Port Funds a Ray of Hope for Needy City : Economy: But many obstacles have to be overcome before San Diego can get a share of the Port District’s surplus, to help make up for state budget cutbacks.

Excess Port District funds could substantially soften San Diego’s budget crisis, but uncertainty over the size of the surplus and the timing of its release could make it difficult for the city to avoid layoffs in closing a $22-million deficit, top city officials said Tuesday.

A daylong series of budget hearings at City Hall and the San Diego Unified Port District offices ended inconclusively, with city officials examining a wide range of budget-cutting plans even as they wondered whether a multimillion-dollar infusion of port funds would lighten their unpleasant task.

“We got some sympathetic sounds from the port commission, but we’re at the point where we need dollars,” San Diego City Manager Jack McGrory said. “If we don’t get a commitment very soon, we’re in very serious trouble.”

Having trimmed $16 million from the city’s $491-million operating budget only last month, the city now faces a new round of even deeper cuts as a result of a loss of $15.6 million in state funding and a $6-million drop in revenue due to a recession-spawned decline in sales taxes, permit fees and other funds.

Included in the state funding reduction is a $3.6-million shift in redevelopment dollars to schools, money that the city plans to remove directly from local redevelopment agencies’ budgets. Under a series of council votes Tuesday, McGrory is to return later this month with recommendations for offsetting the remaining $18-million gap.

The extent of possible service cuts and potential layoffs of city employees needed to eliminate that deficit hinges largely on whether, how and when the surplus of Port District funds is distributed to San Diego and the four other Port District member cities--a decision that, in San Diego’s case, is worth nearly $12 million.

“This can either be a budget crisis or a catastrophe, depending on what happens with the port money,” San Diego Mayor Maureen O’Connor said.

As part of its budget package, the state Legislature last week passed a law allowing port cities to receive a share of surplus port district funds to compensate for the loss of property-tax revenue being retained by Sacramento.

Under the legislation, the local port cities--San Diego, Chula Vista, National City, Coronado and Imperial Beach--could receive $4 million or 25% of the port’s reserve funds, whichever is greater.

According to McGrory, a 1991 port audit placed its surplus at about $140 million, meaning that up to $35 million would be available under the 25% transfer formula. However, the law also specifies that cities can receive no more than they lost in state property-tax revenue, capping San Diego’s potential receipt at $11.95 million.

But a number of legal, political and practical hurdles remain between the city and that money, beginning with basic questions over the size of the surplus.

While the port does have a $139.5-million cash reserve, most of that money is targeted for planned capital projects, long-term debt payments and other purposes, port spokesman Dan Wilkens said.

“No accountant with more than rudimentary training is going to say we have a $139-million surplus,” Wilkens said.

By the port’s own accounting definitions, its reserve not allocated is only about $25 million--a figure which, if accepted, would dramatically lower San Diego’s potential transfer.

To clarify the issue, the Board of Port Commissioners voted unanimously Tuesday to instruct the port district’s staff to return by Oct. 6 with a report on the surplus amount that should be used for purposes of calculating the potential transfers to cities.

Another overriding question concerns the constitutionality of the state legislation. Because Port District funds are intended to be used exclusively for the preservation and enhancement of the state’s tidelands, the transfer of port revenue to cities could breach that requirement, according to an opinion from the state Assembly’s own legislative counsel.

Assemblyman Steve Peace (D-Chula Vista) noted during Tuesday’s Port Commission meeting that local legislators sought to address that concern by specifying that each of the five port cities and the Port District itself would have to approve any redistribution of surplus revenue. By giving the port a voice in the process, Peace argued, questions about the legality of the funds’ transfer perhaps could be neutralized.

But even if that provision withstands a legal challenge, it opens up other potential political difficulties, since a single city or the Port Commission presumably could block the distribution of the surplus funds.

The Chula Vista City Council unanimously opposed the original legislation authorizing the fund transfer, and, though the bill was later amended, some opposition remains in South Bay cities. With many of the port’s major future projects being located in the South Bay, the potential revenue transfer is skeptically viewed by some officials there as “taking money from the left pocket and putting it in the right,” Peace said.

“They don’t seem to stand to gain as much as the city of San Diego,” Peace added.

Should those problems be overcome, another factor--timing--could complicate the city’s budget woes. The city already is more than two months into its fiscal 1993 budget year, and any delays in either receiving revenue or in making spending cuts will simply make it necessary to make more Draconian cutbacks later, McGrory said.

“The longer we wait, the worse it will get,” McGrory said. As a result, while the port has until next March to distribute the surplus dollars to cities, San Diego has asked that the process be expedited, hoping to secure a commitment by the Oct. 6 meeting.

In the meantime, McGrory, at the council’s direction, will begin to prepare a list of $18 million in possible budget cuts that could include possible layoffs of city employees.

Although the city has managed to avoid layoffs by reducing its work force through attrition, McGrory stressed that the additional $18-million worth of cuts “makes it increasingly difficult” to prevent jobs from being lost. Without the estimated $12-million transfer from the port, up to 150 city workers could lose their jobs, according to O’Connor.

The other budget-cutting ideas that the council directed McGrory to examine Tuesday include possible reductions in city workers’ recent pay raises, curtailing out-of-town travel and memberships in governmental groups, elimination of the council’s committee system, reductions in office renovation expenses and furniture purchases, and possible establishment of an early-retirement program for city employees.

No item was too small to escape review, as the council even approved a recommendation by Councilman Ron Roberts urging a shift from engraved to non-engraved stationery and business cards for city officials. That change, Roberts said, could save about $135 for every 1,000 business cards.

“I think we’ve already done that,” McGrory said. “But we’ll check on it.”