Structural deficit. The words can send a chill down your back, even if you’re not entirely sure as to the meaning of it.

Budget gap, financial crisis, red ink… it all means less money coming in than going out and they are words used often by San Diego policy experts these days.

In order to make clear what these words really mean, how they affect us, and provide some insight on how to disassociate the words from San Diego, The Center on Policy Initiatives released “The Bottom Line” in 2005, and updated the key charts in the report this month. The report is still relevant, as the purported main cause of the City’s structural deficit has yet to be addressed by San Diego leaders.

A structural deficit is a chronic, long term budgetary problem that is built into a financial system. Even at economic heights there are problems balancing the budget. Solving this problem requires direct government policies that reduce spending or raise taxes, and often both, in the long term.

“The Bottom Line” report states that the source of San Diego’s structural deficit is simply an underfunding of city services relative to other large cities in California. In most every comparison of general fund revenue, San Diego lags behind.

Erik Bruvold, of the National University System Institute for Policy Research, claims that the report misses the core of the problem, though. He aims his structural deficit sights on the notorious Proposition 13 property tax cap and disadvantages created for San Diego because of it.

Murtaza Baxamusa knows “The Bottom Line” well — he helped create it — and Bruvold has studied these issues for years. Get the scoop straight from the mouths of the policy wonks here.

Murtaza Baxamusa, Ph.D., AICP, director of research and policy for the Center on Policy Initiatives:

In 2005, during our city’s economic peak but financial bottom, CPI published a somber report on the city’s revenues. This report titled “The Bottom Line,” showed that the City of San Diego raised the least amount of general revenue per household among the 10 largest cities in California. The bottom line is that there is a structural gap between the level of services, and our city’s ability to pay for them; This finding was later supported by several independent reports, including the San Diego Union-Tribune November 2005 watchdog report entitled “America’s Cheapest City” and the independent auditor Kroll report. Even the business community now agrees with this.

The awareness of the revenue deficit is painfully felt every budget cycle. Last year, as part of the budget, Mayor Jerry Sanders and the City Council created a Citizen’s Revenue and Economic Competitiveness Commission, whose goal is to research strategies to maximize revenues which fund the city’s core function of services like public safety, parks and libraries. This month, at the request of the Commission, CPI updated the key charts on general revenue sources for the city.

Now it is not surprising that San Diego is a low-tax city. What is surprising is the extent to which the city is under-funded, relative to other large cities in California. These charts show that the City of San Diego continued to lag behind other large cities in California in most general fund revenue sources, including property tax, sales tax, transient occupancy tax, utility users’ tax, trash fee/tax and business license fee/tax. The city was taking in more revenue in 2006-07 than it was in 2002-03, but much less than other cities, even though the regional economy was doing well prior to the onset of the recession.

Even before the recession hit, San Diego had a structural deficit in its general revenues. The current recession has worsened the impact with a historic fall in property tax revenue and steep declines in sales tax revenue. Looking forward, as we ascend the path to recovery, the perpetually recurring revenue problem needs to be addressed.

Erik Bruvold, founding president of the National University System Institute for Policy Research:

CPI deserves credit for its “The Bottom Line” report first issued in 2005. But there are two critical factors that suggest that buyers should beware before they accept it as a blueprint for overcoming the City of San Diego’s fiscal malaise.

First and foremost, CPI’s analysis skips past a critical fact: California property tax revenues are not equally distributed among local jurisdictions.

In a panic after the 1978 property tax revolt, state lawmakers sought to equalize the pain (of drastically reduced property tax revenues) across various local jurisdictions and agencies. Mad scrambles took place in Sacramento and, in a tale oft told, San Diego came out decidedly on the short end of the stick. Thus, while cities in San Diego County receive 12 cents from every dollar of property tax collected, cities in Los Angeles get 15. Those in Alameda County get 19 cents. San Francisco, as a combined County and City government, makes out with a whopping 61 cents of every dollar in property tax collected.

This is critical to understand because Californians each bear the same burden when it comes to the rules regarding the rate at which property taxes are applied, and the way in which property is assessed. It could be that San Diego isn’t cheap – it’s just that the post-Proposition 13 rules work to our extreme disadvantage.

That can be most readily seen when one uses the CPI methods, but they exclude property tax revenues from the comparisons. As CPI has loudly (and I would suggest not that soberly) proclaimed, their analysis shows the City of San Diego as having the lowest ratio of per capita revenues to average household income. However, if one excludes property tax revenues so as to account for the variations in property tax distribution, San Diego markedly improves (jumping from 10th to 6th in ranking).

Moreover, since most of the sources of local revenue in California are not closely tied to income level (for example, storm water or trash fees are generally imposed on a per capita basis, with no connection to the taxpayer’s income) it may not be that San Diegans are cheap, but rather that — given California’s higher-income communities like Los Angeles, Oakland, and Long Beach — CPI is mostly measuring the size of the denominator. And, to complicate things even more, since state and federal tax obligations are heavily influenced by income levels, any “cheapness” gap that there is may go away when overall tax obligation is considered.

Secondly, one should not confuse revenue with tax burden. Under California and local laws, there are tremendous revenue shifts and cross payments between different levels of government. Accounting rules and policies vary widely.

For example, in San Diego each of us pays a half cent in sales tax for transportation and one-third of this goes to the City of San Diego for the maintenance of local streets. Los Angeles residents pay one cent, very little of which flows to the City of Los Angeles to pay for streets and road. The City of San Diego abandoned its right of way fee (which would transfer money from enterprise funds to the general fund), while many other jurisdiction did not (and thus show significant revenue flows into general fund in the “transfer” category).

There are also other distortions caused by the fact that sales tax is distributed not by who makes the purchases but where, creating additional distortions in comparing “per capita revenue” when one considers cities like Anaheim, that derive a huge percentage of revenue from those visiting and purchasing goods in their city.

These criticisms suggest the limitations in the study. While it may be instructive to compare certain tax rates between California cities, revenue is another kettle of fish. The complicity of the tangled web woven in California suggests that, upon further review, the world may be a lot murkier than the narrative that stingy San Diegans have been free-riding for decades. Instead, it may be they are as equally taxed as their counterparts in other cities, just poorly set up by the rules foisted on them by Sacramento.