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$15.7 Million Total amount of budget over-spending by City agencies in FY 2004 (not inclusive of state cuts and not counting Cedar Fire expenses!) $4 Million to $6 Million Total amount of intentional under-funding in FY 2005 budget proposal for police overtime, court appearances, sick time, etc. according to the Police Chief $1 Million Total amount of intentional under-funding in the police department’s phone bill in FY 05 89 "Phantom" Cops Total number of positions intentionally held vacant in FY 04 to cover intentional under-funding in other budget accounts $3.4 Million and $3.1 Million Total funds that the City Manager instructed be "not spent" by the Library and Parks and Recreation Departments respectively to cover deficits in other City departments-without prior approval from the Council

NOTE ON FOOTNOTES: The San Diego Citizens' Budget Project is committed to presenting accurate, methodical research. The Citizens' Budget Plan contains more than 100 footnotes, all of which can be found in the print and full PDF versions.

QUOTABLE: "In an effort to balance the budget, the City has decided to implement the highly questionable practice of charging the ratepayers rent for the use of taxpayer assets through imposition of a Right of Way (ROW) fee. This fee has the effect of siphoning monies raised through the recent water and sewer increases away from those projects and into the General Fund. The previous Council had agreed that 2002 was to be the last year of this transfer, but the current budget does not live up to that commitment." - San Diego County Taxpayers Association, June 24, 2002

Enact a Balanced Budget Accountability Initiative
Improve Transparency through the Passage of an
Honest and Realistic Budget that Stays Balanced for
the Entire Year

During the budget review conducted by the project, a number of problems with budget accountability and transparency were uncovered:

Intentional Under-Funding of Departments: For the past several years, the budget of the City of San Diego has “fallen apart” almost immediately after it is passed by Council—leaving a huge operating deficit throughout the fiscal year. This is due to the fact that in some cases, the City’s budget intentionally under-funds key appropriations accounts.

This practice was brought to light in 2004 by the Fire Chief and the Police Chief when they revealed that the budget accounts for overtime, court appearances, basic office supplies, special pay and even the telephone bill had been under-funded for years. By intentionally under-funding some appropriations accounts, the City has been able to balance the budget on paper—but not in reality.

Budget Decisions Made Without Prior Council Authorization: Linked to the practice of intentional under-funding is the practice of shifting immense budget powers from the City Council to the City Manager. Language currently in the City’s appropriations ordinance allows the City Manager to make substantial changes in the City’s budget after it is adopted without prior authorization from the City Council. In doing so, the Council is in essence shifting the tough budget decisions onto the City Manager—and out of public view.

Many have argued this budget practice is a violation of the City’s Charter which vests appropriations powers solely in the City Council. In most cases, the City Manager shifts monies between appropriations accounts and between City departments without even informing the City Council until the end of the year when the Council is presented an omnibus reconciliation bill that approves the Manager’s shifts of monies after-the-fact.

Lack of Transparency: The current budget format relies on an “adjustment to base” approach to disclosing changes in individual appropriations accounts, rather than revealing the entire base budget expenditures for key elements of the budget for each City department such as overtime, office supplies, technology support, etc.

Moreover, while the budget is passed promising a certain number of police officers or firefighters be deployed, the City has in many years left some of these vital public safety positions intentionally vacant to save monies to offset budget shortfalls in other areas. Even the Mayor in his budget this year is holding three positions vacant. A final transparency challenge involves revenues and reimbursements collected for each City department—monies that in many cases are not reflected in individual City department budgets and merely go into the General Fund, absent full and transparent accounting.

The following reforms would impact the preparation and submission of individual City department budget requests and supporting documentation to the City Council—as well as establish a more accountable process for ensuring a balanced budget is kept for the entire year:

• Transparency in the Budget—as Proposed and as Enacted
In the municipal code governing the preparation and presentation of the City’s budget, the Council should require City Manager to list for each City department all base amounts for each appropriations account as well as any revenues and reimbursements to be collected as a result of department activities.

The most detailed and informative view of each City department budget comes from the “Period” Reports used by the City auditor and each agency to track expenditures on a budget account basis in 13 separate accounting periods during the year. As a result, the Council should instruct that the Period reports for each department shall be posted on the City’s website within 5 business days of the closing of the period. This would provide maximum transparency on which budget accounts departments are under-funded—and provide early warning on whether the City’s budget is falling apart mid-year.

