(4) The San Diego City Machine: How the budget process leads to perpetual debt

 San Diego Turns Deferred Maintenance Into Crisis Acquisitions — and Who Profits

San Diego spends $25 million a year maintaining $7.2 billion in public buildings — 8 to 18 percent of what the National Research Council says is necessary. The resulting $1 billion maintenance backlog manufactures the "crises" that justify debt-financed acquisitions. The Civic Center road map is not an anomaly. It is the system working exactly as designed — for the people on the selling side of the transaction.

Part Four of a Series — San Diego — April 16, 2026

Bottom Line Up Front: 

San Diego's Civic Center road map — and the 101 Ash Street debacle before it — are not isolated failures of governance. They are products of a structural cycle that has operated for decades: the City chronically underfunds facility maintenance, creating a compounding backlog that renders public buildings "uneconomical to repair," at which point taxpayers are presented with an "urgent" need to acquire replacement space using bonded debt. The acquisition benefits sellers, lenders, developers, and intermediaries. The debt-service burden falls on taxpayers for 20 to 30 years. And the deferred-maintenance clock begins again on day one of occupancy. A July 2024 performance audit by the City Auditor found that San Diego spends approximately $25 million per year on facility maintenance for 1,600 buildings worth $7.2 billion — between 8 and 18 percent of the $143 million to $287 million the National Research Council recommends. The resulting deferred-maintenance backlog exceeds $1 billion and, if included in the City's infrastructure deficit, would make it the second-largest category behind stormwater. Three days ago, on April 13, 2026, the San Diego County Taxpayers Association released a report finding that the City's total capital-improvement needs have reached $7.8 billion — a $7.8 billion gap between what is needed and what is funded — while the number of City middle managers has grown 461 percent in fifteen years. The association urged the City to shift spending from administrative hiring to infrastructure maintenance. The Civic Center's $106 million CAB maintenance backlog is not a surprise. It is a manufactured inevitability.

The cycle

San Diego's deferred-maintenance-to-crisis-acquisition pipeline operates in four stages. It has repeated, with variations, across multiple administrations and multiple decades:

1. Chronic underfunding of maintenance. Facility maintenance is a discretionary General Fund expenditure. It competes with pensions, police and fire overtime, and politically visible programs. It loses every year. No one holds a press conference about a $3 million HVAC replacement. The IBA flags it. The City Auditor flags it. The SDCTA flags it. Nobody acts, because the consequences are invisible in the current budget cycle and the next election is closer than the next roof failure.
2. Compounding deterioration to "crisis" threshold. Deferred maintenance compounds like interest on debt — except the compounding is physical, not financial, and the rate is worse. A $50,000 roof patch deferred for five years becomes a $500,000 roof replacement. A $2 million HVAC overhaul deferred for a decade becomes a $20 million building-systems failure. The City Auditor's 2024 report documented this precisely: the Facilities Services Division operates in "reactive" mode, repairing components as they fail and postponing everything else. The CAB's $106 million maintenance backlog — the figure U3 Advisors cites as justification for relocation — is the cumulative product of this reactive model applied over decades.
3. The "crisis" justifies an acquisition. Once deferred maintenance crosses the threshold where renovation cost approaches or exceeds replacement cost, the building is declared a crisis. Consultants are hired. Options analyses are produced. The conclusion is always the same: it is cheaper to buy or lease new space than to fix what we have. The urgency of the crisis compresses the procurement timeline, limits competitive bidding, and creates pressure to act before the next budget cycle. The acquisition is financed with bonded debt — often structured to avoid voter approval — because the City has no reserves and no capital budget adequate to the need.
4. The acquisition benefits the sellers; the debt burdens the taxpayers. The seller receives a lump-sum payment or a long-term revenue stream backed by the City's taxing authority. The developer, the lender, the broker, and the consultants collect their fees. The taxpayers receive a debt-service obligation that runs 20 to 30 years. The new building enters the City's portfolio. The maintenance budget remains $25 million. The clock starts again.

This is not a conspiracy theory. It is a budget-structure problem with identifiable beneficiaries and identifiable victims. The beneficiaries are on the acquisition side of each transaction. The victims are the taxpayers who pay the debt service and the residents who lose services to fund it.

