Why this matters
San Diego’s footprint is growing, but its ability to serve the bigger city isn’t. While the city’s operational budget has grown 28% since 2022, its capital budget has not kept pace.
Update, 9 p.m. June 9: Late Tuesday, the San Diego City Council approved the budget for the next fiscal year, which begins July 1. After a marathon public hearing the council made several last-minute changes that restored funding for some libraries and recreation centers, as well as providing more money to clear flood channels, restore a department focusing on children and youth, and fund a program helping small businesses. The budget also includes layoffs of some city workers. The budget now goes to Mayor Todd Gloria, who has the authority to use a line-item veto to overturn some of the council decisions.
Two years ago San Diego city leaders quietly formed a high-level task force of top executives and department heads to plan how to spend what seemed the salvation for the city’s entrenched budget problems.
Measure E, a proposed increase in the city sales tax of one cent, was headed toward the ballot in November. Its supporters at city hall and labor unions hoped it would generate an estimated $400 million in revenue annually.
Hundreds of pages of internal records obtained by inewsource under the Public Records Act show city leaders were confident the measure would pass.
“To prepare for the anticipated increase of $400 M from the November ballot measure, the (Executive Team) has formed the Funding Measure Readiness: Inter-Department Task Force,” the initial invitation on June 26, 2024 began.
That confidence turned out to be misplaced. The measure narrowly lost by about 3,500 votes out of more than a half-million cast.
The reverberations of that defeat are still being felt today.
When the San Diego City Council meets today to vote on the city’s budget for the upcoming year, it will mark the end of months of grueling deliberations over the city’s spending plan.
It will also mean another year of cuts to libraries, parks, neighborhood services, and programs as the city tries to balance its rickety budget.
Yet amid that grim picture, a review of primary budgets over the past five years shows a city government that — despite the belt-tightening and sales tax measure defeat — has continued to grow.
The General Fund, which funds much of city daily operations, has increased 28% in nominal terms since the 2022 fiscal year, the first year where Mayor Todd Gloria shaped the budget.
At the same time, the Capital Improvements Program budget the city uses for big-money infrastructure and other longer-term projects has not kept pace, growing just 4% nominally. The city has also been moving millions of dollars in funding meant for capital projects to balance the budget.
That tension tells a story of a city whose operational footprint is growing, while its ability to serve that growth structurally is not keeping pace.
“A budget is the purest form of policy priorities, and infrastructure is taking a backseat,” said former City Councilmember Mark Kersey. He now works as the president and CEO of the San Diego County Taxpayers Association, which has been sharply critical of the city’s financial management under Gloria.
“The multi-billion dollar infrastructure deficit is the biggest crisis facing the city because there is no real plan to address it. Without some kind of strategic vision to close that gap — as well as actually resolve the city’s ongoing structural budget deficit — the city will continue to languish, and it’s really just a countdown to failure.”
A growing budget
The general fund stands at $2.2 billion next year. That’s up from $1.7 billion in 2022.
Even when factoring in inflation over that time — and rising costs are, according to city leaders, a main driver of the budget growth — the budget has grown about 6%.
Cumulative inflation in the San Diego area from 2022 through March 2026 was about 22%, according to the Bureau of Labor Statistics.
Driving that increase are city personnel costs and growth in some department budgets — including police and fire, which have both seen continued annual increases. Spending on homelessness services jumped from about $18 million in 2022 to $97 million this year, the largest percentage increase of any department.
The number of city workers grew about 9.4% to about 13,000. That includes personnel cuts in both this year’s proposed budget and last year’s budget.
Workers also got raises, including a 23% increase over three years starting in 2023. That means the city must also increase the yearly payment it makes out of the general fund to the pension system.
Kersey said the additional workers and the pay raises show that the city “has clearly prioritized employee salary increases over infrastructure investments for the last six years.”
In 2024 and again in 2025 the council “de-appropriated” close to $30 million from the capital budget to the general fund to help balance the budget.
At the same time the city backfilled the lost revenue from the capital budget with bond funds.
The growing infrastructure gap
While the city’s operational budget has grown, its Capital Improvements Program budget has remained basically flat over the same time frame.
The CIP budget grew 4%, from $789.5 in FY 2022 million to a proposed $821.7 million next year. When adjusted for inflation, it has actually lost purchasing power.
That has meant the city can’t keep pace with its infrastructure needs and has helped form the city’s biggest headache: a yawning gap between the total infrastructure the city has to pay for, and what it can afford.
But it is important to know that the budget for the CIP fluctuates during the year, as funds are reallocated from projects and new funds become available. Typically the city injects money into the program during the year when it becomes available through grants or other funding sources.
Also, much of the growth in the budget for CIP was in sewer and water projects, particularly the city’s Pure Water program. The water and sewer projects are paid through a dedicated revenue source — in this case, the rates that residents pay for water and sewer service.
Typically the water and sewer projects make up anywhere between 60% and 75% of the CIP budget. In 2027 they will together account for 70% of the CIP.
