January 31, 2005 - From the Dec-Jan, 2005 issue

Former San Diego City Manager Jack McGrory Deconstructs City's Governance Crisis

Jack McGrory has been at the heart of San Diego's urban revolution for years, serving as City Manager from 1991-1997, as Chief Operating Officer of the Padres baseball team as the new Petco Park began construction, and now leading Price Charities' major commitment to the City Heights neighborhood while working as Chairman and CEO of the Price Legacy Corp. In this interview with MIR, he brings institutional memory and uncommon perspective to San Diego City's recent election and regional priorities.


Jack McGrory

Jack, The Metro Investment Report and its sister newsletter The Planning Report have been covering the incredible civic and political turmoil in the City of San Diego this past year. The city has discovered that its pension system has a $1.17 billion shortfall. The result of the recent mayoral election is still in the courts over questions of voter intent and city-state legal primacy. The City Manager has resigned and the new City Attorney seems intent on shaking things up. Put in context what's going on and what is at stake for San Diego?

Well, I think what has happened is that we have had four years of basically leaderless city government. It has really begun to show, not only in terms of the pension problems. A real malaise has set in over the city's finances. Nobody is stepping up to the plate to respond to our problems, so the rating agencies have suspended and downgraded the city's credit ratings.

It all points to a November 2002 decision made by Mayor Murphy and the council. When the bubble burst on the tech boom, the city lost a good chunk of its asset base. The mayor's and council's response was to give a 25 percent across-the-board increase in retirement benefits. Either their calculators were broken, or they just don't understand that you can't increase spending when your asset base is significantly deteriorating. That really bad decision in November 2002 caused the problem for the city. The rating agencies are questioning the city's financial integrity, and it cannot get its 2003 audit completed because of financial discrepancies. So, a credibility problem has developed for the City of San Diego. As result, we had the kind of incredible write-in candidacy of Donna Frye, who wasn't even on the ballot.

In the November 2004 election, voters also approved a "strong-mayor" proposition that overturned San Diego's council-manager system. Please give our readers your take on that effort, now that it has passed. How likely is it to be implemented?

I think that it was unfortunate that it passed. It was a stealth effort under most people's radar screens; the mayor decided to work with the business community behind closed doors to put this in front of the voters. There was only one city council meeting to hear the proposal, and so it got very little debate given the presidential election and the mayoral race. And it passed by a pretty thin majority – about 51 percent to 49 percent. The city manager has announced his resignation effective in June, which just further puts the city into political chaos right now. It will be a tough transition. The strong-mayor form of government becomes effective on January 1, 2006. But 2005 is going to be a difficult year for the city as it tries to restructure its finances and restore its credibility with the rating agencies. It will be tough to steer the city, even as we see an exodus of top-level management people out of the city to go to work in real management jobs before January 1.

Elaborate on the challenge for local government in California in the 21st Century.

The challenge is to try to restore the balance of power between cities, counties, and the State of California. When the California Constitution was adopted, it provided for very strong, independent "home rule" for school districts, cities, and counties. But over time – and the most important event was the passage of Prop. 13 – they basically became fiscal wards of the state, because the property tax revenues were taken out of their hands. Prop. 218, which requires two-thirds voter approval for any new taxes or bonds, has really caused significant problems for infrastructure investment. It is incredibly difficult to get over the 66.7 percent hurdle. In most states across the country, the one-person-one-vote tradition rules, but not in California, where we have the continuing imposition of supermajority votes.

We need to reevaluate how revenues are distributed in the state so that cities, counties, and school districts are more fiscally independent. Every time the State of California gets a minor cold, it takes it out in spades on the cities and counties by transferring revenues upward. Prop. 1A was passed in November to try to restore the balance. But, I think that there needs to be a Constitutional Convention to reevaluate how cities and counties operate in California. The governor has a perfect opportunity to do this because of his popularity.