The audit that quantified the machine

In July 2024, the San Diego Office of the City Auditor published a 57-page performance audit of facility maintenance — one of the most damning fiscal documents the City has produced in recent memory. Its findings deserve extended attention, because they describe the mechanism that produced the Civic Center "crisis" with clinical precision.

The City owns more than 1,600 facilities with an estimated replacement value of $7.2 billion. The National Research Council recommends that facility owners spend 2 to 4 percent of total replacement value annually on routine maintenance — which for San Diego would require $143 million to $287 million per year. The City spends approximately $25 million. That is 8 to 18 percent of the recommended level, depending on which end of the NRC range is used.

The audit found that "continued underfunding of facility maintenance has resulted in the Facilities Services Division having to take a reactive approach to maintenance, meaning the city repairs facility components as they fail and postpones repairs until there is time and funding." This reactive model, the auditors concluded, "has created a substantial amount of deferred maintenance and limits Facilities Services' ability to perform preventive maintenance."

The cumulative cost of this deferred maintenance exceeds $1 billion. The audit noted that this figure is not included in the City's published infrastructure deficit — an omission that understates the true gap by roughly 20 percent. If included, deferred facility maintenance would rank as the second-largest infrastructure deficit category, behind only stormwater ($1.6 billion) and ahead of streets ($989 million) and parks ($801 million).

City Comptroller Rolando Charvel and General Services Director Musheerah Little acknowledged in writing that "a significant investment is needed in the Facilities Services Division to correct underfunding issues and to be able to take the necessary steps for ongoing maintenance to protect the city's investment in its facilities."

That investment has not materialized. Three days ago — April 13, 2026 — the San Diego County Taxpayers Association released a new report, covered by the San Diego Union-Tribune's Jeff McDonald, finding that capital-improvement needs have now reached $7.8 billion against approximately $5 billion in projected funding, leaving a gap that is nearly 20 percent larger than last year's estimate. Simultaneously, the SDCTA found that the City's workforce has grown 2.2 percent annually over the past fifteen years — more than four times the rate of general population growth — and that the number of middle managers has exploded from 70 positions in 2011 to 393 in 2026, a 461 percent increase. City payroll has risen from $859 per resident to $1,070.

The SDCTA's recommendation was blunt: "City officials should shift from adding administrative jobs to hiring the workers needed for facility and infrastructure maintenance." The association warned that "absent significant changes to spending priorities, the city will continue to increase the burden on taxpayers without providing commensurate benefits."

101 Ash Street: the case study

The 101 Ash Street acquisition is the purest expression of the cycle in recent San Diego history, and its details illuminate exactly how the machine operates.

The City Administration Building — the same building the Civic Center road map now proposes to vacate — was already deteriorating in the mid-2010s when the Faulconer administration began exploring options for additional office space. Rather than fund the CAB's maintenance needs, the City pursued the acquisition of 101 Ash Street, a former Sempra Energy headquarters, through a lease-to-own arrangement intermediated by Cisterra Development.

The lease was brokered by Jason Hughes, CEO of Hughes Marino, who presented himself to the City as a "special volunteer for real estate services" acting out of civic duty. Hughes collected $9.4 million from Cisterra for facilitating the transaction — a fact that was not disclosed to the City Council at the time of approval. The building was not subjected to a proper independent inspection before the City committed to occupancy.

When city employees began moving in, the building was found to be contaminated with asbestos and unsafe for occupation. A 2020 review by consultant Kitchell estimated remediation costs at up to $115 million. The building has remained vacant since 2019. In July 2022, the City Council voted 6–3 to settle with Cisterra, purchasing 101 Ash for $86 million and the adjacent Civic Center Plaza for $46 million — a total of $132 million — over the objections of then-City Attorney Mara Elliott, who urged the Council to take the case to trial. In March 2023, Hughes pleaded guilty to a misdemeanor conflict-of-interest charge and returned the $9.4 million. The City continues to spend $2.4 million annually to maintain the vacant building.

