AFC 1-2-3

By Myke Shelby

San Diego is America's Finest City, and it works as a city. San Diego's problems are in City Hall. The AFC 1-2-3 plan consists of three stages designed to bring City Hall's finances back to fiscal health and to make America's Finest City even better.

San Diego - America's sixth largest city - is our town. San Diego belongs to the people, not the politicians, the political insiders or the so-called special interests. San Diego works! We have more than just the world's best climate; we have world-class athletes, some of the world's finest biotechnology companies, hi-tech industries, medical research centers and institutes + such as the Stephen Birch Aquarium, the Scripps Institute of Oceanography and the Salk Institute to name a few. We still have the tuna fishing industry here, even though we've lost our fleet. We have thriving flower businesses and avocado farms, a healthy tourist and convention economy, and America's most impressive military bases and research centers.

We are surrounded by some of nature's most spectacular playgrounds, the Pacific Ocean and the Anza-Borrego Desert, not to mention the picturesque mountains and lakes. Our downtown is booming and our suburbs are expanding. There are so many positive aspects about San Diego that the contrast with our failed government is even harder to understand or accept. Now that it is accepted and identified, it's time to fix it.

Stage I: America's Finest City: "Our Town" Plan

The mayor of San Diego will have a fresh start with a mandate from the people. The people of our town are now engaged in the government's role and need to be involved. As mayor, I will accomplish this in two ways. First, I will seek citywide initiatives to be voted for which would impose spending discipline on the city for the next five years (See Stage II: Our Financial Future and Stage III: A 5 Year Business Plan). It would also call for commitments to bring the pension fund to an acceptable funding ratio: the Performance Institute (P.I.), a private San Diego-based think tank focused on government performance and accountability, suggests a 90% ratio by June 30, 2011, with benchmarks to be achieved along the way.

To accomplish this over five years, the liability will have to be reduced and additional funds injected into the system in the amount of approximately $275 million per year over five years. The plan would require substantial reduction in benefit packages for existing and new employees to raise as much as 50 percent of that amount.

This will be accomplished through negotiations with the City of San Diego's labor unions. The city attorney will review the legality of the benefits and will seek legal remedies to invalidate any benefits given in violation of federal or state law or the City of San Diego's Charter. The Performance Institute also identifies several areas that should be scrutinized for irregularities and other areas that should be reviewed because of unsustainable benefits. (See Stage II: Our Financial Future)

The city must also act to clean the cloud hanging over City Hall like June gloom. There is no reason to hold back anything from the Securities and Exchange Commission (S.E.C.), the F.B.I, the U.S. Attorney or any other investigative agency.

In fact, there is every reason to be above board and forthcoming in any investigation. Our town is not a refuge for scoundrels; we don't harbor criminals, or have need for crooked schemes, nor can we afford to be perceived as a place that does. The SDCERS should be in full compliance and should fully cooperate with the federal investigation. If they are not, the trustees should be replaced immediately. I will also negotiate with the S.E.C. because sanctions imposed on us for improper disclosure of finances in public bond offerings must be settled. I believe that as the new mayor of San Diego, I can work with the new head of the S.E.C. to put this behind us. I will also ask that anyone who has contributed to the financial mismanagement of our city step down. Elected as well as appointed officials are servants of the public and should willingly step aside when their presence has diminished public trust.

It is not enough to resolve old issues; we must simultaneously plan our future. Promoting our city as a tourist destination, a great place to locate business and to invest in is part of the mayor's job. The San Diego Regional Chamber of Commerce and the San Diego Convention and Visitors Bureau are two organizations that help enormously in this effort and their function and outreach programs should be supported by the mayor's presence as well as council members' participation.

We cannot be America's Finest City, however, unless we are America's safest city and to do that we must have safe and secure borders.

Prioritizing our budget will cause many to complain of lost support. The police, fire and emergency services must remain priority one when it comes to expending our resources. It is also critical that we do everything we can to make sure that all immigrants and visitors are here legally. Illegal immigrants are a drain on our medical services, dilute our educational system and divert our police forces.