A final requirement for budget transparency would be to require the City’s independent accounting firm issue a statement certifying that the City’s budget as proposed provides sufficient funding for each appropriations account in accordance with its contracted labor obligations (including payment for pension and other fringe benefits) and is consistent with historic budget “burn rate” for each appropriation account.

• Transparency on Personnel Vacancies
To prevent the practice of increasing the number of positions in a budget and then holding them vacant during the year the Council should require each City department to disclose current vacancies in the budget submission as well as vacancies expected at the end of the fiscal year. This would allow the public to determine with greater confidence whether the City will be increasing or decreasing personnel for a specific department.

• Quarterly Budget Reconciliation
In the annual appropriations ordinance the Council should significantly modify the blanket authorization allowing the City Manager the powers to shift monies within and across the City government. The municipal code should be modified to require approval each quarter through a Budget Reconciliation Ordinance to address funding for any budget account that over or projected to be over the amount appropriated for the year. In addition, the Manager should disclose during each Period any funds that have been transferred within or between City departments—and provide a running total of “reconciliation” needed to bring the budget back into balance that quarter.

• “Pay-As-You-Go” Budget Rule
Pursuant to the new requirement to reconcile the budget each quarter, the Council should also adopt as a policy a “pay-as-you-go” approach to making adjustments each quarter to maintain balanced budget throughout the year. This would force the Council to state what cuts or revenue enhancements specifically would offset any budget overages for that quarter. Should Council not meet its deadline for a quarterly reconciliation, the Manager’s transfers during that quarter would be funded by proportional reductions in appropriations accounts within any that department that has spent in excess of its budget.

• Reverse Sales Tax Accrual Accounting for FY 2006
In order to balance the FY 2004 budget on paper (and meet on paper the requirement of a balanced budget under the Charter), the City Manager changed the City’s accounting rules to result in a phantom increase of $10 million in revenue in FY 2004. Under what is now known as the “Sales Tax Accrual Policy” the City Manager is counting FY 2005 revenue in FY 2004. Moody’s Investment Service cited this accounting policy as a gimmick in an April advisory—noting the City was using it and other accounting shifts to cover up a structural deficit.

While the City Manager has insisted that this accounting gimmick remain in effect or else the FY 2004 budget cannot appear balanced on paper, it must be changed. The Citizens’ Budget Plan proposes the Manager to use the gimmick in FY 2004, the Citizens Budget proposes the Council adopt a resolution instructing the Manager to discontinue use of this gimmick for the FY 2006 budget—allowing one year to identify real revenues to offset the “phantom” revenue.

• Require Annual Performance and Cost Audit
The City Council should adopt an ordinance instructing the City Auditor to review 20 percent of all programs’ performance and cost measurements for the year to ensure accuracy and integrity on service results claimed by City departments.

• Strong Mayor Form of Government
A huge debate has erupted over the proposal to shift San Diego to a Strong Mayor form of government from the Council-Manager form of government currently. In the end, the Citizens’ Budget Plan includes this recommendation to adopt the Charter Change to Strong Mayor to finally put to rest be big debate over who is in charge at City Hall. The Citizens’ Budget Plan rejects the notion that the Mayor is unaware or disengaged from the budget process. On the contrary, there was every indication found during the Citizens Budget review that the Manager (and his predecessors) coordinated heavily with the Mayor’s office on the content and presentation of the City’s budget. Indeed, no major budget policy (good or bad) seemed to be without extensive input from the Mayor’s office. It seems that the City has a Strong Mayor when good news is unveiled and a Strong Manager when bad news is disclosed or painful budget cuts are made. Settling this debate once and for all provides for the maximum level of transparency and accountability at City Hall over who is in charge of formulating, presenting and enforcing the City’s budget.

• Independent Council Budget Analyst Office
The City Council is beholden to the City Manager and the bureaucracy for virtually all of its budget information. This presents significant risks to the quality of information available for Council decision-making. Indeed, just this year provides numerous examples where the Council has claimed that the previous City Manager kept vital information concerning individual department budget needs from reaching the Council. In the wake of the historic Cedar Fire, both the Police Chief and Fire Chief spoke out courageously over the objections of the Manager—revealing intentional under-funding of a variety of appropriations accounts. Just as the state of California has the fiercely independent and objective “Legislative Analysts’ Office” the San Diego City Council should create its own budget analyst office to perform thorough examination of the City’s budget. In the past the concept of an office of Council Budget Analyst has been shot down over confusion on whether the City Charter would allow for this resource. Regardless of interpretation of the current Charter, the Strong Mayor proposal would allow for the creation of this important office.