Out of Sight, Out of Mind: Solving the City's Deferred Maintenance Problem

Proposals for putting more funds into maintaining infrastructure
Article
January 1, 2001

Not until the 100-year old sewer collapses on your street, your recreation center is closed for a leaking roof, or your car is jolted by potholes do you think about the city’s valuable, out-of-sight infrastructure. Due to inadequate annual funding of capital improvements and deferred maintenance, our public works have been allowed to deteriorate. This is a problem spanning many decades of neglect. The Chamber of Commerce’s 1983 Strategic Plan stated, “San Francisco is not adequately funding its capital and maintenance needs. The annual shortfall is estimated at $30 to $40 million for capital improvements and $10 to $20 million for maintenance.” In 1983, the infrastructure expenditure gap was manageable. Unfortunately, we did not act to fund annual maintenance of our valuable infrastructure. In the fiscal year 2000-2001 general fund budget, the city has allocated approximately $35 million for “capital improvements,” some of which is essentially for deferred maintenance. This is insufficient to catch up with years of neglect. Former Supervisors Maher and Renne championed the plan’s strategy to implement a system to measure the city’s capital and maintenance funding requirements. Mayor Feinstein’s administration implemented a Capital Asset Management System (CAMS). CAMS calculated an infrastructure funding gap that was substantially higher than the Chamber’s estimate. As a result of CAMS, several bond measures were passed, yet a substantial annual financing gap remained.

In the late 1980s, CAMS was allowed to wither away. Now we do not have an accurate understanding of our infrastructure needs, costs and priorities. Without CAMS, the city’s Capital Improvement Advisory Committee lacks essential information for its review of various departments’ deferred maintenance requests that eventually become part of the Mayor’s budget. Mind-boggling capital improvement and deferred maintenance needs continue to surface, such as the four to eight billion dollars required for the Hetch Hetchy water system. (Will the real number please stand up?) Ironically, since an early 1980s “fiscal emergency,” at least $30 million dollars annually has been siphoned off from Hetch Hetchy into the general fund rather than being used to maintain the system.

How can elected and appointed officials allow this infrastructure crisis to roll forward year after year? It is relatively easy for the city to defer maintenance because the consequences are not apparent for many years. The failure to have publicly available information on the condition and cost of deferred maintenance hides the problem. There is little public clamor and few advocates for increased spending on our capital needs. Public officials respond to higher profile projects and to citizens who demand increased funding for their causes. Our elected and appointed leaders have little interest in the deterioration of our public works because a calamity may not appear on their “watch.” They also earn little praise from the electorate for addressing our infrastructure needs. Nevertheless, failure to address the infrastructure spending gap will result in an ever increasing backlog of deferred maintenance and capital improvements that will eventually drain city coffers (as exemplified by Hetch Hetchy).

BONDS DON’T ADDRESS THE ANNUAL FUNDING NEED

Because we have not addressed infrastructure financing in a systematic manner, we increasingly rely on bonded indebtedness to finance maintenance. Even in times of fiscal surpluses, our elected officials submit new bond measures for voter approval rather than spending today’s dollars on long overdue deferred maintenance. Bonds do have a place in financing new city public works and significant capital improvements. They should not be a substitute for adequate annual appropriations for general capital improvements and deferred maintenance.

Capital improvement bonds are not a cost effective means to finance deferred maintenance. Too often, bond measures allocate 30% to 50% for deferred maintenance projects. In other words, property taxpayers are paying for 20-year roof repairs with 30 years of interest payments. Most of these projects could have been addressed through regular annual appropriations; instead they are neglected. Also, the burden to repay bonds falls only on property taxpayers whereas annual funding would paid by all taxpayers.

SPUR has reluctantly supported bonds even when a substantial portion of the revenue is devoted to deferred maintenance. Perhaps it is time for us to withhold support for bonds until the annual funding of capital improvements and deferred maintenance is addressed.

OPTIONS TO SYSTEMATICALLY FINANCE OUR INFRASTRUCTURE

SPUR encourages the city to develop a systematic approach immediately, similar to CAMS, to maintain an upto- date inventory on the condition of assets, and make an annual estimate of the amount of funds needed to maintain those assets. In a new ruling, the Governmental Accounting Standards Board requires San Francisco to prepare this information by June 30, 2002. With this information, sound decisions can be made on annual financing of priority projects as well as identify the hidden cost of avoiding maintenance. A SPUR committee has developed, and the SPUR Board has adopted, a modest ordinance proposal that will shift year-end monies to deferred maintenance. Some of the key elements include:

• The establishment of “Deferred Maintenance Funding Accounts” that are funded by a specific percentage of general fund, special revenue and enterprise year-end budget surpluses.

• Upon the sale of revenue and general obligation bonds, the Controller and Director of Public Works would prepare a schedule and fix an amount sufficient to fund repairs and maintenance of projects over their expected life.

• The 2000-2001 budget becomes the baseline for deferred maintenance expenditures that would be adjusted annually, so that the ratio of maintenance to the overall budget is maintained in subsequent budgets.

During the charter reform process, SPUR considered language earmarking a specified percentage of the annual budget to be spent on capital improvements and deferred maintenance. This would be similar to the voter mandated budget set-asides for children’s programs and open space acquisition. On sound public policy grounds, SPUR decided not to pursue earmarking because it limits the Board of Supervisors’ and Mayor’s budgetary flexibility. However, the Board and Mayor continue to allocate insufficient monies toward maintaining our infrastructure. Perhaps it is time for SPUR to revisit a charter amendment requiring general fund and enterprise budgets to spend a certain percentage of their annual budgets on capital improvements and deferred maintenance needs. For example, if three percent of the general fund for fiscal year 2000-2001 were so earmarked, approximately $125 million would be spent on infrastructure. Delay and avoidance of this burgeoning problem will only cost the city more in future years, as well as undermine our economy and inconvenience residents and visitors. Early this year, SPUR will begin meeting with supervisors and other interested organizations to sponsor legislation.Spur logo

About the Authors: 

Dick Morton is a SPUR committee member and a former vice president at the San Francisco Chamber of Commerce .