San Diego Business Journal

Now that nearly two out of three San Diegans who voted November 2 sent the Proposition D sales tax hike proposal packing, it’s time for the city’s political leaders to find fiscal healing and find it pronto. The false remedies of tax increases and deficit spending have been exposed for what they are: ineffective, expensive, and increasingly unpopular with an impatient electorate.

The public’s distaste for the city’s absurd fiscal policies, embedded in the sales tax hike proposal, transcends partisan boundaries. Voters of all political stripes correctly saw through the campaign rhetoric that used a so-called business analogy to suggest that, in light of declining revenues, the city needed to raise taxes because its “customer base” had shrunk. In effect, the proponents were suggesting that businesses raise prices when sales are down. Utter nonsense.

The fact that the city has long ignored the need to balance revenues with expenses has threatened to transform America’s Finest City into “America’s Broke City.” The City of San Diego has a massive financial ulcer and it needs to find a cure now.

There are at least a couple of remedies that are worth considering as city leaders look to find fiscal healing. One has worked elsewhere in the past; the other is local in origin and shows promise in the immediate future.

Canada as a Model

Our Canadian neighbors faced seemingly insurmountable financial problems nearly two decades ago. At that time, nearly one-third of all Canadian government revenues were being devoured by interest costs on its soaring national debt. As one of the developed world’s most socialized economies, that country’s government was consuming an unsustainable 53 percent of Canada’s gross domestic product.

Canada came to its financial senses and crafted an action plan. For starters, the country’s finance minister cut spending nearly 9 percent across the board over two years — substantial but not draconian in scope. The government’s workforce was slashed by 14 percent; again painful but not fatal. And, federal grants to the country’s 10 provinces were reduced by the same percentage. In exchange, though, the provinces were allowed to determine how the remaining grant monies were to be spent as long as they matched those amounts. In today’s parlance, they were required to have “skin in the game” — something that several city cost centers could easily do.

Canada’s bloated welfare and pension programs were also dramatically restructured with massive cuts across the board. Need I tarry here to emphasize how significant pension liabilities are to our present financial woes?

As a result of these and other massive reforms undertaken by Ottawa in the mid-90s, the country was able to bring its costs into line and balance its budget within three years.

Roadmap to Recovery

Locally, there’s guidance as well. San Diego Councilman Carl DeMaio’s “Roadmap to Recovery” plan inflicts sufficient pain on the city’s expense-driven bureaucracy to forecast a $84 million savings in the next fiscal year; more than enough to cover the projected $72 million budget deficit and to eliminate the city’s ongoing structural deficit in five years.

The plan suggests another two percent pay cut for most non-public safety workers, in addition to the six percent cut taken last year; freezing salaries for all employees, eliminating taxpayer-funded retiree health benefits for current workers, and a five percent reduction in contracts and supplies. The city would sell its Miramar Landfill operations to a private firm and outsource11 services now being provided by the city to the private sector.

Yet another key point in DeMaio’s strategy is the reduction of each employee’s “pensionable salary” by excluding specialty pay from pension calculations.

City Hall politicos and bureaucrats interested in surviving had better reach for their political spoons and take the tonic while it’s their idea and not that of an angry public.

Jason Hughes is a principal with Irving Hughes, a San Diego-based tenant representation company. E-mail: jasonh@irvinghughes.com