The City Council's Budget Committee plans to hold a special meeting Monday to consider increasing the city's fiscal reserve level.
The idea stems from a proposal by Mayor Kevin Faulconer to set aside $21 million of surplus money in a special reserve account that would be tapped if the city's required pension contributions spikes in a future year. City officials expect the 2016 pension bill will be $6 million higher that originally projected.
The mayor wanted to set up the pension stabilization reserve in the budget for the current fiscal year, but the City Council tabled it for more study. Some council members, including Budget Committee Chairman Todd Gloria, objected to setting aside a significant amount of money for a solitary use.
"The mayor's proposal gives the impression that the city's pension crisis has returned, and has potential to harm San Diego's reputation and undermine the progress we've made in reforming our pension system," Gloria and Councilman David Alvarez wrote in a memo to council President Sherri Lightner and committee members this week.
They said they favor a proposal issued Tuesday by the city's Independent Budget Analyst's Office to raise the general fund reserve from 14 percent to 16 percent.
The change would include language stating that increases in the city's pension bill would be an eligible use for the reserve fund, in order to avoid service reductions in other areas of the budget. The general fund pays for basic services like public safety and libraries.
The council's reserve policy would be amended to have the mayor come up with a plan to replenish the reserve funds within one year, according to the IBA proposal.
"We believe this is a more prudent proposal that balances the many needs of the city while continuing to pay all of our pension costs," Gloria and Alvarez wrote.
They noted that the plan would also leave an estimated $7.9 million available for appropriation.
The mayor's office maintains that it has the better plan.
"We don't support the notion of balancing the budget with a rainy-day fund meant to protect neighborhood services in times of crisis," said mayoral spokesman Matt Awbrey. "This proposal falls short, and we urge the City Council to create a pension reserve to protect our neighborhoods when pension costs increase, which is expected to happen next year."
Underlying the debate are the ever-watchful eyes of the credit rating agencies. San Diego's finances need to be in the best shape possible because several infrastructure proposals would send the city into the bond market for financing.
Rating agencies look at how city's use their reserve funds, which aren't supposed to cover expenses city officials see coming ahead of time, Awbrey said.
Any action the Budget Committee takes Monday would have to be ratified by the full City Council at a future meeting.
