The Ross Retort
February 6, 2004
City Finances On LIfe Support
New York City and the City of San Diego changed places in the fiscal emergency room, according to one of the nation’s four bond credit rating services.
Moody’s Investor Services announced Tuesday that San Diego general fund obligation and lease revenue bond outlook was down-graded from stable to negative while New York City’s status changed from negative to stable.
The Big Apple is on a budgetary healing path while America’s Finest City is experiencing seizures, mainly from its hemorrhaging pension fund and low reserves relative to other California cities.
The downgrade means San Diego municipal bonds are on Moody’s investor death watch list. The negative rating predicts a bond downgrade from the city’s AA1 rating within the next two years if radical surgery is not performed. And this does not mean wrapping PR bandages around the wounds.
While not immediately fatal, the report is another warning to a Mayor and Council so consumed with satisfying the special interests who put them in office and dealing with sports teams that they have failed miserably in conducting the people’s business on the city’s most fundamental issues: the budget and public safety.
The Big Apple, says Moody’s, although still deeply bruised from 9/11, nation-wide state budget woes and high ticket employee contracts, is sucking it up and aggressively attacking the deficit cancer eating up their general fund.
Meanwhile, San Diego’s City Council and Mayor continue the practice begun in 1996 of under funding the employee pension fund to balance the books while refusing to reign in benefits. New York may be in bad shape, but San Diego is on life-support.
Moody’s cited several reasons for San Diego’s failing grade. None of them involved pesky chicken-little
journalists who don’t get it and political candidates just scarin’ folks for points, as our Mayor has suggested.
Nor did the bond rater say anything about how we little brains do not understand that actions taken by this City Council last year in regards to the pension fund actually saved us money, as our Councilman tells community folks at forums and on the radio.
Actions like enticing city employees with incentives to hang on a little longer before they grab their pensions and run to the bank with benefits unequaled by federal and state employees while the deficit festers into the billion dollar range.
Or inaction, like failing to appoint more public members to the pension fund board of trustees currently over-populated by city employees and retirees, and tackling a retirement health care benefit package that exceeds the President’s.
It was public member Diann Shipione and public interest Attorney Mike Aguirre who rang the emergency bell to mostly deaf ears in City Hall over a year ago. Now, the bond market is responding by assigning a poor prognosis for the city’s fiscal ills.
According to Moody’s, just to maintain an anemic funded ratio of 66%, the slice of the general fund pie will amount to nearly $90 million in 2005, and increase by over 20% annually through 2009. If a lawsuit already filed prevails, the city might have to carve out more revenue, sooner.
Every dime that comes out of the general fund is literally picked from the pockets of police and firefighters, sucked out of open space fire management, and pulled from road repairs.
Moreover, the report will undoubtedly impact today’s bond market. This hurts investors, many of whom are retirees traditionally attracted to the relative safety and ease of tax free municipal bonds, and ultimately taxpayers if bonds must be sold at higher interest rates to attract buyers.
The most telling part of the analysis offered by the Moody’s report tells the gory story: “...it is likely to prove difficult for the city, from both a political and practical perspective, to make the major budget adjustments necessary to achieve both immediate and ongoing balance between revenues and expenditures while at least maintaining its fund balance levels.”
San Diego County experienced what seemed an intractable budgetary catastrophe in the mid-nineties. Payments on a $135 million trash-to-energy plant were sucking the life out of the budget when the recycling market went south and revenues waned. The pension fund was teetering. And costs for unfunded state mandated services were skyrocketing.
A strong Board of Supervisors hired a smart budget manager, dumped the recycling plant, tightened spending and in the face of a firestorm of protest, outsourced costly services. They weathered the politics and today the County is in relatively good fiscal health.
Meanwhile, the City of San Diego is on suicide watch. As Mike Aguirre put it, “we got an early diagnosis; we know the prescription, now the patient must take the medicine.”
There is a municipal election on March 2. The citizens of San Diego can signal the bond market something that the current leadership has not: this city has the political will to get off the gurney and take the first steps toward fiscal health.
Voting out the quacks who landed us on Moody’s sick list would be a significant step toward recovery.