San Diego Budget Review Committee: Fiscal Year 2016 Year-End Report and Fiscal Year 2017 Proposed May Revise – May 19, 2016

This was the final budget review committee hearing of the year for the San Diego City Council, chaired by Councilmember Todd Gloria. The committee reviewed the Fiscal Year 2016 Year-End Budget Monitoring Report and the Fiscal Year 2017 May Revise proposed by Mayor Kevin Faulconer. The meeting was informational, with no votes taken; formal action is scheduled for June 13, 2016. Key themes included strong transient occupancy tax (TOT) receipts, savings in energy and utilities, and proposed uses of projected FY2016 excess equity, as well as new investments in public safety, parks, and infrastructure in the FY2017 May Revise.

Non-Agenda Public Comments

• Martha Welch criticized the budget process, claiming that last year's budget had more line items and that the current budget lacks funding for libraries (only one full-time employee, no books) and fire services. She also questioned the use of $14 million in one-time resources and raised concerns about franchise fees.
• Catherine Rhodes addressed the Public Facilities Financing Authority water bonds, noting that $34 million borrowed in 2009–2010 remained unused for six years, incurring unnecessary interest. She also pointed out missing audits (CAFR for the successor agency and SB 341 for the low/moderate income housing fund) and argued that the city could have used $60 million more in enforceable obligations for projects benefiting the poor.

Public Comments on Fiscal Year 2016 Year-End Report

• Martha Welch opposed franchise fees in energy and cable costs, criticized the lack of police academies in the budget, and said the city puts too much into reserves while neglecting infrastructure and libraries.
• Catherine Rhodes again emphasized that funds without budgeted personnel (like the successor agency and low/moderate income housing fund) escape monitoring. She claimed $46 million was lost by not maximizing enforceable obligation line items (626, 627, 628) and that $28 million plus an extra $20 million in the low/moderate income housing fund is unused.
• Robert McNamara (District 3 resident) expressed support for the proposed distribution of $36 million in FY2016 excess equity, including funding the pension reserve, stability reserve, and capital projects like the Bay Terrace Community Park Senior Center. He suggested some of the $4 million for police retention be used to analyze working conditions rather than only compensation.

Public Comments on Fiscal Year 2017 May Revise

• Peter Kamiski (Balboa Park Cultural Partnership, Balboa Park Conservancy, Balboa Park Friends) thanked the mayor for investments in Balboa Park (library restoration, heritage lighting, maintenance) and asked the council to fully fund the Penny for the Arts program.
• Alan Zaiter (NTC Foundation, San Diego Regional Arts and Culture Coalition) noted that competitor cities (Los Angeles, Anaheim) spend hundreds of millions on cultural facilities and urged funding Penny for the Arts at the full 9.5% level.
• Larry Baza and Carlos Cristani (arts advocates) thanked the mayor for increasing arts funding to $13.9 million (up 6.44% from last year) and encouraged another increase toward the Penny for the Arts goal.
• Martha Welch argued against a proposed 2.9% increase for something (unclear), criticized lack of library funding, and said the city is not following voter-approved library funding (6% of general fund). She also complained that only two projects were awarded to public works crews when many more are needed.
• Catherine Rhodes discussed property tax revenue and the redevelopment agency. She said the city could create more money for Civic San Diego by maximizing enforceable obligations, noting that $61 million in cash was being given up. She also criticized slow progress on utility undergrounding and suggested SDG&E should manage it as a transmission project.

Discussion Item 1: Fiscal Year 2016 Year-End Budget Monitoring Report

• Tracy McCraner (Director of Financial Management) presented the report. The general fund projects a $3.7 million budgetary surplus due to $340,000 revenue increase and $3.3 million expenditure decrease.
• Vanessa Montenegro (Budget Coordinator) detailed revenue and expenditure trends: TOT revenue increased due to higher occupancy and room rates; sales tax declined due to lower fuel prices; energy and fuel savings contributed to expenditure reductions; winter storms caused $12.7 million in emergency capital project reallocations.
• Tracy McCraner outlined reserve estimates and recommended uses of $36 million in projected excess equity: $16 million to pension reserve; $3 million to public liability reserve; $2.5 million to workers' compensation reserve; $700,000 for Pershing Middle School joint-use project; $500,000 for Bay Terrace Community Park Senior Center; $100,000 for Fire Station 6 asbestos abatement and roof replacement; $5.7 million to general fund stability reserve (raising it to 14.5%). Additionally, $5.5 million would be set aside for FY2017: $4 million for police retention and recruitment (subject to meet and confer) and $1.5 million for rehabilitating the old library building in Balboa Park. After all allocations, an estimated $2 million in excess equity remains for council priorities.
• Committee Questions included:
  • Councilmember Alvarez asked why $2 million was left as unallocated; staff said it covers projections uncertainty and is available for council priorities. He noted TOT is higher than budgeted, and that property transfer tax (former redevelopment money) is increasing.
  • Councilmember Cole thanked staff for including the Bay Terrace Senior Center funding and asked if the project could use the community-based competitive design method. Public works said they will first try to use existing partial plans to speed up the project. She also asked about lower expenditures in Economic Development and Civic San Diego; vacancies were cited as the reason, with assurance that projects remain on track.
  • Councilmember Kate asked about storm channel maintenance spending ($3 million) and whether back rent and election costs were absorbed within the current budget (staff confirmed).
  • Councilmember Sherman asked for clarification that the item was informational and that official action would occur June 13.
  • Chair Gloria noted that lower unemployment and increased TOT countered claims about minimum wage increases, asked about police salary variance ($6.9 million due to vacancies), and questioned slow spending on utility undergrounding ($36 million under budget). Transportation Stormwater Director McFadden said they are adding positions and pilot projects to accelerate work.
  • IBA comment: The long-term disability reserve is overfunded by $3.5 million ($2.5 million general fund), which could be redirected.

