Staff Recommends Ways to Bridge $9.1 Million Gap

By Erica Williams

Jan. 16 -- Before Gov. Gray Davis announced his plan to bridge a State budget gap of staggering proportions, City officials were crafting ways to make up a projected $9.1 million deficit in the 2003-04 fiscal budget.

The plan, unveiled at Tuesday's City Council meeting, recommends $4.5 million in expenditure cuts -- including a hiring and salary freeze -- and $4.6 million in revenue increases, which include an increase in fines and fees.

Following is a summary of the proposals recommended by staff to cut costs:

• A hiring freeze to bring down personnel costs, which comprise more than 70 percent of the General Fund. The freeze is expected to generate about $3 million in savings per year.
  
  
• Across-the-board cuts that could range from 2 percent (an annual savings of about $3 million) to 5 percent cut (a $7.4 million savings). Such cuts are expected to have a bigger impact on some departments than others and would result in employee layoffs and a subsequent reduction in services.
  
  
• A freeze on cost-of-living increases for one year would result in $3 million in savings annually if the adjustment is not restored in subsequent years. But such a freeze would have to be negotiated with employees' unions.
  
  
• A number of options that would limit employee health benefits, reducing costs for the City. But the cost savings are difficult to predict, since the benefit changes are subject to collective bargaining. Among the measures being considered are a freeze in the types and levels of benefits, an increase in deductibles and reducing coverage to only the employees.
  
  
• A decision not to move ahead with some or all of the new capital projects estimated to cost $3 million annually. The City also can decide not to undertake new capital projects.

Staff's key recommendations for generating revenues include:

• Increasing fees for specific services that benefit individual users that have not been adjusted for the past several years. Of particular interest for targeted increases are fees that benefit the Airport, Pier, Cemetery, Civic Auditorium and Beach funds.
  
  
• Hiking fines for parking violations that could yield between $1.2 million and $3.1 million in increased revenues.
  
  
• Increasing parking meter rates to $1 in high demand areas and 75-cents in other areas could raise an additional $3 million annually. Any revenue increases, however, would be offset by the one-time costs of installing new meters. The council approved the recommendation in concept last month.
  
  
• Increasing the hotel bed tax from 12 to 14 percent, which would generate about $3 million annually. However, under Proposition 218, this type of tax must be approved by the voters in a general election. As a result, the benefits of an increase would not be realized until 2005, pending voter approval in the November 2004 general election.
  
  
• Hiking the Business License Tax. Like the TOT, this tax can only be approved by voters in a general election. Its potential for generating additional revenues have not yet been estimated, but staff reports that the last restructuring of this tax generated an additional $2 million in increased revenue annually.

In its report to the Council, staff warned that "simple" solutions that would likely be floated in the coming months must be subjected to careful analysis.

"None alone would likely correct the ongoing expenditure/revenue gap and each would likely have consequences that many not be acceptable," the report stated.