The cost to San Diegans in dollars and services is prohibitive but the specter of criminals, drug dealers or worse, terrorists, can totally marginalize us. Even the perception of porous and uncontrolled borders will hamper our ability to instill confidence.

There is also the very real danger that is posed by having unsecured borders. We must do the work to make sure we are America's safest city; then help these agencies already mentioned, and that will draw business, tourists and investors.

The best and brightest should be attracted for all the reasons we San Diegans know so well. We must also attract and recruit the best minds in the country to advise our future financial direction. We have to cut costs as well as restructure our operations and liabilities. An outside objective study is required to assure nothing is overlooked, as we fix what is not working, work with what is, and build our future. What we do must inspire and instill confidence in citizens, city workers, visitors, businesses and investors. A plan for the future financial well being of San Diego must be put together by people Wall Street trusts and implemented by us with their consultation. This consultation includes the fiscal year 2007 budget proposal and briefings with Wall Street ratings agencies to keep them updated on our efforts.

Everyone who lives or works in San Diego should feel good about his or her choice. There are many who do not understand the role finances play in our lives or who believe there is some sort of natural balance between fairness and finances. There is not. Finances and resources are not distributed any fairer than any other attribute be it intelligence, physical abilities or just plain luck. With everything we have been blessed with, however, there is no excuse for jeopardizing what we have by not doing what it takes to bring our city government up to the level that the citizens of San Diego expect and deserve.

The education community, from head start programs to pre-school, charter schools and home schools, through high schools, colleges, our world-class universities, and our world-envied research centers, are a critical part of our successful city. We cannot expect to inspire children, students, parents or professors to work, sacrifice and go the extra mile in their endeavors unless we give them role models they can respect.

Other critical components to being America's finest city are transparency, outreach and engagement of the citizens in the political process. In formulating a plan it is necessary to know what the current situation is. This is not possible today in San Diego. Our government has operated behind closed doors for too long and has excluded the citizens from the process.

This not only causes a disconnect, skepticism and lack of confidence, it discounts citizens who may have much to contribute. This loss is also felt when citizens are asked to understand why services may not meet their expectations, infrastructure is not in good condition, and city workers are taking pay cuts. To change this, the people of our city must be given full disclosure and full access. Disclosure will be accomplished by simply being open and honest. Access will be through monthly Town Hall meetings and an hour-long weekly radio call in program. This will allow the public to listen, and watch the discourse between their government and the people who employ them. Council members, the city attorney and others will be invited to join all these forums.

Vesting the people in the city's governance, giving them a voice, ownership and making them part of what works and what is successful is the best way to elevate civic pride. San Diego is a great city, we are America's finest city and we should be proud of that. Every citizen of San Diego deserves to be proud and to take part so we treat our taxes like an investment that will give us all a return.

Stage II: Our Financial Future

Much of AFC 1-2-3 has adopted the work of the Performance Institute. Carl DeMaio of the institute has been looking at our city government for several years now and has drawn many conclusions in their Recovery Plan for San Diego. We agree with much of DeMaio's suggestions, but we also believe much of what is causing problems can be addressed without the aid of initiatives and without the help of court orders and mandates (bankruptcy). However, because bankruptcy may be forced upon us as a result of breakdowns in negotiations with the unions, or from City Council insistence on pork barrel district spending, we must be prepared. Adopting the P.I. initiative, "The Citizens Financial Recovery Ordinance" may be an appropriate alternative. Some of its requirements were outlined in Stage I, but the full outline is presented below:

1. Establish Accountability Targets for Paying Off Pension Debt

The ordinance would begin by making a solid commitment in returning the pension fund to a healthy ratio over five years. Specifically, the ordinance would commit the city to achieving a 90 percent ratio by June 30, 2011--with specific ratio milestones to be hit in the intervening years. Should these milestones not be achieved, the ordinance would require reductions in labor expenditures to provide additional funds for deposit in the retirement system.

