Paradise Plundered

Fiscal Crisis and Governance Failures in San Diego

Steven P. Erie, Vladimir Kogan, Scott A. MacKenzie

• Publisher: Stanford University Press
• Year: 2011
• ISBN:
  9780804782180
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Local & Regional Planning Public Policy
• Index: Politics & International Relations

The early 21st century has not been kind to California's reputation for good government. But the Golden State's governance flaws reflect worrisome national trends with origins in the 1970s and 1980s. Growing voter distrust with government, a demand for services but not taxes to pay for them, a sharp decline in enlightened leadership and effective civic watchdogs, and dysfunctional political institutions have all contributed to the current governance malaise.

Until recently, San Diego, California—America's 8th largest city—seemed immune to such systematic governance disorders. This sunny beach town entered the 1990s proclaiming to be "America's Finest City, " but in a few short years its reputation went from "Futureville" to "Enron-by-the-Sea." In this eye-opening and telling narrative, Steven P. Erie, Vladimir Kogan, and Scott A. MacKenzie mix policy analysis, political theory, and history to explore and explain the unintended but largely predictable failures of governance in San Diego.

Using untapped primary sources—interviews with key decision makers and public documents—and benchmarking San Diego with other leading California cities, Paradise Plundered examines critical dimensions of San Diego's governance failure: a multi-billion dollar pension deficit; a chronic budget deficit; inadequate city services and infrastructure; grandiose planning initiatives divorced from dire fiscal realities; an insulated downtown redevelopment program plagued by poorly-crafted public-private partnerships; and, for the metropolitan region, inadequate airport and port facilities, a severe underinvestment in firefighting capacity despite destructive wildfires, and heightened Mexican border security concerns.

Far from a sunny story of paradise and prosperity, this account takes stock of an important but understudied city, its failed civic leadership, and poorly performing institutions, policymaking, and planning. Though the extent of these failures may place San Diego in a league of its own, other cities are experiencing similar challenges and political changes. As such, this tale of civic woe offers valuable lessons for urban scholars, practitioners, and general readers concerned about the future of their own cities.

I Overview and Historical Development

1America’s Finest City?

Welcome to San Diego, California’s second largest city, where blue skies keep watch over 70 miles of beaches and a gentle Mediterranean climate means paradise every day.

—San Diego Convention and Visitors Bureau,
Neighborhood Guide¹

In the popular imagination, San Diego is a sunny seaside paradise. Touted as one of the nation’s top leisure-vacation destinations, San Diego aggressively markets itself for an idyllic climate, pristine beaches, a dazzling array of world-class tourist attractions, beachfront resorts and luxury spas, and a vibrant downtown district. Although “the beach is a way of life,” golf is “serious business” here, with more than ninety courses offering stunning ocean views, desert sun, or mountain vistas. Local boosters trumpet the “immense options” for business—such as an innovative high-tech industry—as well as pleasure in a place that proudly proclaims itself “America’s Finest City.”²

Yet there is a grim and increasingly visible civic reality to San Diego not depicted in slick marketing brochures. It consists of a chronic municipal fiscal crisis, exacerbated in recent years by a pension scandal and multibillion-dollar pension deficit; severely underfunded public services and infrastructure; grandiose plans for big-ticket civic projects divorced from straitened fiscal realities; and a privatized downtown and bay front, the product of poorly crafted and inadequately monitored public-private redevelopment partnerships underwritten by hundreds of millions of dollars of public investment. Paradise, it appears, has been plundered.

The result of San Diego’s civic mismanagement is the making of an American Potemkin village³—an impressive privatized facade with a dark public-sector underbelly—featuring a gleaming new downtown and bevy of tourist attractions but saddled with billion-dollar pension liabilities and deficient public services. With civic energies and resources focused on building downtown “legacy projects,” such as a new city hall, a central library, an expanded convention center, and possibly a new football stadium, pressing neighborhood improvements and regional initiatives, ranging from improved fire protection to a new airport, have faltered. The appearance of prosperity well serves the interests of the remnants of a once-potent local growth machine, which includes real estate developers, professional sports team owners, the tourist industry, organized labor, public agencies, business groups, and self-interested politicians seeking legacy projects and reelection.⁴

