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Fiscal Year 2018 Adopted Budget

Fiscal Year 2018 Adopted Budget

A Message From Mayor Faulconer

To my fellow San Diegans:

I am pleased to present a balanced Fiscal Year 2018 Adopted Budget that protects and furthers the progress the City of San Diego has made to put neighborhoods first, create a better quality of life for all communities, and restore services throughout the city. This is a balanced plan that keeps the focus on core community services San Diegans value such as road repair, parks, libraries, and public safety.

The Adopted Budget preserves neighborhood services added over the last three budget years and continues to prioritize investments in streets and infrastructure while maintaining responsible financial management. In fact, San Diego earned a credit upgrade on February 22, 2017 from Fitch Ratings Agency for its “conservative financial management policies, and strong financial planning and disclosure practices”, “strong general fund revenue performance”, and a “healthy economy”.

San Diego’s economy remains strong and the Adopted Budget projects moderate growth in the City’s three largest General Fund revenue categories – Property Tax, Sales Tax, and Transient Occupancy Tax (TOT). While the Adopted Budget projects moderate increases in revenues, growth has slightly declined compared to recent fiscal years. Although many of the local economic indicators were strong, uncertainty exists in major sales tax generating categories such as oil and gas prices and general consumer goods.

The Adopted Budget includes funding for programs and projects that make a difference in the lives of San Diegans. This includes road repairs; parks and critical infrastructure;  increased police officer retention and recruitment funding; environmental sustainability through the implementation of the Climate Action Plan; increased staffing for new recreation facilities and operational support for additional open space acreage; protecting library and recreation center hours restored in recent years; homeless services and housing affordability initiatives; and the Pure Water program that will create additional local water supply.

Even though the City is projecting modestly improving revenue in Fiscal Year 2018 to help fund these priorities, that growth has been outpaced by a significant increase in the City’s annual pension payment. Fiscal Year 2018 is going to be a lean budget year as San Diego, like many other cities across California, grapples with growing pension costs. The City of San Diego’s pension payment has increased to $324.5 million, more than $63 million from Fiscal Year 2017 to Fiscal Year 2018. The City’s primary operating budget, or General Fund’s share of the pension payment is $236.4 million, increasing $45 million, which exceeds the projected growth in major General Fund revenues for Fiscal Year 2018.

The increase principally stems from changes in actuarial assumptions calculated by the San Diego City Employees’ Retirement System’s independent pension board. These changes include projected longer lifespans for retired employees and lower-than-expected investment returns in the past fiscal year.

Despite these rising costs, the Adopted Budget fully funds this higher pension payment without reducing core service levels restored in recent years or investments in infrastructure. This was made possible by utilizing the City’s newly created pension reserve fund and excess risk management reserve balances, budget reduction proposals from all operating departments, and budgeting in Fiscal Year 2018 a projected General Fund balance from the Fiscal Year 2017 budget.

The City continues to live within its means. The Adopted Budget recommends fully funding City reserves to policy target levels, which include additional contributions to the General Fund Reserve and Public Liability Reserve. In addition, the Adopted Budget pre-funds the Fiscal Year 2019 General Fund Reserve Target of 15.25% with an additional $10.3 million contribution. The Adopted Budget is structurally balanced in accordance with the City’s Budget Policy, with ongoing expenditures supported by ongoing revenues.

Building Our Better Future: Repairing Streets and Investing in Infrastructure

On June 7, 2016, voters approved Proposition H creating Charter Section 77.1, requiring the City to dedicate specific revenue sources to fund new General Fund infrastructure such as streets, sidewalks, bridges and buildings, and requiring the maintenance and repair of such infrastructure. The Adopted Budget includes a $17.8 million transfer from the General Fund to the new Charter Section 77.1 Infrastructure Fund. Supplementing other infrastructure funding throughout the Adopted Budget, this new fund will provide for critical road repairs, Compressed Natural Gas (CNG) Fueling Station and new infrastructure projects based on results from recent facility condition assessments.

Road conditions affect every San Diegan in every community, so the City’s highest infrastructure priority remains street repair. In September 2016, a new assessment of city streets reported an overall condition assessment index (OCI) of 72, an improvement of more than 20 percent since the last assessment from 2011. This places the overall condition of San Diego streets in the “good” category, ahead of other major California cities including Los Angeles, San Francisco and San Jose. The Adopted Budget includes $70.9 million in funding to pave, repair and replace 349 miles of streets, which will help the City to achieve the long-term goal of maintaining an average OCI of 70.

The Adopted Budget includes revenue and expenditure estimates for new Senate Bill 1 (SB 1), approved April 28, 2017.  The projected revenue for this first year of implementation is $9.6 million, and is attributed to new gasoline and fuel taxes.  SB 1 monies are restricted to road repair, this new funding source made it possible to allocate infrastructure funding to additional infrastructure priorities such as critical public facility improvements.

Other important infrastructure investments funded in the Adopted Budget include park improvements, streetlights, sidewalk repair and replacement, infrastructure to support energy and conservation elements of the Climate Action Plan, and repair of storm water infrastructure and City-owned buildings.

Safe and Livable Neighborhoods

Every San Diegan should feel safe in his or her neighborhood. In February 2017, an annual Police Department review showed a year-over-year decrease in overall crime in San Diego of 2.3% with violent crime decreasing by 4.5%. This is the lowest level of violent crime in four decades, keeping San Diego as one of America’s safest big cities. The Adopted Budget includes funding for the third year of non-pensionable pay increases for police officers; increased pensionable compensation for 911 dispatchers to help improve emergency call response times; personnel for crime lab operations; and six critical positions for police operations added during Fiscal Year 2017. Also included are increased resources for police officer retention and recruitment efforts, police facility improvements, and police chief recruitment, all made available by estimated one-time fund balance in excess of reserve estimates for the General Fund.