To achieve this ratio over five years, the city would reduce the liability and inject additional funds into the system in the amount of $275 million per year, over five years.

2. Renegotiate Benefits to Reduce Pension Liabilities

The ordinance would require a reduction in benefit packages for existing and new employees to constitute at least 50 percent of the solution necessary to achieve full funding in the pension system.

The city's pension benefits are NOT sustainable and do not respect the city's taxpayers given the raft of abuses seen in the system. Significant reforms in city pension benefits MUST be part of the financial recovery process. Moreover, the legality of the benefits have been rightly questioned -- as recent retirement benefit increases were made contingent on the silence and support of labor unions in the city's reckless pension under funding scheme.

Besides specifying that benefit reductions be one-half of the solution to the pension debt, the ordinance would remain silent on how this reduction would be achieved. This would allow ample negotiating room for the new mayor and city council with labor unions. The ordinance would, however, instruct the city attorney to review the legality of benefits bestowed on city workers and seek legal remedies to invalidate any benefit given in violation of federal or state law or the city Charter. This legal research may be a key ingredient if negotiations with the unions fail to produce the necessary savings.

The new mayor and council should review a number of unsustainable benefits including:

• Retroactive Benefits: Eliminate the retroactive nature of pension benefit increases granted from 1996-2002
• Deferred Retirement Option Plan: Eliminate the DROP program and revise the guaranteed returns of existing DROP accounts to reflect the true performance of San Diego City Employees Retirement System (SDCERS) investments

• Service Credits: Eliminate the ability of employees to purchase "phantom service years" and require those that have purchased service years to pay true cost of service credits to the system
• Salary Calculations: Use a three-year average of employee salary rather than highest one year of salary in calculating pension benefits
• Revised Plan for New Members: Restore the pension benefit levels to pre-1996 percentage and retirement ages for new hires
• Health Insurance: Adopt a cost-sharing system for existing and for new members

The ordinance would also instruct the city to hold operating costs down to divert funds into the pension system -- achieving an additional 50 percent of the solution.

This provision would assume that city revenues grow by the 4 percent rate forecasted by the city manager over the five years of the plan. By holding the line on city expenditures, additional monies will be made available to reduce the pension debt while maintaining a structurally balanced budget each year.

• Imposing Caps on City Labor Costs: As the attached charts demonstrate, the city's budget crisis is not caused by revenue shortages, but by excessive labor cost increases. That's why the ordinance would establish hard caps on net city labor costs. Over the five years of the plan, labor costs (including all fringe benefits except pension) would be capped as follows:

  FY 06 3.2% Decrease As Proposed
  FY 07 (Freeze at FY 2006 Level)
  FY08 (Freeze at FY 2006 Level)
  FY09 (2% increase over baseline)
  FY10 (2% increase over baseline)

• Adoption of Citizens' Budget Cost-Savings: As presented a year ago, the San Diego Citizens' Budget Plan provides a laundry list of ideas for saving the city millions of dollars annually, through proven management reforms. The ordinance would instruct the mayor and council to study and consider reforms in the following categories:
• Prioritizing city services, with possible transfer of functions from the city to other governmental entities (e.g. misdemeanors transferred from city attorney to district attorney)
• Harnessing under-utilized or unused city assets to produce new revenue streams (increased lease rates, public-private partnerships, and/or sale; city would be prohibited from using any assets currently used for park, recreation or open space purposes)
• Streamlining and consolidating city functions, with particular emphasis on ideas such as the "311 Service Center" and restructuring the Data Processing Corp.

• Contracting city services where outside bidders can demonstrate better performance and cost savings for doing the work

The reforms outlined above should restore the city's fiscal health. Unfortunately, a number of key investments in community infrastructure have been delayed due to the city's financial crisis. These include: making investments in police and fire equipment, maintaining and improving city streets, upgrading water and sewer system, expanding parks and libraries, etc.