What should be discussed – and it was a dream of Chuck Nathanson here in San Diego – is to look at creating strong regional governments. The city boundaries within San Diego County are very arbitrary. There are 17 cities and a very fragmented power base in terms of making regional decisions. SANDAG's political leadership and influence are very weak. It is time to begin to think about strong regional governments in California, with some city-county consolidation. Obviously, land-use authority will have to be balanced so that some degree of local decision-making remains. But when it comes to regional infrastructure issues, those decisions should be made on a regional level by a strong regional government.

What constructive roles should elected and other civic leaders play to rebalance city, county, and state relationships?

Ideally, some civic structure, like the organization San Diego Dialogue, would be used as a big tent to bring in all the various diverse groups of the region and begin to develop a regional consensus as to what direction San Diego should move. Then, we should use that consensus to develop an agenda of real action that will be undertaken and pushed forward by the various governments in this region. This would include a new airport; it would include making the Port of San Diego stronger for commerce, economic development, and regional infrastructure issues.

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There are a lot of issues that we are trying to tackle, but we haven't developed a structure in which groups can get together, decide on an agenda and a vision, and begin to push that along with our elected officials. Because we haven't got a strong coalition, all of the elected officials can basically ignore the various small groups that come in front of it and make decisions on their own, frankly without the benefit of a good, strong, healthy regional debate.

What are the consequences for the average voter if we don't come to grips with the regionalization of your economy and the artificiality of your local political boundaries?

For one, we have a very weak relationship with Mexico and the City of Tijuana. No matter how you look at this region, it needs to include Tijuana and the metro area around it. We are one large, integrated geographic region, and both sides rely on each other, but we don't have a good vehicle to cement that relationship and move it forward. I think that we also have a very bad decision-making process with respect to regional infrastructure. One of the reasons that transportation and freeways have deteriorated so badly is that we have let individual cities determine their own circulation routes, irrespective of what is needed for the region. And so, many of the cities and the county have deleted major arterial roads that could bear some of the traffic that now is forced onto Interstate 5 or I-15, which has created a major traffic problem. Those decisions were made without a regional infrastructure in mind, strictly to appease local residents who didn't want a lot of traffic on their streets. But, the entire region suffers as a result of those micro-decisions, which have a cumulative impact.

How can we have holistic policy conversations that link housing, transportation, education, water, infrastructure, and economic development, when most people have narrow objectives and are comfortable in their policy silos?

Realistically, the only way it will happen is for the state to force it. I just have a hard time believing that the county, the City of San Diego, the special districts, and the 17 other cities that make up the region are going to do it voluntarily. It has to be imposed by the state in a way that makes sense to this region. This was tried once before by Steve Peace when he was in the Legislature, but it was broken down through a series of compromises. I think that it would be worth another effort to try to force a regional governance model that can integrate all the special districts that have been created to handle infrastructure, like the County Water Authority, the Metropolitan Transit Development Board, the Airport Authority, and SANDAG. The silos must be broken down, and I think they will be only if we can ask or encourage the Legislature and the governor to provide some incentives for the region to move toward a strong regional government.

With so much political tumult, what ought to be the priorities of San Diego's leadership?

First of all, we need to get the city's finances back in shape. We need to address the problems of the pension system – they aren't rocket science. They include the issuance of pension obligation bonds and continuing negotiation with employees to either freeze salaries over a multi-year period or to look getting some control over the pension costs and benefits that were unfortunately given by this council two years ago. I would also want to make sure that the mayor works very closely with the rating agencies and the markets to restore their confidence in the city. That would be my first goal.

My second goal would be to concentrate on the future of the city's infrastructure, which has been very badly neglected. I would go to the voters with a revenue package to improve that infrastructure, including transportation, parks, recreation, libraries, fire stations, police stations, and also affordable housing. Affordable housing must be a major part of this.

Another priority would be to continue the development of the city's economy, making sure that we maintain strong anchors and encourage existing businesses to grow here. Finally, I would focus on the environment, making sure that we keep our ocean and beaches as clean as possible. That involves a major infrastructure commitment to eliminating polluted stormwater discharge – we have to begin planning for that process.

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