San Diego Budget Committee Meeting – November 16, 2016

The Budget Committee, chaired pro tem in the absence of Todd Gloria, reviewed six agenda items including the San Diego Convention Center Corporation’s fiscal year 2016 year‑end and budget report, the City Treasurer’s investment policy, a water revenue commercial paper notes program, the fiscal year 2017 first quarter budget monitoring report, the five‑year financial outlook for fiscal years 2018–2022, and an update on the performance dashboard. No consent calendar items were presented, and no public speakers testified on any agenda item.

San Diego Convention Center Corporation – FY16 Year‑End & Budget Report

• Presented by: Rip Rippetoe (CEO), Gil Cabrera (Vice Chair & Budget Committee Chair), Mark Impach (CFO).
• FY16 Performance: 158 events; $1.1 billion estimated regional economic impact; $8.9 million in hotel and sales tax revenue directly to the city’s general fund; 824,000 attendees (fifth highest ever); direct attendee spending of $658 million.
• Top Events: Comic‑Con ($140 million impact), Lightfair International ($70.7 million, but lost due to space constraints), Realtors Conference ($58 million), ESRI (two shows due to MLB All‑Star game), American Neurological Association ($52.8 million).
• Occupancy: 66% (16% above national average of 50%); near practical maximum of 70%.
• Financial Results: Total revenues of $35.5 million (second highest); expenses of $34 million; net surplus of $1.5 million; reserves of $6.6 million.
• Infrastructure Bank Loan: $25.5 million loan approved for eight projects (five in the sales pavilion, plus escalator modernization, fire/life safety systems, and cooling towers). Work to begin December 2016.
• Return on Investment: City invested $17.2 million (marketing, expansion bonds, dewatering); direct tax revenue of $23.9 million; net return of $6.7 million ($1.39 per city dollar).
• Discussion highlights:
  • Lost three shows in six months and 12 others need more space; expansion supported but naming rights stalled at Port.
  • New entrepreneurial initiatives: lobby design plan, co‑owned shows (e.g., Thanksgiving), credit card program saving 50–60% on fees.
  • City CFO indicated naming rights would be discussed in closed session in December.
  • Chair warned of potential 3–3.5% city budget cuts that could reduce the city’s contribution to the Convention Center.
• Vote: Motion to accept the report passed unanimously.

City Treasurer’s Investment Policy & Delegation of Authority

• Presented by: Tristy Dean (City Treasurer’s Office).
• Pool Status: $2.1 billion market value, annualized return of 0.90%. Primary objectives: safety, liquidity, yield.
• Policy Changes (6 substantive): Removed language implying broker‑dealers give investment advice (to comply with SEC Municipal Advisor Rule); replaced full state code text with hyperlink; aligned ratings language with SB 974; restricted supranational investments to 10% per issuer per portfolio; clarified medium‑term note language; removed broad term “investment services” from broker qualification criteria.
• Advisory Committee: Unanimous approval.
• Vote: Motion to accept passed unanimously.

Water Revenue Commercial Paper Notes Program

• Presented by: Mary (CFO), Lakshmi Komi (Debt Management Director), Alison Frankenstein, Kevin Werner.
• Purpose: Authorize up to $250 million commercial paper (CP) for water utility capital projects (Pure Water, pipelines, pump stations, storage, treatment plants, AMI, Choice building, solar).
• Benefits: Short‑term interest rates (0.55%) vs. 30‑year bond rate (3.69%); estimated present value savings of $13 million over two years; flexible, just‑in‑time borrowing.
• Structure: Subordinate lien; liquidity support via letters of credit from Bank of America ($175M) and Bank of the West ($75M); dealers: Citigroup, BofA Merrill Lynch, RBC Capital Markets.
• Risks: Capital market, interest rate, LOC, remarketing; maximum rate capped at 11% (SIFMA never reached that).
• Timeline: City Council consideration December 6, 2016; first note expected week of January 30, 2017.
• IBA Support: Noted potential debt service savings and robust risk management.
• Discussion: Councilmember Kate asked about the 2008 spike; advisor Jim Bemis assured system worked then and mechanisms exist to convert to fixed‑rate if needed. Councilmember Cole asked about impact on cost of service study; staff confirmed positive interim cash flow savings.
• Vote: Motion to approve passed unanimously.

