COUNCILMEMBER DAVID ALVAREZ City of San Diego Council District Eight MEMORANDUM DATE: January 25, 2016 TO: Councilmember Mark Kersey, Chair, Infrastructure Committee FROM: Councilmember David Alvarez SUBJECT: Alternative Infrastructure Proposal The City Council is scheduled to discuss the potential ballot measure related to the Rebuild San Diego charter amendment on Tuesday, January 26, 2016. | appreciate your efforts to bring forward a discussion of a conceptual proposal on this issue. As with any initial proposal for a charter amendment, there are several areas of concem that need to be addressed before the Council takes action. | would propose a more aggressive timeline of ten years that relies on a combination of property tax increment, debt service savings, and use of general fund savings realized through City government efficiencies. This proposal, outlined below, would realize over $800 milion in funding over a 10-year period, providing our neighborhoods with the resources they need now- not 30 years from now. Additionally, it reduces the City’s long term debt, does not depend on unreliable pension savings projections, provides proper oversight and monitoring needed to ensure that the infrastructure strategy is followed and could be implemented immediately via the City's municipal code instead of a charter amendment. Plan to Increase Capacity for Project Delivery Must Accompany Any Funding Proposal The City has exhibited a consistent inability to spend money generated via bonds and general revenue for infrastructure projects, despite many reforms made to the CIP process over the years. The IBA, in her analysis of the Rebuild San Diego proposal, has noted that the current project capacity (the ability to complete projects) does not exist, and has raised this concern in earlier analyses of the City's infrastructure backlog. In her analysis of the Rebuild San Diego Proposal she found that currently staff can only complete $300-350M annually in projects, but the CIP outlookprojects $560M in annual capital projects spending. She also noted in her review of the 5-Year Outlook that it will be “critically important to develop staff and external project delivery resources to effectively manage the increased annual volume of infrastructure projects in the Outlook.” Identifying funding that cannot be spent in a timely fashion does not accomplish the goal of building new projects, it simply ties up tax dollars, some of which is bond money on which the City pays interest. It is critical that with any funding plan, a concurrent plan to address capacity for project delivery is also created and provided to the Council. 30 Years is Far Too Long to Wai The City has a $1.7 billion dollar backlog of unfunded infrastructure needs over the next five years. The current proposal does little to impact the overall backlog. Any plan passed by the City Council to address the infrastructure backlog must be accelerated and implemented faster than 30 years. By taking three decades to address this problem, we are forcing San Diegans to wait far too long to see the infrastructure repair and construction of much needed facilities that have already been put off for decades. Sales tax, pension savings and revenue estimates beyond a 10-year timeframe are unreliable for purposes of delivering a dependable funding source to communities throughout San Diego. In fact, according to the City’s FY15 Comprehensive Annual Financial Report (CAFR), “an additional $36,800,000 would be required annually over the next ten years to bring all City streets to an average OCI of 70° (FY15 CAFR, p. 48). Our neighborhoods need help now- not 30 years from now. Future Borrowing Only Decreases Available Funding Over Time The current proposal does not address the long term debt created by bonds planned in the next five years. Savings from avoiding issuing additional bonds, which carry interest charges and creates debt service payments for decades to come, could result in $139.8M in available infrastructure funding over the next ten years. +$139.8M increase in funding Property Tax Increment Revenue is a More Reliable Option According to the State Legislative Analyst's Office, property tax increment revenue is a less volatile revenue source over time than other tax revenue. By utilizing property tax increment, the City would have approximately $226M more in the next ten years to allocate towards infrastructure projects. According to the IBA’s projections, property tax increment revenue generates $541.4M over 10 years, assuming steady growth, as demonstrated in the graph below (see attachment #1 provided by the IBA): ty Growth +$226.5M increase in fundingPension Savings as a Reliable Funding Source The proposal critically misunderstands the idea of pension savings through actuarial analysis. There is no guarantee that after any given point in time, 2028 for example, that there will be any drop-off in pension payments. The proposal seems to conclude there will be savings based on an example presented with several disclaimers in the SDCERS actuarial report. The IBA’s report noted that no. savings can be counted on in the first ten years. Pension system savings should not be considered as a reliable infrastructure funding source. -No change in funding Increasing Government Efficiencies Frees Up Funding for Infrastructure The City bureaucracy can be further streamlined to create service and cost efficiencies. Identifying savings in the budget from efficiencies that are equal to 1 cent of every dollar of general fund expenditures over 10 years (non-cumulative) could result in up to $132.5 million that could be invested in infrastructure (illustrated in the chart below). 