The final element of the Financial Recovery Ordinance would be to help rebuild our city by mandating that any revenues collected by the City of San Diego in excess of the labor caps specified in section 2 and the amount needed to achieve the mandated funding ratio for the pension would be deposited into a special Infrastructure Investment Fund. Monies in this account would be expended on improvements or maintenance of city infrastructure (water, sewer, roads, police and fire facilities and equipment).

The above was taken verbatim from the P.I. plan. The plan has some good ideas, many of which would certainly be adopted by my administration; the basic premise, however, is that the mayor and council are tethered to this plan with little or no room for change. This may be a good way to "force feed" needed reforms, and clearly is better than bankruptcy, but it is not as good, in our opinion, as negotiating for the same terms, or similar terms, in a free flowing environment of ideas, where honest and realistic concerns and suggestions by others, supporters as well as opponents, could be considered.

Additionally, we believe there have been some excellent measures the County of San Diego has adopted that would work well for the city of San Diego. This includes the incentive based plan instituted by Larry Prior that rewards good management and the privatization of services, such as data processing.

Approximately 450 people work in data processing at a cost to the city of around $100,000 per employee; that's $45,000,000 plus annually. These jobs were successfully transferred to private industry at the County level with excellent results. Other areas under consideration for privatization are:

• Ground maintenance at park and recreation
• Maintenance of swimming pools
• Vehicle Maintenance
• The operation of the Convention Center

We must have a business plan for San Diego. We must have a plan with realistic objectives, and goals or benchmarks. Promises cannot be made that cannot possibly be kept, nor can we obligate the city to unsustainable cost and benefits. The management of the city finances has got to be accomplished in a businesslike manner. Boundaries must be set so that spending does not exceed revenue. There is much that we would like to have that we cannot afford. Overreaching is too common for it to go unnoticed.

The temptation to overspend is too common in every aspect of life, in our households and our businesses, for those who run the city not to be cognizant of it as a potential pitfall. And overspending has been too common in our city government to be acceptable. Those responsible for the vast overspending that this government has employed as a way to get things done, should be held accountable. Inducing people to work for the city by promising salaries and pension benefits that cannot be sustained is inexcusable negligence. Promises made must be kept, but we must be honest in the future and adjust what we obligate ourselves to what we can afford.

The City of San Diego has revenue that is substantial and living within our means does not require us to lower our standards. We will undoubtedly have to be lean for a few years until we dig ourselves out of the current situation, but there is no need to raise taxes or fees to accomplish this. More revenue would just be spent to continue paying for over bloated benefits, or for new ones. Raising taxes and fees discourages business. It takes away the independence of individuals to spend their money on what they want rather than on what the city council wants them to have. Revenues will grow as more people choose San Diego for conventions and vacations, and more businesses choose San Diego as a place to invest in. Revenues

earned for discretionary spending are a positive indication of a healthy, dynamic and growing economy. Revenues gotten by overtaxing depresses an economy and discourages growth. We will not put up roadblocks to progress, demand more money from the hard work of others and call that success. Therefore, I will not raise fees or taxes.

An extreme example of this kind of misguided practice is the so-called Living Wage Ordinance. This scam should be eliminated as soon as possible. Raising the wages of vendors bidding for city contract to $10 an hour from $6.75 an hour means that a labor intensive cleaning contract that would have cost the city (that is you and me taxpayer) $675,000 will now cost us $1 million while not providing us with even the pretense of an additional benefit. The bidding contractor, however, theoretically working on a 5 percent profit margin would have made $33,750.

Under the Living Wage Ordinance, he or she will now make $50,000 at the same level of profit margin. At least this welfare program doesn't discriminate between rich and poor. Do not mistake this for an equal opportunity welfare program, however. It is an outrageous and arbitrary decision to spend more of our money when we are over a billion dollars under funded in our pension plan. Our credit rating is being lowered because of these kinds of fiascos, which is causing us to pay higher interest rates, insurance premiums, and more money for goods and services. There is no need to raise taxes or fees and good reason not to.

