in the current-services budget with $30 million of labor concessions, $21.6 million from reserves, $6.7 million in fee hikes, and $4.3 million in new franchise fees. The current-services budget is the amount the city would spend if it kept services at their current levels in the upcoming budget year, which begins July 1.

California cities are struggling to balance budgets amid weakening revenue growth or outright declines. Both Los Angeles and San Francisco are struggling to close $500 million-plus gaps in their general fund budgets for the coming year.

“Our situation is hardly unusual, but because of the financial reforms that I’ve implemented over the past three years, our deficit is much smaller than what other big cities are facing” Sanders said in a press conference.

Sanders plans to spend $21.6 million of reserves that were previously set aside for debt service payments and libraries. Chief financial officer Mary Lewis said the reserves were precautions for transient occupancy tax-backed debt and weren’t required under the city’s bond covenants.

Sanders said the reserves would be spent on one-time spending needs, not ongoing needs. He declined to use the city’s official rainy-day reserve funds, which equal about 7% of the city’s spending.

The budget would require significant concessions from labor, asking other workers to take a 6% cut in total compensation. Sanders was able to reach an agreement on the cuts with three of San Diego’s five labor unions, and the City Council this week declared an impasse in labor negotiations, which would allow the city to impose the cuts on workers in two other unions unilaterally.

“In San Diego, we have a choice: We can ask all employees to reduce compensation by roughly 6%, or we can achieve the same amount of savings by laying off hundreds of employees and cutting the services they provide,” Sanders said.

“Layoffs would be devastating at a time when there are no jobs out there,” he said, adding that he and other city leaders would take equal pay cuts. 

Sanders said the pain is necessary because the city’s usually buoyant revenues are sliding with the economy. Officials expect sales tax revenues to fall 2.8% in the upcoming budget year, while transient occupancy tax revenues slide 4.7%. Property tax revenue, the city’s biggest revenue source, is expected to rise just 0.7%.

The City Council this week received and filed the fiscal 2008 comprehensive annual financial report, which means San Diego has now caught up on all of its financial statements. The city fell behind in preparing statements after a 2004 pension and municipal disclosure scandal that led to the loss of its credit ratings from Standard & Poor’s.

The city was frozen out of the public bond market after the scandal broke and returned with its first public issue in January. The city’s general obligation debt is rated A by Standard & Poor’s, A-plus by Fitch Ratings and A2 by Moody’s Investors Service.

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