San Diego’s civic woes have tangled roots. As far back as the 1970s, the city was an early and eager advocate of limiting taxes and living beyond its means. City officials raided the pension and other revenue streams to pay for big-ticket items while providing a semblance of public services that tax-averse residents demanded but did not want to pay for. At the same time, voter-approved initiatives at the state level, the culmination of a nationwide tax revolt, erected crippling barriers to local governments’ ability to raise new revenues. These changes also empowered small but impassioned minorities to block future efforts to raise taxes, thus exacerbating the tenuous financial position of cities like San Diego. To go along with its “free lunch” political culture, San Diego scores unexpectedly low on social capital metrics, with residents displaying low levels of trust in local government and high levels of political ignorance and apathy. As a former local reporter observed, “To win over San Diegans, you have to let them sit back and do nothing and then congratulate them for doing it.”⁵ Low social capital makes collective action and public monitoring of government performance more difficult.⁶

At the elite level, the capacity to resolve civic challenges diminished as the old business leadership faltered and San Diego became a quintessential branch-plant town. New policy entrepreneurs on the scene have pursued self-interested, single-issue agendas. They include professional sports team owners, real estate developers, and public-sector unions. Aiding and abetting the new policy entrepreneurs are semiautonomous “shadow governments,” such as the Centre City Development Corporation, which oversees redevelopment efforts downtown, and the San Diego City Employees’ Retirement System, which manages local pension funds. Another factor contributing to weakened civic capacity has been a sharp decline in the monitoring and effectiveness of civic watchdogs, ranging from the local media to good-government groups.⁷ Though hardly unique among the nation’s big cities in terms of these troubling civic trend lines, San Diego has been a leader of the pack.⁸

Paradise Plundered dissects San Diego’s fiscal crisis and related governance challenges and considers their root causes and likely consequences. In doing so, we hope to provide cautionary lessons for the many communities that are now emulating “the San Diego way.” In explaining local government’s performance lapses and failures, we emphasize three broad explanatory factors: (1) civic leadership and capacity, (2) political culture, and (3) political institutions. The primary focus is on the City of San Diego and its policy making during the period from 1990 to 2010. We analyze five policy spheres that together encompass the exercise of the city’s primary public powers, each with distinct governance arrangements: the city’s pension system, municipal finance, public service and infrastructure provision, planning, and redevelopment. We also examine how the city’s past has shaped the present, regional and binational infrastructure and governance challenges facing the border metropolis, and prospects for the future. Throughout, we benchmark San Diego with other large cities, particularly in California.

From Futureville to the Most Screwed-Up City in America

After the North American Free-Trade Agreement, the Mexican connection is bound to grow. That and other changes—economic, demographic, cultural—are transforming a place which used to have a reputation as a sleepy navy town, a California cul-de-sac with a great climate and a nice zoo. Nowadays, San Diego can tout itself, without sounding ridiculous, as “the first great city of the 21st century.”

—“Futureville,” Economist, 1996⁹

Most folks probably have certain images in mind when they think of San Diego. A gentle breeze blowing off the Pacific. . . . Well-fed folks lining up putts on country-club greens. Money oozing from the wireless and biotech juggernauts up and down the coast. How, then, to square this idyllic vision . . . with the scandals that have sprouted in California’s second-largest city faster than wildflowers after a desert rain? There’s so much slime in this town that civic leader George Mitrovitch, president of the City Club of San Diego, calls it “the most screwed-up city in America.”

—“Stay Classy, San Diego! It’s Wealthy, Sunny, Beautiful—and Possibly the Most Dysfunctional Big City in America,” Fortune, 2005¹⁰

Modern San Diego came of age during and after World War II. In the postwar era, the defense industry brought growth and prosperity, but it collapsed when the Cold War ended, sending unemployment soaring. San Diego embraced the widely held mantra that low taxes, low debt, a small public sector, and business-friendly regulations are the most crucial factors for attracting new businesses and keeping local industries globally competitive.¹¹ This formula appeared to work. By the late 1990s, San Diego had reinvented itself, with new high-tech industry and foreign trade joining real estate and tourism as pillars of a diverse and apparently healthy economy. In a study of regional innovation, the urban scholar Richard Florida rated San Diego the nation’s third-best “creative class” city on the basis of a new model of urban economic development tapping technology, talent, and tolerance.¹²

Beneath the accolades, however, serious problems were festering: woefully underfunded public services and infrastructure, a large and growing low-wage service sector, inadequate schools, and one of the nation’s least affordable housing stocks. San Diego’s public sector was undernourished and overburdened. Relative to its size (1.3 million residents), the city’s police and fire departments ranked among the nation’s smallest. Their equipment was aging and deficient. During the disastrous 2003 Cedar Fire, which killed fifteen people and destroyed more than two thousand homes, San Diego firefighters had no helicopters to help contain the conflagration.