The total taxpayer cost — $86 million purchase, $46 million for Civic Center Plaza, up to $115 million in remediation, years of carrying costs, and litigation expenses — exceeds $250 million for a building the City has never been able to use. This is the direct product of the deferred-maintenance cycle: the CAB's deterioration created the perceived need; the perceived need created the urgency; the urgency compressed the due diligence; and the compressed due diligence produced a catastrophic acquisition.

The Civic Center road map: the cycle's next iteration

The road map released April 14, 2026 follows the identical structural logic:

The manufactured crisis. The CAB's $106 million deferred-maintenance backlog — the product of decades of underfunding at $25 million per year against a recommended $143–$287 million — is presented as a fait accompli. The building is, we are told, beyond repair. U3 Advisors' options analysis shows that renovation would cost $487 million over 20 years versus $156 million for relocation. The implication is clear: we must buy new.

The urgency narrative. The downtown office market is at historic lows. Prices may not stay this favorable. The JPA must be formed by 2027. The City Council must decide on relocation by late 2026. The window is closing. Act now.

The debt mechanism. The City has no capital reserves for a $75–$150 million acquisition. The proposed financing vehicle is a Joint Powers Authority with Marks-Roos bonding authority — a structure that permits debt issuance without voter approval. The debt service, at current AA municipal bond yields of 4–4.5 percent, would run $3–$6.75 million annually, consuming 42 to 94 percent of the project's projected $7.2 million in new annual revenue.

The beneficiaries. The Prebys Foundation owns one of the two leading candidate buildings. AllianceBernstein holds the other through foreclosure. U3 Advisors is paid by Prebys. The developers who would build the 2,300 housing units and the 400-room hotel have not been selected but will capture standard-margin returns on $3.3 billion in private investment. Downtown landowners within a quarter mile will capture catalytic appreciation under Proposition 13 without commensurate tax increases.

The taxpayer residual. $7.2 million per year in new revenue, against an $88.8 million structural deficit, with the pension system's Actuarially Determined Contribution holding first claim on every undedicated General Fund dollar. Roads, libraries, recreation centers, and parks compete for whatever remains after pensions, payroll, and debt service are covered — which, in recent years, has been less than nothing.

Why the maintenance is never funded

The obvious question is: why doesn't the City simply fund maintenance at the NRC-recommended level and avoid the crisis-acquisition cycle?

The answer is structural, not accidental. San Diego's General Fund budget is consumed by three categories of expenditure that grow faster than revenue and are politically or legally impossible to reduce:

First, pensions. The Actuarially Determined Contribution to SDCERS is a City Charter obligation. The unwinding of Proposition B — after the California Supreme Court found that former Mayor Sanders' support for the pension-reform initiative violated the Meyers-Milias-Brown Act — has added a new cohort of members to the pension system, increasing the ADC by tens of millions per year. The ADC is not discretionary. It grows every year. It crowds out everything else.

Second, compensation. The 23 percent raise granted to more than half the City's employees in 2022, plus 10 percent for police and fire, compounded by step increases and the 461 percent growth in middle managers identified by the SDCTA, has pushed payroll from $859 to $1,070 per resident. Compensation and benefits now consume the vast majority of the General Fund before a dollar reaches facilities, infrastructure, or services.

Third, prior debt service. The City is already servicing debt from previous acquisitions, including the 101 Ash and Civic Center Plaza settlement ($132 million), plus ongoing carrying costs. Adding $75–$150 million in new JPA bonds for a City Hall relocation would increase the debt-service burden by $3–$6.75 million annually — money that, once committed, cannot fund maintenance or services for the life of the bonds.

In this fiscal environment, facility maintenance is the budget's designated loser. It is discretionary, invisible, and deferrable. No Council member has ever lost an election for cutting the HVAC budget. The consequences manifest years later, in a different administration's budget, and are then presented as an inherited crisis requiring an emergency response. The cycle is self-reinforcing: deferred maintenance creates crises; crises produce debt-financed acquisitions; debt service crowds out future maintenance funding; and the next generation of buildings begins deteriorating from day one.

