SAN DIEGO —
San Diego is facing nearly $600 million in projected budget deficits over the next five years despite estimates that city revenues will fully bounce back from the pandemic and surpass $2 billion per year for the first time in 2027.
The projected deficits, part of a long-term budgeting document called a five-year outlook, are mostly the result of state mandates requiring San Diego to spend roughly $80 million a year on new green recycling and clean water campaigns.
Another factor in the deficits is Mayor Todd Gloria including roughly $50 million per year to fund quality-of-life efforts focused on graffiti, potholes, abandoned vehicles and trash in parks.
Gloria’s staff said this week that those efforts are so essential and so expected by San Diego residents that they need to be included in the city’s financial projections.
“Everyone would acknowledge we’re not doing the basics where we should be,” said Jessica Lawrence, the mayor’s policy director.
The outlook projects a $98 million deficit in fiscal year 2023, a $143 million deficit in fiscal 2024, a $137 million deficit in fiscal 2025, a $121 million deficit in fiscal 2026 and an $87 million deficit in fiscal 2027.
When city finance officials remove the projected new spending on green recycling, storm water efforts and quality-of-life programs, those deficits all turn into balanced budgets or projected surpluses.
In that scenario, the city is projected to have a $63 million surplus in fiscal 2023, balanced budgets the next two fiscal years, a $28 million surplus in fiscal 2026 and a $65 million surplus in fiscal 2027.
In both scenarios, the city would use up $149 million in federal pandemic aid, just under half the $300 million in such aid San Diego was awarded in March. The first half of the money was included in the budget for the ongoing fiscal year.
Federal rules require the city to spend all the money by fiscal 2025.
The projected expenses for storm water projects might be mitigated by a parcel tax that city officials say they may put on the ballot next year.
The millions in new expenses the city faces under the state’s green recycling mandate could also be erased by a ballot measure Councilmember Sean Elo-Rivera is pursuing to eliminate the city’s free trash pick-up for residential homes.
City finance officials warn in the 70-page outlook, which was unveiled this week, that the projections don’t account for a potential economic downturn, the costs of an expected city pension settlement and any future COVID-19 changes.
They say there is still “uncertainty around disease containment and suppression, the rise and persistence of inflation, the magnitude and potential impacts from supply chain constraints, as well as the timing of a full economic recovery.”
With that uncertainty in mind, the outlook projects overall city revenues to reach pre-pandemic levels by fiscal 2023, which begins next July. Hotel tax revenue — the money stream most affected by the pandemic — is projected to fully recover by fiscal 2024.
Overall revenue is projected to climb from $1.74 billion during the ongoing fiscal year to just over $2 billion in fiscal 2027.
During that span, annual property tax is projected to climb from $672 million to $864 million, annual sales tax is expected to jump from $321 million to $406 million, and annual hotel tax is slated to increase from $96 million to $152 million.
Regarding future salary increases for the city’s roughly 11,000 workers, Gloria decided to include them in the outlook for the first time.
The document projects annual increases of just over 3 percent a year for all workers because that’s the percentage the city’s actuary uses, but the actual raises received by workers in coming years will be determined by labor negotiations.
The outlook also assumes the city will revive a pre-pandemic plan to boost its reserves to recommended levels.
San Diego was able to avoid depleting its reserves during the pandemic thanks to the federal relief money, but city officials canceled scheduled increases to the reserves that would have brought them to the recommended levels.
The outlook assumes the city will contribute $22.2 million to its general fund reserve of just over $200 million, helping bring it to the targeted level.
The roughly $50 million per year Mayor Gloria wants to spend on quality-of-life issues would target weed and graffiti abatement, pothole repairs, sidewalk upgrades, street resurfacing, tree maintenance and increased garbage collection at parks and beaches.
It would also fund more workers to enforce the city’s 72-hour abandoned car rule, shrinking complaint response times down to six days from the current 45 to 60 days.
Lawrence, the Gloria aide, said city officials used the volume of requests submitted to the Get it Done! tipster app to help determine which of the quality-of-life issues to prioritize.
Another potential source of spending in coming years is a new strategic plan Gloria plans to unveil in January. The plan is expected to address mobility, sustainability, housing, the economy and neighborhoods.
The five-year outlook will be presented Friday to the City Council’s budget committee.
The projections in the outlook for fiscal 2023 assume the city ends up with a $26.7 million surplus during the ongoing fiscal year, which city finance officials are now projecting.
Council members are scheduled to submit their spending priorities for the next fiscal year before January. The mayor is expected to include some of those suggestions in a proposed budget he must unveil by April 15.