San Diego Faces Severe Budget Crisis Amid Soaring Pension Costs

Accelerating Growth of Pension Costs Have Painted City and County into a budget corner. Court repeal of pension reform measures and Electorate rejection of tax raises have left a festering problem and city leaders have few ways out.

City Pension Annual Payouts projected to peak in 2044 at $680M

San Diego Faces Severe Budget Crisis Amid Soaring Pension Costs

San Diego city and county governments are grappling with a deepening financial crisis, driven largely by mounting pension obligations that threaten to force widespread service cuts and potential layoffs.

The City of San Diego faces a record-high pension payment of $533 million this year, contributing to a projected budget deficit exceeding $350 million. City officials estimate this shortfall could result in between 250 to 750 layoffs from the city's 12,000-person workforce, with parks, libraries, and other non-public safety departments likely bearing the brunt of cuts.

"We can't continue to provide the same levels of service that we have been providing in the past. It's simply not sustainable," said City Finance Director Rolando Charvel. The city's pension system is currently carrying $3.36 billion in unfunded liabilities, reaching its highest point ever.

Mayor Todd Gloria has implemented immediate measures to address the crisis, including a hiring freeze and requiring most city departments to propose 20% budget reductions. Public safety departments face smaller cuts at 5%, while transportation has been asked to reduce spending by 10%.

The city is exploring additional revenue sources, including potential increases to parking fees and implementation of a newly approved trash collection fee for single-family homes. Officials expect these measures could provide $60-70 million in relief, with an additional $30-40 million anticipated from homeless services funding approved by voters in 2020.

City Chief Financial Officer Matt Vespi emphasized the gravity of the situation while assuring residents about the city's commitment to meeting its obligations. "I can assure you that we are not a credit risk — we will make our payment each year," Vespi stated. "But it's a significant obligation. It's going to be a tough run."

The financial strain follows a series of setbacks, including the November 2024 rejection of a sales tax increase that would have generated approximately $400 million annually. The city also faces an additional challenge with a nearly $5 billion infrastructure deficit that requires funding primarily from the general fund.

City officials are considering various approaches to address the pension debt, including proposals to restructure payment plans. The pension board is evaluating seven different scenarios that could provide short-term relief while managing long-term obligations.

The situation reflects broader challenges facing municipal governments nationwide as they struggle to balance pension obligations with maintaining essential city services. As San Diego officials work to address these financial challenges, residents may need to prepare for significant changes to city services in the coming years.

 

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1. Opinion: Why are so many of San Diego’s needs going unmet? Extreme pension costs – San Diego Union-Tribune; sandiegouniontribune.com  Mariana Trujillo

2. San Diego County and City Pensions Still Underfunded Despite 2017 Bull Market; Saara Lampwalla By Ashly McGlone.; publicceo.com
3. How, and when, should San Diego pay off its $3.4B pension debt? As budget woes loom, officials are weighing these options; By David Garrick The San Diego Union-Tribune

4. $533M pension payment could blow a hole in San Diego’s budget — especially for parks and libraries, city says; David Garrick sandiegouniontribune.com