A business plan has got to be based on real numbers. Unfortunately, the SDCERS has not done what it must to complete the audit. A business cannot plan if it doesn't take inventory and neither can a city. A business cannot be run properly if management is under investigation and refuses to cooperate with the authorities. San Diego

must fully cooperate with the S.E.C., F.B.I. and any others investigating false financial reporting or any other potential crimes. Anyone not disclosing should be dismissed immediately!

Every business has something to sell, and so does the City of San Diego. Businesses sell a product or a service, a city sells itself as a place to live, work, vacation and invest in. There is no better place on earth to live, work, vacation, or invest than San Diego.

I believe that and I will inspire people, businesses and investors. Our business plan will develop ways to make living here more affordable by lowering barriers to building and development and by fixing our infrastructure. We will attract tourist and conventions and investors by taking the steps necessary to becoming financially viable and focusing on all the wonderful things San Diego has to offer.

The list is incredible; it includes attractions like the San Diego Zoo, Sea World, and the Mount Soledad National War Memorial to events like Street Fair, parades for the Holiday Bowl, Ocean Beach Tree Lighting, Veterans Day, and things to do from surfing to hang gliding, sky diving to sport fishing and great convention facilities. We have cruise ships docking here, some of the best dining anywhere and places to eat and shop like the Gas Lamp District, Little Italy, La Jolla, Hillcrest and Mission Valley. Our educational and research facilities are world class and legendary and the surrounding areas include places like Palomar and much more.

We have one of the most user-friendly airports anywhere. A search for a new airport location has been ongoing and seems never ending, but it will end. We will always search to make things better and excellence is always the objective. The search in this case, however, has had a life of its own and gone no place. It's time to make Lindbergh Field the best airport it can be and to stop spending money

on studies and commissions. We should also re-examine Brown Field as a cargo facility.

Developing more business for San Diego will increase revenue to the city as well as to the business in our city. It will elevate optimism and a positive attitude about our town. We have a wonderful film commission in San Diego and we need more cultural centers. We have wonderful theatre in San Diego and we should celebrate our artists. We have some wonderful opportunities in San Diego and we should appreciate and develop every one of them.

An additional part of our business has to recognize the Balanced Budget Accountability Initiative. This initiative being promoted by the Performance Institute calls for six reforms. We do not agree with all of them, nor do we believe the initiative is necessary, but it may be helpful if there is no other way to get the needed concessions and it is clearly a better option if bankruptcy is the only alternative.

In fact, this initiative would enable the city to do most of what would benefit us in a bankruptcy but would not encumber us with all that is negative. To the contrary, adopting the initiative would demonstrate the resolve and the commitment to be responsible and by including all the citizens in the process it demonstrates a city of one as a driving force to achieve a government worthy of this city. I list an outline provided to us by Carl DeMaio of the P.I. and would only point out item 3 which I object to, and item 6 which I will strongly advocate for.

The Balanced Budget Accountability Initiative as proposed by the Performance Institute

1. Quarterly Balanced Budget Reconciliation a. Require City Comptroller to certify balance in city's budget each quarter b. Should city budget not be balanced, Comptroller shall alert Council and Mayor and allow for 30 days to identify program reductions and/or revenues to achieve balance c. Should Mayor/Council not adopt revised budget within 30 days of quarterly budget review, the Comptroller shall make budget reductions in non-public safely accounts on a pro-rata basis to achieve balance
2. Annual Appropriations Limit a. Reinstates city annual appropriations limit to hold spending increases to growth in population and inflation in the city (Resets annual limit to the FY 2006 budget as adopted, then adjusts for increases from that baseline year) b. Creates a "rainy day fund" where revenues collected in excess of the appropriations limit are deposited for use during slower economic times (NOTE: this provision takes effect only after the five year financial restructuring plan in Step 2 has been completed; under Step 2 any excess tax revenues collected during those five years would be deposited into a special infrastructure fund)
3. Election of City Comptroller a. Create publicly elected position (responsible to the people, not the politicians) to oversee the following functions in San Diego City Government i. Treasurer ii. Audit Department iii. Risk Management iv. Issuance of bonds