What breaking the cycle would require

The SDCTA's April 2026 report and the City Auditor's July 2024 audit converge on a set of reforms that would, if implemented, interrupt the machine. They are straightforward. They are unglamorous. And they are politically difficult precisely because they redirect resources from the constituencies that benefit from the current system:

1. Mandatory maintenance funding at NRC-recommended levels. The City Council should adopt a policy — or the voters should mandate by charter amendment — requiring annual facility-maintenance expenditures of not less than 2 percent of total facility replacement value. At current values, that floor would be $143 million per year, roughly six times the current $25 million. This is a large number. It is also approximately the annual cost of the deferred-maintenance backlog that accumulates when the spending is not made. The money is spent either way; the question is whether it is spent on $50,000 repairs or $50 million replacements.

2. A dedicated capital reserve fund. The City should establish a capital reserve funded by a fixed percentage of General Fund revenue, insulated from annual budget negotiations and restricted to facility maintenance and infrastructure. Several California cities — including Sacramento and San José — have adopted versions of this structure. It removes the annual temptation to defer maintenance to close a deficit.

3. Independent condition assessments on a five-year cycle. Every City-owned facility should be professionally assessed at least every five years, with the results published and included in the infrastructure-deficit calculation. The City Auditor's finding that deferred maintenance was excluded from the published deficit is an accounting choice that conceals the true fiscal position from voters and bondholders alike.

4. Voter approval for major acquisitions. Any acquisition of real property exceeding $25 million — whether by direct purchase, lease-to-own, or JPA bond issuance — should require voter approval. This is the single reform most likely to prevent a repetition of 101 Ash Street. The urgency narrative that drives crisis acquisitions depends on compressing the deliberative process. Voter-approval requirements expand it.

5. Conflict-of-interest firewalls for planning partners. No entity that funds, manages, or advises on a redevelopment plan should be permitted to own, lease, or sell candidate properties within the plan area. The Prebys Foundation's simultaneous role as planning funder and building owner is not illegal. But it is a structural conflict that would not survive scrutiny in any private-sector transaction of comparable scale. A firewall policy would require the Foundation to either divest its Wells Fargo Building interest or withdraw from the JPA planning process.

The deeper question

The Civic Center road map, the 101 Ash debacle, the $7.8 billion infrastructure gap, the $1 billion maintenance backlog, the 461 percent growth in middle managers, the $120 million budget deficit, the pension obligations that consume the General Fund before a dollar reaches a pothole — these are not separate problems. They are the same problem, viewed from different angles.

San Diego has built a governance structure in which the operating budget is consumed by compensation and pensions; the capital budget is consumed by debt service on prior crisis acquisitions; the maintenance budget is the residual that absorbs whatever cuts are needed to balance the books; and the resulting deterioration of public assets creates the next crisis that justifies the next acquisition. The cycle generates fees, commissions, and profits for the private actors on the selling side of each transaction. It generates debt, deferred maintenance, and service cuts for the public on the buying side.

The road map calls the Civic Center a "once-in-a-generation opportunity." In fact, San Diego generates these opportunities every five to ten years, as regularly as the tide. The only thing that changes is the address, the intermediary, and the size of the bond issue.

Breaking this cycle does not require visionary leadership or billions in new revenue. It requires the political will to fund maintenance instead of deferring it, to require voter approval instead of JPA bond issuance, to impose conflict-of-interest firewalls instead of celebrating "public-private partnerships" that enrich the private partners, and to measure success by the condition of public assets rather than the volume of new transactions.

None of those reforms appear in the road map. None of them have been proposed by the Mayor or the City Council. None of them are on the agenda for the late-2026 relocation decision. And until they are, the machine will continue to operate — converting deferred maintenance into crisis, crisis into acquisition, acquisition into debt, and debt into the next round of deferred maintenance. The beneficiaries know the cycle. They are positioned for it. The taxpayers will learn about it when the bond payments come due.

