The $5-Million Dilemma

Pulling it from CCDC
is a decision no one
should be forced to make

Total Fiscal Year 1999 Budget Summary

    Budgeting for a $1.5-billion-a-year operation is never an easy task. In the case of San Diego City Hall, budgeting requires the work of thousands of employees and the direct participation and best estimates of hundreds of supervisors, department heads, analysts and managers. Members of the public may participate at almost any stage, and they do through their involvement, meetings, letters and phone calls, and by relying on the good sense of their City Council representatives.
    The popular priorities are mostly understood. By itself or by contract, the city shall provide water and sewer services, electricity and gas, police and fire protection, waste removal, good streets and other essential or important services. Always there are more good ideas for spending than money, and not having enough money for all the good ideas does not usually constitute a budget crisis.
    But budgeting a $1.5-billion operation is infinitely easier when more than $1.7 billion of revenue is anticipated. Nonetheless, in his first budget since being hired as city manager, Michael Uberuaga has managed to upset one of San Diego’s most successful public real estate operations, the Centre City Development Corp., by proposing to take $5 million out of a $27.7-million revenue stream in which about $16.1 million already is committed by legal obligation, about $10.5 million to annual debt service and $5.6 million to low- and moderate-income housing development.
    That would leave little else for CCDC to work with, especially after the city takes its previously programmed $1.3-million transfer and CCDC spends $3.8 million on administration and consultants.
    That's not a lot of money to move the mountains expected of CCDC. By its own understated average calculations, a dollar spent by CCDC yields $6.10 of private investment; hence the $27.7-million spending program would be expected to yield $168.9 million of development. In reality, CCDC's spending has yielded much more in private development, more like $18 of private investment matched for every public dollar. (The difference is that CCDC only counts private investment into projects it assists directly; we count neighboring improvements, such as the privately financed Symphony Towers and the Imperial Bank Building that likely would not have happened without City Hall's and CCDC's full commitment nearby. "I can’t imagine spending a nickel on Symphony Towers had City Hall and CCDC not committed tens of millions of dollars already to Horton Plaza, Marina housing and other redevelopment projects," says Doug Wilson, one of the developers who arranged $143.5 million of private financing for Symphony Towers.)
    So, for instance, the $2.9 million in fiscal '98 being carried forward and added to $3.4 million in fiscal '99 for planning the new ballpark neighborhood is likely to yield more than $200 million of near-term private investment, and in this case, may justify another $200 million of public investment. Publicly or privately, one sure wouldn't want to put that kind of big money into such projects without the front money to pay for the preliminary legwork, from title searches to toxin searches, from land-use plans to financing plans.
    CCDC's problem is that it’s too convenient for Uberuaga to tap. When he looks at CCDC's budget, in addition to the $27.7 million of new spending, he sees another $68.5 million of prior-year revenues being carried forward and figures $5 million out of what was supposed to be a $96.2-million grand total won’t be too badly missed.
    In response, CCDC has launched a vigorous defense, with some members of its City Council-appointed board rattling resignation sabers if the manager persuades the council to take the money.
    CCDC has a good case, and Uberuaga's case is weaker. Superficially, Uberuaga should appreciate that carving $5 million out of the city's $1.693-billion spending plan — which is up $225 million from fiscal '98 — is a lot easier than carving $5 million out of CCDC's $96.2 million spending plan.
    And that is indeed superficial, suggests Ernie Anderson, Uberuaga's top financial lieutenant. Anderson is the city's financial management director, the budget writer who's worked at City Hall forever. Anderson says Uberuaga wants CCDC to spell out each project. (What he doesn’t ask for, but CCDC also should provide, is similar detail for important projects that still are not budgeted.)
    Like the City Council members who hired him, Uberuaga is good at defending his budget and invoking the public's top priorities. He wrote to CCDC President Peter Hall in a May 21 memo:
    "As City Manager, I am responsible for all City operations and services. Redevelopment is an essential part of San Diego’s program of services, as are police, fire, library and park and recreation services."
    And he strongly requested, via memo for the second time in three weeks:

1. Timetables for each of the CCDC projects.
2. Funds allocated to these projects that have been appropriated and those that have been appropriated but not expended.
3. If funds have been encumbered for these projects or for other purposes, the nature and timing for expenditure.
4. Listing of all reserves and their purpose.
5. The overall increases in property tax assessment underlying CCDC's revenue projections for fiscal '99.

    Uberuaga probably will get the information he wants at a June 5 meeting with CCDC directors, including a nice bar chart that shows CCDC expects a reduction in property tax increments in fiscal '99, a reduction, which should come as no surprise to real estate economists who witnessed the decline of real estate values through the '90s. The recent rebound enjoyed by suburban residential neighborhoods has not caught up with much of the commercial core. Hence, CCDC projects $17.7 million to flow in property tax increments next year, down from $18.3 million this year, akin to the $17.7 million realized in fiscal '97, and less than the $17.9 million in '96, $19.7 million in '95 and $20.2 million in '94.
    Following its meeting with Uberuaga, CCDC's next shot to preserve its activity will be June 8 before the City Council's Rules Committee. Members Byron Wear and Judy McCarty are said to see the light; CCDC thinks Mayor Golding, Harry Mathis and Barbara Warden may not be so convinced that the inner city needs more rather than less help. Whatever the Rules Committee does, the full council is expected to get its shot later this month.
    Couldn’t the city of San Diego operate just fine on a $220-million budget increase to $1.688 billion instead of a $225-million increase to $1.693 billion, and let CCDC go about its business of revitalizing this century-old Downtown? Of course.
    But Anderson, the city budget master, assures the challenge is easier said than done. Of the $225-million increase, 85 percent of it is from restricted non-general fund sources — fees for services, spendable only for specific purposes by law. Of the remaining 15 percent, which is general fund money, the large majority of that is budgeted for police, fire and liability reserve. Then there are the new parks coming on line next year that will cost a new $3.5 million to staff. Anderson could talk all day about budget demands outside of the Centre City, and will get ample opportunity day after day after day throughout June. The new fiscal year begins July 1.
    Anderson says that by mid to late-June, the city will have fresh projections of property and sales tax revenue and that might be enough to offset the CCDC issue. Or the council might allow a smaller transfer or no transfer at all.
    If you'd like to think about which inner-city project deserves to be delayed or trashed, find $5 million in the accompanying list of projects. But remember, $5 million taken away from CCDC today is something like $30.5 million to $90 million of private improvements that won’t happen tomorrow. Downtown is a neighborhood that mostly was neglected after World War II while the suburbs exploded with housing and commerce, hastening Downtown’s decline.
    Downtown is much improved, thanks to CCDC, City Hall, responsible private investors and business operators. But the job is far from done.