v. Preparation and issuance of financial statements vi. Chair Audit Committee
4. Performance and Cost Efficiency Bid-to-Goal Program a. Require Comptroller to conduct a performance and cost audit of at least 20% of city functions annually b. Performance and cost audits shall include, at the discretion of the Comptroller, competitive sourcing studies that require city workers to bid against outside service providers using clear performance and cost savings c. City is prohibited from establishing labor cost mandates that could prevent "best price and best value" proposals from being submitted by outside firms d. Comptroller shall present findings to the Mayor and Council for consideration, including proposed contracts for any function where city employees fail to match the cost and performance bid of outside service providers e. Council shall be required to docket Comptroller recommendations
5. "Cost of Service" Audit of City Enterprise and Special Funds a. Requires cost-of-service study of every fee-based function of the city at least once every three years; allows taxpayer to bring suit if fee exceeds cost of service; the city must prove cost of service if suit is brought b. Requires audit of duties and labor cost charges for non-general fund personnel to ensure that all positions funded by fees in the city are engaged in activities appropriate to the fee-based fund from which they are paid
6. Voter Approval of Pension Obligations a. Make ALL Pension Benefit changes subject to voter approval; require fiscal impact statement be prepared by independent actuary

The most difficult and controversial part of our business plan is how we plan to handle illegal aliens. There is a large community in San Diego who would like open borders or give amnesty to illegals already here. Many feel the term undocumented immigrants are more of a polite description, but immigrants are not the problem.

The problem is people who are desperate for someplace where they can make a living, come here by desperate means and stay here by desperate measures. They are unaccounted for but they rely on our medical services and fill our classrooms. Along with the masses of well-intended people come drug dealers, criminals and terrorists. Several of the 911 terrorists lived and trained in San Diego. San Diego is a target area because of our high profile military presence, and because it is so easy to get here thru Mexico.

San Diego politicians divert our attention from the border issue by pointing out that only the federal government can do anything about it. This is not true, but if we just accept being overrun with illegals as a fact, that might be the case. I've been lobbying Congress and the White House for almost thirty years. I lobbied the Reagan White House against F-15 add-ons for Saudi Arabia in the 1980's and against the 1986 tax law change. I've lobbied for veterans issues, children's issues and tax issues among others.

I have good relationships with many members of Congress and staffers as well. I've already begun by talking to members about pending bills to protect our borders and I have a direct line to the Senate Committee on Homeland Security. Things can be done such as changing the I-9 Employment forms so an employee can ask a potential employee if they are here legally or not. Special Order 40 is the order that controls whether local police can detain illegal immigrants.

The mayor's office is a bully-pulpit if the mayor chooses to use it as such. Clearly I will. This issue must be hammered home consistently. That's what a leader does. The cost of illegal immigrants is prohibitive. The savings may not be as dramatic but it will be substantial and just as important, we may stem the tide of drugs, prevent the access to San Diego and our Country by terrorists, and even save a few lives if we can discourage some coyotes (those who smuggle illegal immigrants across the border) with tough consequences. If we do nothing, it will certainly get worse.

There are many workers here legally from foreign countries, including Mexico. The process to become legal is difficult and we make a mockery of it when we allow others the same benefits without scrutinizing their intentions. My administration will give this issue the attention that is warranted.

I want to thank my entire staff for all their help and inspiration in putting this draft/plan together and Carl DeMaio of the Performance Institute for developing the plan they did. I also want to express my thanks to Assemblyman Jay La Suer, Senator Dennis Hollingsworth, former Congressman Brian Bilbray, Congressman Duncan Hunter, Congressman Duke Cunningham, Congressman David Drier and my other friends in government for their advice and council.

It is wonderful to have something to believe in, something worthy of passion and sacrifice that can inspire us to do great things. The City of San Diego is truly something to believe in, and if you are fortunate enough to live here - how can you not be inspired to believe?

You gotta believe!

America's Finest City Plan AFC 1-2-3: A Three-Stage Plan for Success by Myke Shelby http://www.MayorMyke.com