In addition to “de-appropriating” CIP funds, councilmembers have repeatedly waived a policy adopted by voters in 2016 aimed specifically at fixing the city’s battered infrastructure.
Under a complex formula, sales tax, hotel taxes and property taxes are supposed to be funneled into a new fund to pay for repairs to streets, sidewalks, storm drains and other facilities.
The measure has never lived up to its billing of possibly raising billions in funds. But nonetheless it still has generated millions of dollars annually.
Since 2022, the mayor and council have waived about $39 million in contributions meant to go to the dedicated fund and instead channeled the money into the general fund.
While that’s allowable under the rules governing the fund, Kersey said it’s poor policy.
“Taking money away from infrastructure projects to balance the budget is never a good idea, because those projects only get more expensive with time,” he said.
Even while the city pours money into the CIP budget, other constraints mean not all of that money is always spent. In 2023 the total CIP budget came to $1.1 billion but the city spent just under $750 million of that, according to the Office of the Independent Budget Analyst.
There can be many reasons why projects get delayed, but one of them is bottlenecks within the city government. Engineering, contracting requirements, procurement delays can all slow the process.
These delays were identified in the task force documents obtained by inewsource as the top weakness the city would have to overcome if Measure E passed.
Another pinch point is the city’s debt ratio policy. The debt ratio measures the total mandatory debt service the city must meet annually as a percentage of total revenues in the general fund.
The debt policy says the ratio should not exceed 10% of the general fund or — when including the pension costs — a maximum of 25%. But the city is bumping up against those barriers.
The city budget says in the next five years the general fund only ratio will get to 7.4%. The ratio including pension costs is expected to top out at 24.9%.
The city could waive the policy but that could send an uncomfortable message to financial markets and rating agencies, said Baku Patel, senior fiscal and policy analyst with the IBA office.
“The rating agencies use similar metrics,” he said. “When they rate the city’s credit they look at it holistically. They look at other things as well, but certainly the higher these ratios go — it’s certainly a negative.”
The city’s capacity to use debt financing for work not paid for by dedicated funds — such as water and sewer — is limited by how much debt service the general fund can pay for. Less or limited revenue means fewer debt-financed capital improvements.
A report released in February said that over the next five years the city has about $13 billion in infrastructure needs. But the total funding available, given current revenue projections, is just $5 billion.
“Given the huge gap, the City can’t solely rely on debt financing due to debt capacity limitations, which is why our office has repeatedly highlighted the need for new revenue streams dedicated to CIP, especially for stormwater infrastructure,” IBA Deputy Director Jillian Andolina said in an email response.
That nearly $8 billion gap looms over the city’s future, and it is what the task force was planning to tackle when it convened just months before Measure E went to the polls.
‘Quick wins’
Two strong threads run through the nearly 700 pages of records: City leaders were acutely aware of the need for more revenue, and equally aware that they needed to show “quick wins.”
Departments were told to come up with projects that could be completed to show results for a skeptical electorate. New programs were out. Repair and building were in.
“My recommendation would be to remove any programming that isn’t related to infrastructure,” then-Transportation Department Director Bethany Bezak wrote. She now is a member of the mayor’s leadership team.
“In recognition that the incoming funding has been communicated more around infrastructure, I think that for the ‘quick wins’ it would be important to tie new spending to infrastructure or ‘infrastructure related’ services. (Not saying that programming isn’t important, but I think we’ll need to be mindful on communication for how new funding is being spent.)”
The group met once a month until just before the November election. The planning included a web page that would track projects and show “the City’s growing investment in our infrastructure since MTG’s (Mayor Todd Gloria) has been in office.”
Notably, while city officials spent weeks planning how to spend the money, the records don’t show any planning for the possibility that the measure would fail.
But the records provided by the city only hint at some of the department priorities.
The city withheld all documents that departments submitted listing their priorities, as well as what appears to be the final product compiled on Oct. 31 and titled “Deploying Resources Quickly.”
Officials cited an exemption to the records act that allows the city to not produce documents if it determines that the public interest in withholding the records outweighs the public interest in releasing them.
These lists, and the others the city elected not to disclose, constituted an inventory of the most basic needs in San Diego, and a kind of image of a city that could be, but never was.
There are hints about what some departments wanted to do. Library Director Misty Jones, for example, suggested cleaning the windows in the downtown Central Library — they had not been washed for 10 years, she noted.
Parks and Recreation Department Director Andy Fields suggested brush cutting, pool repairs, fixes to walkways, parking lots and court and planting trees.
While some of that work has to be done, it will not be easy or quick.
“The capital infrastructure budget must be increased or the city will keep falling even further behind than it already is,” Kersey said. “Deferred maintenance by itself is already estimated at least $1 billion, and when that eventually becomes so deteriorated that it must be replaced entirely, it just adds to the already-massive CIP deficit.”
Type of Content
News: Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.
