Time & Money

THE CITY OF SAN DIEGO had deferred maintenance needs in 2003—repair of potholes, sidewalks, storm drains and the like—totaling $372 million. Ah, the good old days.

This year, costs have likely soared above $400 million. No money has been spent on the deferred maintenance since 2003. We’re near broke, remember? Next time your car thumps through a road crater, shake up and smell the city’s red ink.

“It’s a very real problem,” says new District 2 City Councilman Kevin Faulconer. “It’s noticeable on city streets. Especially in my district, it’s some of the worst I’ve ever seen.”

When the city’s money problems first went public, the “Enron-by-the-Sea” name-calling was an embarrassing black eye. Even Jay Leno poked fun at our political plight. Not so funny. But hey, our weather is still great . .. right?

Only now, the multi-billion-dollar pension deficit is hitting us where we live. The mayor’s budget—which must be approved by June 30 to go into effect July 1—aims to spend just $11 million, possibly less, on some patchwork city maintenance. In 2003, it was estimated we needed $143 million for storm drains alone, and another $165 million for streets.

Say this loudly: Sanders did not create this problem. But tossing $11 million at our very apparent maintenance problems is dusting the chandeliers while the Titanic sinks. Still, some city councilmembers express amazement and joy that Sanders came up with so much money, given our fiscal plight.

Cut to the Chargers. In April, Mayor Jerry Sanders plainly announced: “The city . . . has far greater financial and resource priorities than providing the Chargers with a new stadium.”

The team’s most recent stadium proposal called for no public expenditure— though it did call for city land to be given to Chargers’ ownership, for mixed-use development. Giving away city property is certainly an expenditure of sorts. But the Chargers claimed the deal would eventually begin to make money for the city.

That’s not to be argued here. What should be noted, though, is the Chargers’ claim they couldn’t get a development partner for a new stadium/mixed-use project at the Qualcomm Stadium site. Partnering with a developer would have begun the process of getting a stadium initiative on the November ballot. It’s too late now.

Developers were wary of the political situation in San Diego, says Chargers spokesman Mark Fabiani. They didn’t want to enter into contracts that might be voided if the city declared bankruptcy, he says.

So outside business interests and Mayor Sanders have decided the city’s current shaky financial situation is not conducive to large-scale business deals. Great. At least everybody agrees. (The Chargers are now allowed to look at other sites in San Diego County, to keep the team as a regional asset. Whether that’s achievable, again, is not to be debated here.)

The point is, the Chargers are now at higher risk of moving. Some cite Sanders’ decision as necessary, but a death knell. (Again, not a knell to be charged to Sanders.) Fabiani, who historically resists suggesting the Chargers might bolt, surprises me. “Yes,” he says, “the city is at great risk to lose the Chargers. Not the region, but the city.”

Some people don’t believe any dictates from the Chargers. Some believe the team will be wooed away. Maybe you love the team, or maybe you’d rather plant petunias on fall Sundays. But if you take Fabiani at his word—that developers stayed away because of the political climate—the folks lining up to take the blame become the politicians who couldn’t control the budget.

By the way, how’s your tan?

THE WHEELS OF THE CITY are on the precipice, says Alan Gin.

“This was always looming,” he says. “If you run deficits, it’ll eventually catch up to you. We have such an anti-tax atmosphere in San Diego. This is a problem that’s come home to roost.”

Gin is an associate professor of economics at the University of San Diego. He’s been a widely quoted observer of the local economy since 1988. “The city can’t continue to push hard solutions into the future,” he says, referring to Sanders’ call for issuing “pension obligation bonds” to cut the deficit. Pension obligation bonds are loosely defined by some as credit cards used to pay off other credit cards.

Interestingly, says Gin, the local economy is still strong—despite the political malaise. But he concedes the political situation could eventually affect the economy, including the real estate market.

“It hasn’t at this point—there are other factors affecting housing right now,” Gin says. “It could be possible, though, that people and businesses wouldn’t want to move to San Diego because it was a city with a problem. I won’t say this would have a big impact. But it could be one more negative to add to the equation.”

So is the city a step closer to bankruptcy?