The Adopted Budget funds resources to improve citywide response times by fire crews and emergency first responders. Funding is provided for a fire academy, which will maintain projected full-staffing levels throughout Fiscal Year 2018. There is also funding for new staff and vehicles for the Bayside Fire Station expected to open in December 2017; funding for the Fire-Rescue Fast Response Squad in San Pasqual; and critical safety and communications equipment for firefighters.

The Adopted Budget also preserves the critical public safety staff additions from Fiscal Year 2017 of Lifeguards for Ocean Beach, Mission Bay, and seasonal lifeguards at Sunset Cliffs.

Opportunity in Every Community: Protecting Key Neighborhood Services

We all deserve equal access to essential and effective public services, no matter which zip code we call home. Neighborhood services are key to building stronger communities where more residents have the opportunity to succeed.

The Adopted Budget protects all park service improvements funded in recent fiscal years such as keeping recreation centers open longer throughout San Diego – bringing the total number of recreational centers with expanded hours to 44 over the last three budget years. The Adopted Budget also provides additional funding to support operation and maintenance needs for four new and expanded park and recreation facilities opening to the public during Fiscal Year 2018 as well as maintenance and operations support for nearly 33 additional acres of open space. Funding is also included for the Parks Master Plan which will articulate a clear vision for the City’s parks, recreation facilities, and open space program.

The Adopted Budget protects our community centers for lifelong learning by maintaining library hours and the popular “Do Your Homework @ the Library” program. Additional library funding is included to increase security services, library programming, photo copy, and parking contracts at the Central Library. Library hours, which have been restored over the past several fiscal years, remain at the highest level of the decade.

The Adopted Budget includes funding for a workforce housing density bonus program and regulatory reform and process improvement initiatives focused on housing affordability to address San Diego's housing crisis. It also continues to fund the year-round, indoor shelter for homeless individuals and veterans and other homeless services initiatives as well as additional support for the San Diego Misdemeanants At-Risk Track (SMART) program. In addition, the City Attorney’s Office received four additional positions to address mayoral and council priorities.

Due to the major escalation in projected pension costs for Fiscal Year 2018, the preservation of core public services could not have been possible without strategically using reserves and reductions in other areas. The Fiscal Year 2018 Adopted Budget restores $4.2 million of the proposed $4.7 million in reductions for Arts and Culture funding. This was made possible by one-time resources projected since the release of the Proposed Budget. With this reduction, the Arts and Culture allocation of Transient Occupancy Tax (TOT) revenue is equivalent to the Fiscal Year 2017 allocation with a 3.5% reduction in operating costs, this was the same reduction required of all General Fund departments to avoid cutting core service levels to our communities.

Excellent Customer Service and Open Government

Our goal is to make San Diego’s government as innovative as the people it represents. The Adopted Budget maintains our investment in cutting-edge technologies to improve customer service, cultivate civic engagement, and operate with greater levels of accountability and transparency.

The Adopted Budget continues to invest in award-winning initiatives such as the open data portal and the Get It Done web and mobile application that allows users to report over 20 types of problems – such as potholes and graffiti – from the palm of their hands.

The Adopted Budget also continues to invest in a more efficient management system for public records requests and an in-house training program to help City employees identify waste and implement streamlining measures and efficiencies.

Strong Financial Management and Commitment to Operational Efficiencies

San Diego’s commitment to fiscal stability and strong financial oversight promotes a healthy financial future as well as saves taxpayers money through lower borrowing costs. The City’s fiscal health is the result of effective financial management policies, long-term financial planning and comprehensive efforts to address both pension and retiree health care costs. As mentioned earlier, this commitment to responsible financial planning earned San Diego an upgraded Issuer Rating from AA- to AA by Fitch Ratings Agency on February 22, 2017.

Conclusion

The Fiscal Year 2018 Adopted Budget keeps the focus on key services the public, City Council and I have worked hard to prioritize: street repair, infrastructure, parks, libraries, police officer recruitment and retention programs, public safety, homeless services and housing affordability. This budget proposal is structurally balanced, using ongoing resources for ongoing expenditures in accordance with the City’s Budget Policy.

For the thirteenth consecutive year, the City will fully fund its annual pension payment. This Adopted Budget will do so without cutting critical funding for infrastructure or service level improvements previously restored by this administration. This proposal fully funds reserves to policy target levels - even pre-funding the General Fund Reserve to Fiscal Year 2019 target levels, protects current library and recreation centers hours, increases funding for housing affordability initiatives, and funds key park projects. It will add staff to operate and maintain new park and fire facilities, fund negotiated labor contracts, provide new public safety resources and police officer retention and recruitment funding, and invest in road repairs to maintain good quality roads.

The City is projecting modestly improving revenue from property sales and hotel taxes in Fiscal Year 2018, but that growth has been outpaced by a jump in the City’s annual pension payment following recent changes by the San Diego City Employees’ Retirement System’s independent pension board.

Preserving critical public services in the face of these rising pension costs could not have been possible without the availability of the pension stabilization reserve, operational reductions and efficiencies, and the hard work and cooperation of every department. Balancing the budget involved making tough decisions and a commitment to fiscal responsibility, and I sincerely appreciate every public employee and stakeholder who is helping to maintain the financial health of our city by contributing to this budget plan. I would also like to thank our City employees for their continued commitment to providing outstanding service to our communities.

Sincerely,

Mayor Budget Approval

Kevin L. Faulconer
Mayor