The San Diego City Council this week completed and published its fiscal 2007 comprehensive annual financial report, finishing years of work to bring its financial statements current and paving the way for its return to the public bond market early next year.

The city fell behind on its CAFRs after a pension liability disclosure scandal in 2004 and was subsequently shut out of the public bond market.

The CAFR is a snapshot of a time when San Diego’s finances looked much better than they do today. California’s second-biggest city finished the fiscal year that ended June 31, 2007, with $97 million of unrestricted cash and assets. Its general fund budget for the year posted a $26.6 million surplus.

As the City Council approved the CAFR this week, it learned that the previously hidden pension liability continues to grow.

The city actuary this week said that the pension fund deficit surged to $2.7 billion as of Oct. 31 — $500 million more than just a year ago — amid a drop in investment values. San Diego owes $6.5 billion in payments from the defined benefit plan, but it has only $3.8 billion in assets. The pension funding ratio fell to 58% from 66% a year ago.

Mayor Jerry Sanders called for negotiations with the city’s employee unions to address the growing long-term liability, which is becoming an increasing burden on the general fund.

Unless the city can wring concessions from its workers or improve investment returns, its contribution to the pension fund could jump to as much as $251 million next year from a previously estimated $166 million, according to the actuary.

The City Council began hearings this week on Sanders’ proposal to close a $43 million deficit that has opened up in the current $1.14 billion general fund budget for fiscal 2009 amid a sharp falloff in economic activity.

San Diego’s independent budget analyst projects a $48 million deficit. After accounting for a $17 million in savings from expenditures that are expected to come in below budget, the city needs to cut spending or raise revenue by $31.1 million to rebalance the general fund budget, according to a report by the IBA.

Sanders, a Republican, has proposed a package of cuts that would close the deficit by shuttering libraries and recreation centers, cutting 217 jobs, eliminating fire and police academy classes, and reducing fire protection services.

“We can’t put off making tough decisions,” Sanders told the City Council Wednesday. “There’s no place to put them off to.”

He told the council that he expects another deficit of $44 million that will have to be closed in the upcoming budget year.

The independent budget analyst this week proposed an alternative package of cuts that includes 3% to 10% reductions in management pay, reduced funding for the arts, reduced payments to the city’s workers compensation fund, and mandatory furloughs.

As of press time yesterday, the mostly Democratic City Council had not yet decided which cuts to make or whether to pair them with fee hikes to increase revenue.

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