Making Sense of the City's Budget Challenges

• How serious is the City's budget problem?
• What has caused this problem?
• What has the City already done to address the problem?
• What solutions is the City looking at to balance next year's budget?

How serious is the City's budget problem?

For the next fiscal year, which begins July 1, 2010, the City is facing an estimated $180 million shortfall in its $1.2 billion General Fund. The General Fund pays for core community services including public safety, parks and recreation, library services and refuse collection. In order to continue current levels in these key City service areas, the City will need to reduce expenses by either cutting other services, laying off employees, reducing waste where possible or by finding new revenue sources through fee increases or new fees. The City's Five Year Financial Outlook shows that deficits will continue to grow significantly without strong corrective actions. By law, the City must maintain a balanced budget each year.

What has caused this problem?

The current state of the economy has had a major impact on the City's budget as it has on other local and state governments throughout the country as well as most private sector employers such as retail stores. To provide critical services to the community, the City relies heavily on revenues from the property tax, sales tax and transient occupancy tax (essentially a tourism tax). These revenue categories are all significantly impacted by a declining economy characterized by less consumer spending, a slumping housing market and a drop-off in tourism. As a result, the City lost more than $67 million in anticipated revenues last fiscal year. Additionally, the City must pay $57 million from the general fund into the pension system due to investment losses and another $32 million as a part of the McGuigan legal settlement which remedies pension underfunding by previous administrations.

What has the City already done to address the problem?

For the past several years, the City has undergone efforts to eliminate waste and improve efficiencies in all City departments. Expenditures have also been reduced through department reorganizations and streamlining, eliminating hundreds of vacant positions, consolidating health care plans, creating a leaner pension plan for new employees and reducing services across the City.

What solutions is the City looking at to balance next year's budget?

Balancing the City's FY 2010 budget will require very difficult decisions by the Mayor and City Council regarding which City services are most important to the community, what levels of services can the City afford to provide, and how should those services be paid for. These decisions cannot be made without involving the community in this very important dialogue. We are asking the community to help us to prioritize our City services and be involved in these tough decisions by attending our San Diego Speaks community conversations, sending your budget suggestions in to the Mayor and Budget and Finance Committee, and attending other City Council meetings as budget decisions are being made.