In the 1990s, as San Diego recovered from defense cutbacks and a deep recession, the city doubled down, joining other cities in the competition for convention traffic, Super Bowls, and giveaways to professional sports team owners. Raiding pension funds swollen by the bull market of the 1990s was one of the few ways San Diego could pay for big-ticket items like the 1996 Republican national convention and balance its books without raising taxes. Despite San Diego’s relatively low tax burden, the T word remains anathema to residents in this military and retirement mecca. This has resulted in little money for public services and basic infrastructure improvements essential to a sound economy. After public pensions were boosted, many blamed organized labor for the city’s financial woes.

Having plugged its immediate budget deficit with money meant for municipal pensions, San Diego’s elected officials chose to lavish scarce public resources on downtown redevelopment and professional sports stadiums. The capstone project of San Diego’s “Downtown Renaissance,”¹³ which paired the Petco Park baseball stadium for the Padres with ancillary development in the once-moribund East Village, has been widely hailed as a public-private partnership worthy of emulation.¹⁴ This and other projects, their proponents argued, would spur private investment downtown and create new jobs, affordable housing, and public improvements. Critics, however, have pointed to the city’s inability to conduct meaningful oversight and to extract public benefits from its substantial investments in downtown and bay-front redevelopment.¹⁵

California’s other big cities appeared to be better prepared to cope fiscally. After Proposition 13 passed in 1978, many cities raised new revenues by imposing utility-users’ taxes, increasing business taxes, and charging higher user fees. The Los Angeles Department of Water and Power, for example, found “surplus” revenue to balance the city’s budget.¹⁶ Had San Diego emulated these cities, its General Fund revenues would have been much higher, capable of financing essential services and infrastructure without raiding its pension funds. Instead, San Diego became a poster child for the state’s tax revolt and the penurious effects of Proposition 13’s fiscal straitjacketing of local government.¹⁷ With the onset of the 2008 recession, even fiscally creative cities like Los Angeles faced yawning budget gaps and growing demands from some residents to scale back pensions.¹⁸ In San Diego, the downturn brought the city to the verge of bankruptcy.

Civic Meltdown

The irony is that, before 2003, San Diego was lauded as one of the nation’s best-governed cities and held up as a model for the new millennium with its low-tax, business-friendly government; its downtown renaissance; and its environmentally sensitive planning.¹⁹ On the eve of the 1996 Republican national convention, San Diego was praised by Economist as “Futureville” for its vibrant high-tech economy; rapidly growing Mexican trade; and lean, efficient municipal government, with the lowest ratio of city employees to population among the nation’s fifty biggest cities.²⁰ The urbanist Joel Kotkin hailed San Diego as an exemplar of a “‘Republican’ form of urban governance . . . that could make [the GOP] a majority party well into the next century”:²¹

[P]rivate-sector activism constitutes a critical component of making smaller and less expensive government work. . . . This political model, first developed by Republican Progressives in the early 20th century, adapts the best private-sector accounting and hiring practices to city government. Such governments tend to see themselves as a utility that serves the public rather than as a vehicle for political patronage and redistribution of wealth.²²

Kotkin also claimed that San Diego “has benefited from what it fortunately does not have: no vast municipal welfare state, no entrenched urban underclass, no powerful municipal employee unions to skew spending priorities, and no industrial union tradition to make its labor force rigid.”²³ Evidently, San Diego’s Republican progressive political tradition had shallow roots. Even as Kotkin was celebrating the city’s center-right consensus, the city was already having trouble managing newly assertive public-employee unions.

Within a few short years of these sunny prognostications, San Diego earned national notoriety as one of the most ineptly managed cities, with a brink-of-bankruptcy pension deficit, multiple bribery and corruption scandals, resignations of key city officials, and charges of gross fire-safety unpreparedness in the wake of major wildfires destroying thousands of homes. San Diego’s metamorphosis from civic archetype to national laughing stock was swift. By 2004, as the city’s pension scandal unfolded, the New York Times proclaimed that “Sunny San Diego Finds Itself Being Viewed as a Kind of Enron-by-the-Sea,” and Governing magazine called the city “Paradise Insolvent.”²⁴ In 2005, with corruption scandals erupting amid civic turmoil, Fortune called San Diego “possibly the most dysfunctional big city in America.”²⁵ The Washington Post reported “a serious vacuum of power” in a “former beacon of good government now dimmed b...