Fiscal Year 2017 First Quarter Budget Monitoring Report

• Presented by: Matt Vespie (Acting FM Director), Vanessa Montenegro.
• Revenue: Major general fund revenue projected $1.4 million under budget; property tax up $3 million (assessed value growth 5.7% vs. budgeted 5.25%); sales tax down (growth rate reduced from 3.5% to 2%) due to online sales shift.
• New Positions: 314.4 FTEs added; 98% created, 35% filled; all projected filled by year‑end.
• Public Safety Overtime: Projected $7.7 million over budget – fire $2.7 million (emergency ops, lifeguard record incidents, strike teams) and police $5 million (shift extensions for training, community policing, grant/task force, communications training). Police overtime is $1 million more than prior year actual.
• Excess Equity: Projected $20.3 million.
• Reserves: Risk management reserves on target.
• IBA Comments: Raised concerns about vacancy pace, online sales tax leakage, and need for zero‑based overtime review (already planned for police in FY18).
• Discussion: Councilmember Kate asked about reimbursement for overtime (staff to provide details at mid‑year). Councilmember Cole highlighted community policing benefits and that overtime reflects city priorities. Chair cautioned that 35% filled positions may indicate hiring delays; staff expects progress in next quarter.
• Vote: Motion to accept report passed unanimously.

FY2018–2022 Five‑Year Financial Outlook

• Presented by: Matt Vespie, Lisa Salaya.
• Baseline Forecast: Moderate revenue growth but expenditures outpacing revenue due to pension payment increase ($36.7 million more in FY18, total $227.9 million), negotiated labor agreements, and Charter Section 77.1 infrastructure fund deposits.
• Projected Shortfall: $36.9 million in FY18; balanced by FY20.
• Critical Strategic Expenditures (not in baseline): Fire stations (Bayside, Black Mountain, North University, UCSD); fleet replacement (+$2.5M); new libraries (Mission Hills, San Isidro, Pacific Highlands); park facilities; Plaza de Panama (FY2020); 50 new police officers and 26 civilians; stormwater compliance unfunded.
• Potential Mitigation Options:
  • Extend timeline to reach 16.7% reserve target.
  • Use $20.8 million pension stability reserve ($16M general fund share).
  • Reassess workers’ compensation reserve target (currently ~2 years of pay‑go).
  • Use excess long‑term disability reserve (~$16.9M, 161% funded).
  • Apply projected $20.3M FY17 excess equity.
  • Cash management initiatives.
  • Department budget reduction proposals of 3.5% (memo sent by COO).
• IBA: Will issue a report; outlook to be heard by Council on January 10, 2017.
• Discussion: Councilmember Kate questioned fire station San Pasqual overtime funding (not yet in baseline), TOT breakdown, pension return updates, infrastructure fund maintenance of effort, and use of one‑time revenues for ongoing expenses. Councilmember Cole noted Skyline fire station not included because not fully funded. Chair noted workers’ comp reserves may be excessive; staff will bring proposal in February.
• Vote: Motion to forward the report to full Council passed unanimously.

Performance Dashboard Update

• Presented by: Karen Dennison, Maxim Pachersky.
• Dashboard: In‑house built, alpha launched July 2016. Contains 32 KPIs with 49 visualizations covering 9 strategic areas. Saved 70% vs. vendor cost.
• Plans: Add 20% of city KPIs annually (goal: 100% by FY2020); include Climate Action Plan metrics; automate data collection; develop performance management framework.
• Discussion: Councilmember Kate asked about integration with budget (long‑term goal of fully online interactive budget), update frequency (quarterly where possible), and automation (aim to eliminate manual entry).
• Vote: Motion to accept the report passed unanimously.

Key Outcomes

• All agenda items were accepted/approved by unanimous votes of the committee.
• The Convention Center report and performance dashboard were accepted as informational.
• The City Treasurer investment policy delegation was approved for one year beginning January 1, 2017.
• The water revenue commercial paper program was authorized for up to $250 million, with final Council approval scheduled for December 6, 2016.
• The FY17 first quarter budget monitoring report was accepted, with ongoing monitoring of sales tax and overtime.
• The FY18–22 five‑year financial outlook was forwarded to the full Council with a January 10, 2017 hearing date.
• The meeting adjourned with thanks to committee members and staff.