1,260.0 | 1,278.4] 1,292.3 | 1,306.2 | 1,317.0 | 1,331.7 | 1,346.3 | 1,358.9 | 1,372.4 | 1,386.6 [126] 128) 129) 134] 132| 133] 135| 136| 138] 139 +§132.5M increase in funding Fyi7_[Fyis | Fyi9 |Fy20 |Fy21_|Fy22 |Fy23 |Fy24 | FY25 | FY26 Tora] 132.6 | Monitoring and Oversight of Progress is Critical to Success To ensure that the infrastructure backlog is reduced in a meaningful way, itis critical that an independent monitoring and oversight mechanism be created. | would propose that the Independent Budget Analyst and City Auditor be tasked with an annual analysis and report to the City Council regarding the City's progress in completing the needed repairs and building the projects identified in the City's infrastructure backlog. Department staff should be required to provide monthly updates to the IBA and City Auditor to ensure that adequate monitoring of project progress is achieved. To ensure the City allocates and spends the proper amount of money on infrastructure projects, as planned by this strategy, a clause could be included that eliminates the policy if there is a failure to meet plan goals within the ten year time period City Charter Amendment Is Not Needed It may be prudent to consider whether implementing this policy via the municipal code is a better way to move forward. If this proposal passes as an amendment to the City Charter, it will be difficult to address any unintended consequences that may arise in future years. However, if placed into the municipal code, future City Councils would need to actively engage in a strategy to deny communities the much needed infrastructure projects promised through this plan. Avoiding the cost of a ballot measure would also save taxpayer dollars, which in turn could be invested in capital improvement projects in FY17. +TBD additional funding in avoided costsEstablishing a More Robust Public Process Regarding the public process on this item, the Rebuild San Diego proposal was first conceptually presented at the Infrastructure Committee last month and was just analyzed by the IBA last week, who suggested other options to choose from. In order to ensure that the right plan is put into place, | would suggest that this issue of great importance be given its proper vetting through additional Infrastructure Committee, Charter Review Committee and City Council hearings. Taking a few extra weeks now to ensure this is the right plan is better than passing and implementing a flawed plan that could have been improved by greater public participation Conclusion In total, this alternative plan would create $813.7M for infrastructure projects over ten years without raising taxes or issuing new forms of long-term debt, as exhibited in the chart below: 10-Year Infrastructure Investment Plan Funding Property Tax Increment-(baseline plus cap) _ $541,451,404 Debt Service Savings oa $139,800,000 Government Efficiency Savi $132,500,000 TOTAL 7 | _$813,751,404 | would request that this proposal be considered by the Infrastructure Committee before the Council takes action on the current proposal. Additional analysis of this and other options available to the City to address this problem should be considered by the Infrastructure Committee and analyzed by the Independent Budget Analyst, prior to being considered by the City Council. | very much share your concern that the City must act now to fund neglected infrastructure needs and hope that the ideas outlined above will improve the current proposal. Please let me know if you have any questions regarding the proposal contained in this memorandum. CC: Honorable City Councilmembers Honorable Mayor Kevin Faulconer Honorable City Attomey Jan Goldsmith Eduardo Luna, City Auditor Andrea Tevlin, Independent Budget AnalystPROPERTY TAX Baseline GF Growth 2.00% Infrastructure Cap 3.50% Year Baseline General Fun New General Fund Re New infrastructure Revenue Excess GF Revenue 1$ 4700685739 $ 18,990,771 $ 14,489,864 $ 19,548,937 2$ 470068579 § 28,771,958 § 22,332,899 § 24,508,776 3$ 470068579 $ 38,748,768 $ 30,597,159 27,400,766 4$ 470,068,579 $48,925,115 $ 39,300,220 $ 25,985,053, 5$ 470068579 $ $9,304,989 § 48,460,736. $ 21,010,739, 6 $ 470,058,579 $ 69,892,461 $ 58,097,466 15,757,665 7$ 470,068,579 $ 80,691,681 $ 68,230,293 § 10,171,021 8$ 470,068,579 $ 91,705,887 $ 78,879,757 $ 4,235,391 9$ 470,068,579 $ 102,942,396. $ 88,001,904 $ - 10 $ 470,068,579 $ 114,402,615. $ 193,067,006 $ - 11 $ 470,068,579 $ 126,092,039 $ 98,316,037 $ : 12 $ 470,068,579 $ 138,015,252 $ 103,754,782 $ : 13 § 470,068,579 $ 150,176,928 $ 109,389,029. $ : 14 $ 470,068,579 $ 162,581,838 $ 15224982 § : 15 $ 470,068,579 $ —175,234847 $ 121,268,859 $ : 16 $ 470,068,579 $ 188,140,915. $ 127,527,098 $ 17 $ 470,068,579 $ 201,305,305. $ 136,006,323 $ 18 $ 470,068,579 $ 214,732,579 $ 140,713,309 § 19.$ 470,058,579 § 228,428,602 $ 107,655,189. $ 20 $ 470,068,579 $ 242,398,545. $ 154,839,054 $ 21$ 470,068,579 § 255,607,888 $ 162,272,366 $ 22$ 470,068,579 § 271,182,217 $ 169,952,758 $ 23.$ 470,068,579 § 285,007,233 $ a77sigoai $ 24 $ 470,068,579 § 301,128,750 $ 186,146,412 $ 25.$ 470,068,579 § 316,552,696. $ 194,656,059 $ 26 $ 70,068,579 § 332,285,122 $ 203,455,567 $ 27 $ 70,068,579 § 348,332,196. $ 212,853,724 $ 28 $ 470,068,579 § © -364,700201 $ 221,959,571 $ 28.$ 470,068,579 § 381,305,587 $ 231,682,404 $ 30$ 470,068,579 § 398,024,870 $ 241,731,785 $ F TOTAL $ 14,102,057370 § — 5,738,241,060 $ 3,796.490,782 $ 148,578,348, Steady Growth $500.00 00 3.000 00000 $500.00 000 * 12.345 67 8 9 s0uia23s.aasue37i8192021222824252627282020 aces OF Revenue 1 rating General Fund Revenue