Discussion Item 2: Fiscal Year 2017 Proposed May Revise

• Matt Vespe (Deputy Director of Financial Management) presented a $10.5 million increase to the general fund (to $1.3 billion) with 11.25 new FTEs. Resources come from: $5.5 million FY2016 excess equity, $3 million from renegotiated lease, $2.3 million increased property tax projection, $400,000 from closing non-general fund balances, partially offset by $100,000 lower TOT/property transfer tax and $600,000 lower reimbursable revenue.
• Adrian Del Rio (Budget Coordinator) highlighted expenditure additions:
  • Safe Neighborhoods: $4.7 million for police officer and dispatcher recruitment/retention; $487,000 to expand fire academies from 36 to 48 participants; $139,000 in Personnel Department for pre-employment medical/background services and a testing administrator.
  • Repairing Infrastructure: $1.5 million for rehabilitation of the old medical library in Balboa Park; $758,000 for citywide public facility maintenance (LED lighting, windows, HVAC, plumbing, painting, roofs).
  • Parks & Neighborhood Investment: $350,000 for replacement of light standards in Balboa Park’s central mesa; $117,000 and 2 FTEs to restore year-round restroom access at Mission Bay Park; $95,000 for one ground maintenance supervisor at Balboa Park.
  • Opportunities in Every Community: 2 FTEs for Skyline Hills Branch Library (opens September 2016); 2 FTEs for North Claremont Senior Center; $1.4 million for non-pensionable salary/benefit adjustments per tentative labor agreements; $500,000 for trench cut excavation fund transfer.
  • Non-General Fund Adjustments: $186,000 and 1 director for new Fleet Services Department; $130,000 and 1 principal planner for Zero Waste Plan; $250,000 for workers' compensation temporary staffing; $136,000 and 1 program manager for Commission for Arts and Culture (funded from TOT fund).
• Capital Improvements Program (CIP): Net increase of $48.3 million, including $38.4 million for advanced metering infrastructure, $2.3 million for street resurfacing from trench cut fees, $280,000 for Bay Air Park environmental studies.
• Committee Questions:
  • Councilmember Lightner asked about $1.5 million for Balboa Park library rehab and $350,000 for light standards; Park Director Herman Parker explained the library will house staff (improving efficiencies) and lights will be replaced with aluminum standards per the precise plan. She questioned whether the $2 million in excess equity is sufficient for district needs and suggested freeing up the overfunded long-term disability reserve. She also expressed concern about centralizing police/fire public information officers (City Communications Director assured they would remain embedded). She advocated for library funding at 4% of general fund ($2 million increase), Penny for the Arts increase of 0.56% (about $1.2 million), a zoning investigator for mini-dorm enforcement, year-round pool hours, and other district priorities.
  • Councilmember Zapf asked about Mission Bay restroom hours (will remain 8 a.m. to 4:30 p.m., weekdays) and Balboa Park maintenance (weekend supervisor restores half of previously lost positions).
  • Councilmember Cole asked about Skyline Hills Library ribbon-cutting (September), and the impact of removing $1.5 million from the Woodman Pump Station project (Public Utilities said timeline adjusted, no service impact). She advocated for more community-oriented policing resources, park improvements, homeless outreach, independent counsel for the Citizens Review Board, and a disparity study.
  • Councilmember Alvarez questioned how the $4 million for police retention would be used before negotiations. The City Attorney said a Charter Section 70.2 analysis is needed, with closed session expected June 14. He also questioned the $136,000 program manager for Arts and Culture, noting it uses Penny for the Arts allocation rather than increasing it. He and Chair Gloria both pressed for clearer justification of public safety spending.
  • Councilmember Kate asked about the advanced metering infrastructure project (funded 50% water/wastewater via SRF loans). He also heard from Police Chief about retention metrics: after the MOU, departures to the Sheriff’s Department dropped from 10 in FY2015 to 2 in FY2016, and officers leaving had less experience (one year average vs. seven years).
  • Chair Gloria praised the addition of one Balboa Park maintenance supervisor but noted it only restores half of two lost positions. He asked for a list of the $758,000 in public facility maintenance projects. He reiterated positions on independent legal counsel for the police review board, historic preservation resources, disparity study, Penny for the Arts, library hours, and opposition to criminalizing homelessness. He encouraged public to contact their council members with budget priorities before the May 27 memos deadline.

Key Outcomes

• No votes were taken; the meeting was informational.
• Recommendations for FY2016 Excess Equity (to be approved June 13): $16.0M pension reserve; $3.0M public liability reserve; $2.5M workers' compensation reserve; $700K Pershing Middle School joint-use; $500K Bay Terrace Senior Center; $100K Fire Station 6 asbestos/roof; $5.7M to stability reserve (to 14.5%); $5.5M set aside for FY2017 ($4M police retention/recruitment, $1.5M Balboa Park library rehab). An estimated $2M remains for council priorities.
• FY2017 May Revise proposes $10.5M in new spending, including police and fire recruitment retention, infrastructure, park and library positions, and arts funding.
• Next steps: Councilmembers must submit final budget modification memos to the Independent Budget Analyst (IBA) by Friday, May 27, 2016. The IBA will issue a final report on June 8, 2016, and the city council will take final action on the budget on June 13, 2016.
• The IBA noted the long-term disability reserve is overfunded by $3.5M, and the city attorney noted that $3 million in former redevelopment agency project management costs were denied by the state Department of Finance; alternative funding or litigation is being explored.
• Several councilmembers indicated they will propose using the remaining $2M excess equity for district-specific priorities such as independent legal counsel for the Citizens Review Board, a disparity study, library funding, Penny for the Arts, and more.