Budget and Government Efficiency Committee Meeting – November 13, 2020

The Budget and Government Efficiency Committee met virtually on Friday, November 13, 2020, to discuss amendments to the Living Wage Ordinance, review the first quarter budget monitoring report, and receive presentations on the five-year financial outlooks for the General Fund and the Public Utilities Department. All items were either approved unanimously or accepted as information only.

Consent Calendar

• Approval of Committee Actions (October 14, 2020): Passed unanimously (3–0).

Public Comments & Testimony

• Non-Agenda Public Comment: No callers were in the queue; the line was kept open for three minutes with no testimony.
• Public Comment on Agenda Items: No callers participated for any discussion item.

Discussion Items

Item 1 – Ordinance to Amend the Living Wage Ordinance (LWO)

Deputy City Attorney Jill Christic presented proposed amendments to clarify that the LWO applies to all service contracts, including those that are revenue‑generating or cost‑neutral (i.e., not funded by taxpayer dollars). The amendments also update the list of city facilities: remove Qualcomm Stadium and rename the San Diego Sports Arena to its current name, Pachanga Arena San Diego. Councilmember Montgomery Step asked about overlapping state prevailing wage requirements; staff confirmed that contractors must pay the higher of the two wages. The motion to accept staff’s recommendation passed unanimously.

Item 2 – Fiscal Year 2021 First Quarter Budget Monitoring Report

Sarah Mayon, Assistant Director of Finance, presented the report. Key projections:

• Major General Fund revenues are estimated $10.2 million below budget.
• Property tax is above budget; sales tax is $9.6 million over budget due to online sales and home improvement spending.
• Transient Occupancy Tax (TOT) is $24.3 million under budget, with an additional $21.9 million shortfall in the city’s TOT fund.
• Franchise fees are roughly on budget.
• Departmental revenues are $12.8 million below budget (Mission Bay, parking citations, parks and recreation).
• Total estimated revenue shortfall: ~$45 million.
• Public safety overtime: Fire‑Rescue exceeding budget by $5.3 million (offset by $5.6M salary savings); Police Department near budget.
• FEMA reimbursement: first request of $5.4 million expected.
• Small Business Relief Fund: 100% expended except for $5,386.
• Convention Center shelter: cost $5.8 million per month if continued past December.

Councilmember Vice Chair Kate and Chair Bree discussed the SDG&E franchise fee. Staff noted that if the current franchise is not extended, one quarterly payment of $15–$16 million could be at risk in FY22, with an annual total of ~$65 million (75% to General Fund). Chair Bree characterized SDG&E’s recent letter as “blackmail.” No action was taken (information item).

Item 3 – Fiscal Year 2022–2026 Five‑Year Financial Outlook (General Fund)

Matt Vespe, Nikki Shawfant, and Adrian Del Rio presented the outlook. Projected deficits:

• FY22: $86.1 million
• FY23: lower (exact figure not specified orally)
• FY24: lower
• FY25: economic recovery expected (revenues return to FY2019 levels)
• FY26: surplus assumed.

Key assumptions: a COVID‑19 vaccine available by summer/fall 2021; no additional federal stimulus; no reserve contributions in FY22–23; continued current MOU terms (no general salary increases). Pension payments likely increase by ~$24 million due to lower investment returns and revised actuarial assumptions.

Mitigation options presented:

• Use of excess equity (~$14.5 million one‑time)
• Use of reserves
• Minimum bids from new gas/electric franchises ($10M and $70M)
• Budget reductions (already $87M in cuts since FY2018; a 1% cut would save ~$16M).

Councilmember Campbell asked about the pending Measure B litigation; staff responded that the next proceeding (Pools Ronto) is scheduled for December 2020. Vice Chair Kate noted that the franchise minimum bid amounts are not included in the baseline projections. No action was taken (information item).

Item 4 – Public Utilities Department Fiscal Year 2022–2026 Five‑Year Financial Outlook

Lisa Salaya presented the outlook for the water and wastewater enterprise funds. Highlights:

• Cost of water purchased from San Diego County Water Authority (CWA) is projected to rise from $1,660/acre‑foot in FY21 to $2,200/acre‑foot by FY26.
• Pure Water project will begin delivering 33,600 acre‑feet in FY26, reducing reliance on CWA.
• Capital spending peaks in FY22–24 for Pure Water.
• Overall revenue need for water system: 3–5% annual increase; wastewater last had a rate increase in FY2010.
• CWA approved a 2.1% rate increase for calendar 2021 costing the city ~$30 million; the city is not passing this on to ratepayers.
• Vice Chair Kate raised concerns that as the largest CWA customer, the city should only pay for capacity actually needed after Pure Water reduces demand.
• No action was taken (information item).

Key Outcomes

• Item 1 (Living Wage Ordinance amendment): Approved unanimously (3–0).
• Items 2, 3, and 4: Received as information; no votes taken. The IBA will release its analysis of the budget monitoring report and five‑year outlooks on December 7, 2020. The first quarter report and five‑year outlook will go before the full Council on December 15, 2020.