Gin is on the fence about bankruptcy being the best fix. “But one way or another, I don’t think it’s politically viable,” he says. “It’d be a black eye for the city, and it’d mean a loss of faith in civic officials. There’s too much stigma carried with it for the politicians.”

“I DIDN’T RUN FOR THIS OFFICE to declare bankruptcy,” says Councilman Faulconer. He also doesn’t believe the city should raise taxes. “We shouldn’t throw more money at City Hall. Let’s do a top-down review. Let’s utilize city property better and do things with transparency.”

That, says mayoral spokesman Fred Sainz, is what Sanders is doing.

“Look, we’ve been in office for five months,” says Sainz. “These problems, like deferred maintenance, have been around for 10 years or more. We’ve been in the same Chargers situation for three years. What’s happening now is that we have a mayor that’s willing to whip up the hornets’ nest while looking for credible solutions.”

Sainz defends the mayor’s choice to seek pension obligation bonds—if not in this budget, later in the fiscal year. “We are not mortgaging our children’s future with POBs,” he says. “It’s more about refinancing our debt. If you don’t believe in POBs, then you don’t believe in investing in the real estate market.”

And bankruptcy, says Sainz, is not on the mayor’s radar—now. “It would be a very last option,” says Sainz. “But it has no merit now. It wouldn’t make good business sense. We don’t have a cash-flow problem. And bankruptcy doesn’t make the pension debt go away. The downsides to bankruptcy are significantly greater.”

REMEMBER PAT SHEA? His wife, Diann Shipione, was the whistle-blower on the pension board who brought the deficit to light. Shea ran for mayor and didn’t make it out of the most recent primary. His platform was anchored in the notion that bankruptcy is the quickest and most efficient way to right the ship.

Shea believes the city is wasting time with Band-aid solutions—like putting $100 million from tobacco settlements into the pension system—on a King Kong–size problem. “We should have stopped and restructured when we still had assets,” he says. “Selling liquid assets and capitalizing other money streams will delay the inevitable, but it won’t divert the inevitable.

“The problem we have is systemic. We have promised a benefits package [to city workers] that’s not doable. Even if $2 billion fell from the sky right now, we’d still have a problem.”

Shea is an attorney. He’s a high-profile lawyer who assisted in Orange County’s 1994 bankruptcy filing. It’s a strong possibility he’d be involved in—and profit from—a San Diego filing.

I bring this to his attention. “Look, if you have cancer, you go to a cancer doctor,” says Shea. “If he tells you, ‘Yes, you have cancer,’ do you suspect his motives because you’ll have to pay him money for the cure? Do you just hang out, and see what happens?”

Orange County’s problem, says Shea, came abruptly. Bad investments drained that county’s coffers in months. “It’s different with San Diego,” he says. “Money was promised [to pensioners] that was never there. It’s taken years to stretch to where we are. It almost would have been better for an abrupt situation to have happened in San Diego.”

Why?

“Because people react to a crisis,” says Shea. “Unfortunately, structural and financial problems are not best addressed in crisis mode. And governments aren’t like most people or companies—governments react to crises. They wait for the sewer pipes to burst, or a fire to occur, and then they look for the solution.”

The citizens don’t seem too alarmed either, opines Shea. “You can’t save people who don’t want to be saved,” he says. “I’ve tried to communicate this message. But people just want to go to the beach and expect fairy dust to fix the problem.

“I’m hopeful, but this is depressing. Look what hoops we’re going through just to get this year’s budget passed. We care more about how we’d be perceived [if the city filed for bankruptcy], I think, than being a well-run city.”

Businessman and activist Dan Shea (no relation to Pat Shea) believes bankruptcy for the city is almost inevitable.

“It’s because of the way our city conducts business,” he says. “Politicians won’t make logical decisions. Sanders is trying. He’s an honest man. But politics is insidious.”

Smart people can have divergent points of view. Chasing down the right answer for San Diego can be a circular endeavor.

Most of us would be loath to file for personal bankruptcy. It’s embarrassing and stigmatizing. But if you can’t pay for food, shelter and gas; can’t fix the holes in your driveway, the house has become an eyesore, and Visa and American Express are calling daily; if your last lottery ticket missed by a mile . . . you might have to bite your lip and reorganize.

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