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“The Wolf is Here,” Santa Monica City Manager Warns as Budget Woes Mount

 
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By Niki Cervantes
Staff Writer

May 25, 2017 -- With shortages in revenue set to double, Santa Monica City Manager Rick Cole on Tuesday warned “the wolf is here” as the City Council took its first dive into a record $1.57 billion biennial budget for the 2017-2019 fiscal year.

Total spending for the first of the budget’s two years is $773.7 million, or 26 percent higher than this year’s budget.

But it also includes a nearly $148 million gap in revenue. Cole proposes filling the hole with a $77 million bond this summer to pay for constructing a new City Services Building -- the single biggest piece of the leap in total spending.

The bond would be issued this summer, instead of in the following fiscal year, as originally planned, Cole told the council at its Tuesday meeting.

Money from reserves and the fund balance is used to fill the rest of the gap.

But by 2018-2019, red ink starts to appear as spending sprints past the City’s bounty from sales taxes -- its largest revenue stream -- and hotel, property, utility taxes, investments and other income.

An increase in the amount California governments must contribute for employee pensions kicks in about then, eventually driving $13 million of the $18 million deficit projected for 2021-2022.

“We’re not crying wolf,” Cole told the council. “The wolf is here.”

Blessed by a diverse economy, sky-high property values and huge tourism dollars, Santa Monica has weathered past fiscal storms -- like the Great Recession -- far better than other, less well-off California cities.

But past budgets reflect spending in the City outpacing revenue beginning in the 2015-2016 fiscal year.

The gap was slight at first, but jumped to 10 percent this year, and is poised to climb to 24 percent and then 26 percent in the next two fiscal years, the budgets show.

The gaps are closed in a variety of ways; balanced budgets are legally required.

Cole said the proposed 2017-2019 biennial budget marks a transition in how the City looks at spending and determines priorities

Proud of its history of progressiveness in social issues, Santa Monica nonetheless needs to begin a re-examination of the spending attached to such problems, Cole said.

“What we were always doing feels good when we’re doing it,” he said. “But we’re going to need to make some difficult choices.”

The council is scheduled to vote on the proposed budget June 27. The current budget ends June 30.

On Tuesday, the council was mostly quiet about ballooning costs and spending.

And the few members of the public who spoke on the issue at the meeting wanted more -- not less -- spending.

One representative of the tourism sector asked for another $750,000, much of it to tap “emerging” tourism markets.

Another speaker urged an increase in policing, and a third asked that spending on social issues not be short changed.

Of the additional $159.6 million in spending proposed for next year (a 26 percent increase), almost $77 million is for a bond to finance the City Services Building, which will be constructed behind City Hall for municipal employees currently working in off-site offices.

Another $33 million is earmarked for a new fire house downtown, funded from savings.

Pensions will cost the City $54.9 million next fiscal year.

But the largest hikes start the following year, when pension costs rise to $61.5 million, and are projected to jump more rapidly in the following years. Pensions are expected to account for $13 million of the $19 million deficit now projected for 2021-2022.

Many of Santa Monica’s fiscal headaches are shared by local governments throughout the state. That is particularly the case with pensions in California, home to many of the nation’s most generous public pension plans.

Such is also the case for the consistent increases in health care insurance and workers’ compensation.

Salaries and wages alone total more than $704 million in the 2017-2019 budget, up about 10 percent from the previous biennial budget, according to the proposed spending plan.

 


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