Sources

1. City of San Diego Office of the City Auditor. "Performance Audit of Facility Maintenance." Report 25-01, July 2024. https://www.sandiego.gov/sites/default/files/2024-07/25-01-performance-audit-of-facility-maintenance.pdf
2. McDonald, Jeff / San Diego Union-Tribune, via OB Rag. "Independent Review Exposes San Diego's 'Bloated Bureaucracy' of Middle Managers and Insufficient Spending on Infrastructure." April 13, 2026. https://obrag.org/2026/04/independent-review-exposes-san-diegos-bloated-bureaucracy-of-middle-managers-and-insufficient-spending-on-infrastructure/
3. Hoodline / San Diego Union-Tribune. "San Diego's $7.8 Billion Fix-It Gap Puts Streets And Storm Drains On The Chopping Block." February 20, 2026. https://hoodline.com/2026/02/san-diego-s-7-8-billion-fix-it-gap-puts-streets-and-storm-drains-on-the-chopping-block/
4. Facility Management Maintenance & Operations. "Deferring Maintenance Costs San Diego $1 Billion." December 3, 2024. https://www.facilitiesnet.com/maintenanceoperations/tip/Deferring-Maintenance-Costs-San-Diego-1-Billion--54519
5. City of San Diego. "Fiscal Year 2022-2026 Five-Year Capital Infrastructure Planning Outlook." https://www.sandiego.gov/sites/default/files/fy22-26-five-year-capital-infrastructure-planning-outlook.pdf
6. U3 Advisors / Downtown San Diego Partnership / Prebys Foundation. "San Diego Civic Center Revitalization: Quantifying Transformative Economic Impact." January 20, 2026. https://downtownsandiego.org/wp-content/uploads/2026/01/260126_SD-Civic-Center-Economic-Impact-Study-Report.pdf
7. KPBS Public Media. "'Road map' to revitalize San Diego Civic Center estimates major city savings." April 14, 2026. https://www.kpbs.org/news/economy/2026/04/14/road-map-to-revitalize-san-diego-civic-center-estimates-major-city-savings
8. Times of San Diego. "City Council OKs Purchase of 101 Ash, Civic Center Plaza to Settle Years-Old Dispute." July 26, 2022. https://timesofsandiego.com/politics/2022/07/26/city-council-approves-legal-settlement-on-101-ash-street-civic-center-plaza/
9. KPBS Public Media. "San Diego settles over 101 Ash deal; DA files criminal charges." March 22, 2023. https://www.kpbs.org/news/local/2023/03/22/city-council-to-consider-settlement-with-hughes-over-101-ash-street-deal
10. Voice of San Diego. "What's In the City's Proposed 101 Ash Settlement." June 25, 2022. https://voiceofsandiego.org/2022/06/25/whats-in-the-citys-proposed-101-ash-settlement/
11. Callen, Kate. "'Civic Center Revitalization' Was Already DOA — Now It's Official." OB Rag, December 11, 2024. https://obrag.org/2024/12/civic-center-revitalization-was-already-doa-now-its-official/
12. KPBS Public Media. "San Diego enters 2026 with worsening budget deficit." December 19, 2025. https://www.kpbs.org/news/economy/2025/12/19/san-diego-enters-2026-with-worsening-budget-deficit
13. Voice of San Diego. "All the New Fees Still Not Enough to Cover City Budget Deficit." December 4, 2025. https://voiceofsandiego.org/2025/12/04/all-the-new-fees-still-not-enough-to-cover-city-budget-deficit/
14. City of San Diego Independent Budget Analyst. "IBA Review of the Mayor's FY 2027-2031 Five-Year Financial Outlook." December 15, 2025. https://www.sandiego.gov/sites/default/files/2025-12/25-36-review-of-the-mayor-s-fy-2027-2031-five-year-financial-outlook_2.pdf
15. Axios San Diego. "Inflation, raises and a costly building: How San Diego's budget broke." January 26, 2026. https://www.axios.com/local/san-diego/2026/01/26/san-diego-budget-crisis-101-ash-inflation-employee-raises-covid-money
16. Axios San Diego. "San Diego weighs moving City Hall to unlock Civic Center revitalization." July 23, 2025. https://www.axios.com/local/san-diego/2025/07/23/san-diego-move-city-hall-civic-center-revitalization
17. City of San Diego. "Fiscal Year 2025 Adopted Budget." https://stories.opengov.com/sandiegoca/published/3ChSDaddI