U-T Explores City’s Fiscal Foolishness Leading To Sales Tax Hike Proposal

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The San Diego Union-Tribune lays out out the record of foolish financial decisions by the city. It provides historical context for Proposition D, the half-cent sales tax hike on the November ballot.

The A1 story, from the U-T’s new Watchdog unit, is well worth reading. It names the names of the myopic city leaders who got us into this mess, and describes what they did.

While the facts are old news to those who’ve followed the city of San Diego’s fiscal irresponsibility, it’s good to see it laid out for the public as it’s faced with the sales tax hike. The public should consider whether a government with such a track record of pursuing feel-good projects while ignoring long-term problems deserves any more money.

The push for a half-cent increase to San Diego’s sales tax has just begun, but it actually goes back to past decisions by city leaders who chose short-term political expediency over the long-term interests of taxpayers.

The deals struck by labor leaders and city officials in 1996 and 2002 created a financial windfall for thousands of city workers, some of whom enjoy double or triple the pensions they would have under the previous program, according to an analysis of pension records by The Watchdog …

Auditors and investigators who have examined city finances point to a string of events in 1996 that strained San Diego’s finances, including hosting the Republican National Convention. That led city leaders to balance the books by paying less into the pension system than was needed to meet its future obligations.

The underfunding was engineered by former City Manager Jack McGrory with the backing of then-Mayor Susan Golding. At the same time, the city adopted benefit increases and a new method of calculating the city’s retirement costs.

The design of the city’s pension changed again in 2002, but things only got worse. Golding’s successor, Dick Murphy, and the City Council established a new underfunding plan that called for a second benefit increase for retirees. Their action instantly created a $1 billion-plus pension deficit. The increase helped win the favor of pension board members, many of whom were city workers, to let the city put far less money into the pension fund than was required.

City officials then failed to disclose that pension debt to investors when the city borrowed $2.3 billion from the bond market. A firm hired by the city to investigate its finances determined that city officials were motivated to hide negative financial information in part to avoid interfering with the city’s 2002 ballpark bond offering, which led to the construction of Petco Park.

Now that’s the proper context in which to consider Petco Park. Even if it had the economic benefits the city claimed, the project was only financed through deception. Political leaders wanted to fulfill their edifice complex, even if it meant hiding the city’s long-term financial problems. That same mentality is at work today with Mayor Jerry Sanders and others at City Hall.

The U-T article also points out that the city’s fiscal reforms in recent years aren’t nearly enough to stop the bleeding. The city’s annual pension payment has grown from 7 percent of the operating budget in 2002 to 21 percent currently. By 2025, just 15 years from now, the payment is projected to reach 47 percent of the city’s operating budget, or $512 million.

This is the scenario that prompted former city attorney Mike Aguirre to suggest the city consider bankruptcy.

Just before he left office at the end of 2008, Aguirre said:

“Mark my words: the good people of San Diego are being led down the path to a massive tax increase,” Aguirre told reporters at a City Hall news conference Monday. “And they’re laying the groundwork for that by shutting down essential services.”

Prophetic words indeed.

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