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$200 Million The amount of potential City cost savings identified over the past six years by the ZBMR Review Process $40 Million The amount of potential City cost savings realized over the past six years by the ZBMR Review Process $103,568 Total General Fund cut planned for the City's Optimization Program under the FY 2005 Budget $1.5 Million Total amount of projected savings in the Water Operations function after undergoing an optimization study

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.

Reform Employee and Optimization Incentive Funds
Provide Incentives for City Employees and Each Department to Identify and Achieve Cost Savings

Excellent Cost-Saving Ideas from City Employees: In a move that greatly angered the Office of Mayor and City Manager, the Citizens’ Budget Project sent an email to all City employees asking them to submit their own ideas for saving City funds. The responses are now posted for the public to review and judge for themselves at www.sandiegobduget.org. In the flood of ideas from City workers are many thoughtful and provocative reforms. The City should be doing more to encourage this kind of creative thinking in its own workforce—harnessing and acting on these suggestions for reform.

Employee Morale Challenges: Despite what the project found above, a simple review of the comments submitted by City employees reveals significant morale problems in the City workforce. Many employees felt that supervisors discouraged cost-saving suggestions—instructing their employees to—in the words of one employee—“keep quiet!” Indeed, many employees feel that information at their level is distorted by the time it reaches the Council and General Public.

Related to the employee frustrations uncovered during the project, one employee whistleblower revealed that several years ago an employee morale survey was paid for by City funds and contracted to the Zero-Based Management Review team. The survey results demonstrated such a low level of employee morale that the survey was never shared with the Council nor the public. Repeated requests by this project for those survey results have gone unanswered.

Poor Employee Incentives and Faulty Tracking of Cost Savings: While many City departments offer certain recognition programs and the City has a small fund for employee performance bonuses, there is no standardized nor accountable employee incentive program that emphasizes measurable cost savings and provides a share of those cost savings to employees responsible for generating them. The best way to achieve cost savings in San Diego City government is to provide ample incentive to City workers to generate and act on cost saving ideas.

In addition the City has done a poor job of tracking and verifying actual cost savings achieved by the Zero-Based Management Review Process. According to the Select Committee on Government Efficiency, over $200 million in cost saving ideas has been generated by the ZBMR process, but only $40 million has been reportedly achieved. A review of the purported cost savings demonstrates much of it came from “cost avoidance”—the City in essence noting it wanted to spend more, but thanks to ZBMR it did not increase spending on a function by as much as originally planned. Cost savings should be just that: a real, tangible and verifiable reduction in cost-per-service level provided and/or a baseline reduction in a budget.

Departments that Save Money are Penalized: The budget review also uncovered that many city Departments have been penalized for trying to save money. There is a “spend it or lose it” mentality in the city, where departments spend to the very maximum in each budget account to prevent funds from being transferred. This reality is not unique to the City of San Diego government. It is a behavior that has been documented nation-wide in several state and local governments.
In the most twisted of incentives, monies left in a budget account at year’s end are transferred to offset over-spending in another Department or division. Moreover, if a budget account is not spent to the max, sometimes that account will be reduced during the next fiscal year—the thought being that if not all the money was needed in the previous fiscal year, why budget for the same amount for the next fiscal year? Recognizing the desire to spend to the limit in each budget account, the City Manager has instituted a policy of “encumbering” some of the funds in most of the city’s budget accounts at the beginning of the fiscal year. In essence, the Manager instructs the Departments to keep some monies in each budget account as a reserve. However, this policy has proven ineffective in giving Departments incentives to go out and find cost savings.

A better system would be to allow each Department to keep any cost savings achieved in a particular budget account—with savings transferred to other budget accounts within their Department rather than being used to offset the city-wide budget deficit and subsidize other Departments that have not lived within the budget.

• Provide Incentive System for Employees and City Departments to Achieve Cost Efficiencies
The City Council should revise the Municipal Code governing the City’s employee incentive programs and the associated City-wide “Optimization Program.” To provide greater accuracy and verification on cost savings, the revised process should require “activity-based costing” on all cost saving projects implemented by City departments. In addition, the revised Municipal Code governing the budget would provide City Department mangers maximum flexibility in pursuing cost efficient reforms as long as the reforms.

Any fully documented cost savings would be distributed in the following manner:

• Conduct Employee Morale & Feedback Surveys
The City Council should instruct the City Manager to conduct a comprehensive Employee Morale survey in FY 2005—soliciting input from outside groups, experts and union representatives. The results of this survey should be made available in full to the Council and public no later than October 15, 2004.

• Docket and Formally Vote on ZBMR Recommendations
Many City departments have treated the ZBMR process as something to be dismissed. Many of the suggested ZBMR reforms are politely—but clearly—dismissed in official department responses. To prevent this waste of City expenses on the ZBMR process as well as waste of good ideas, the City Council should adopt a policy that all ZBMR Reports be presented at full Council, complete with a response from the City department in question. The Council should conclude its review of ZBMR recommendations with the passage of a formal resolution instructing the City Manager to implement certain recommendations or to report back to Council with further information on feasibility on the reforms.