Bracing for the Worst of Times

By Erica Williams
Staff Writer

May 19 -- If a book can be judged by its cover, Santa Monica’s three-volume proposed budget for the upcoming fiscal year, which was released Monday, has a bleak tale to tell.

Instead of the sunny slick productions of recent years with vivid colors leaping off the page, “Moving Forward, Scaling Back” is a no-frills black and white document laying out the City’s $353.7 million budget for FY 2003-04, a $40.5 million decrease from the current budget.

The revised budget -- which comes less than one week after Gov. Gray Davis released his latest proposed State budget to tackle a historic shortfall -- attempts to bridge a $16.1 million gap in the City’s General Fund for the upcoming fiscal year, which begins July 1.

And the City is bracing for even larger shortfalls expected to top $20 million in 2004-05 and $28 million for the following two years. Bridging the shortfall, McCarthy cautions, would require voter-approved increases in one or more taxes.

“Council, community and staff,” City Manager Susan McCarthy wrote in a letter to the Mayor and City Council, “must come to timely and effective terms with the fiscal situation or face the inevitable mushrooming consequences of denial and postponement that are all too apparent from the recent experience of the State of California.”

The City’s fiscal shortfall, McCarthy wrote, is largely due to “extraordinary increases in pension, health insurance and workers compensation costs.” The City’s share for the pension fund alone will increase by nearly $7.3 million, due to a lower yield in the State’s investment portfolio. The City’s share is expected to increase another $5 million in 2004-05.

Contributing to the funding gap is “the addition of staff in response to Council and community program and service priorities, including maintenance and operations for significant capital projects as they are completed,” McCarthy wrote.

The City also could lose $4.1 million in the upcoming fiscal year and $4.2 million the following year in funding it receives from the State, which is grappling with an unprecedented $35 billion shortfall.

Of the $4.1 million, $3.8 million in funding will be lost if the State appropriates the City’s share of motor vehicle in lieu tax revenues that go to the jurisdiction where a vehicle is registered, said City Finance Director Mike Dennis. The State reduced the tax during the economic boom, but municipalities continued to reap their portion from the State general fund.

“What’s going to be in the (State) budget and what’s not going to be in the budget is very fluid,” said Dennis, who added that the City’s current budget crisis “is the worst I’ve ever seen it” in 20 years working for the City.

“The early nineties was a piece of cake,” Dennis said, referring to the fiscal crisis the City faced during the last recession. “Here, the largest uncertainty is created by the sheer magnitude of the State’s deficit and the inability of the State to come to resolution to close that deficit.”

The proposed budget, which still must be approved by the council next month, sticks to several proposals made by City staff during recent months to bridge the shortfall. The measures include a hiring freeze that began in February.

The freeze, McCarthy said, should result in “relatively few layoffs for FY 2003/04.” So far, four currently filled positions are targeted for elimination, but that number could decrease due to attrition. Additional positions could be targeted in FY 2004/05.

Other measures include a 5 percent across-the-board cut in funding over the next two years for all departments, excluding public safety.

The proposed budget for the upcoming fiscal year would slash more than $1 million from Community and Cultural Services, $584,079 from Planning and Community Development, $550,119 from Public Works, $516,762 from the Library; $257,109 from the City Attorneys Office, $230,260 from the City Manager’s office and $199,995 from the Finance Department.

In all, McCarthy said, $7 million in proposed cuts to the General Fund budget next fiscal year have been identified, and the equivalent of 31.4 full time positions will be slashed. For FY 2004/05, $3.6 million and an estimated 19 positions will be eliminated.

Escaping the axe under the proposed budget is the Santa Monica-Malibu Unified School District, which has lobbied the council intensely since January to double its funding. The budget proposes that the City retain -- but not increase -- funding at its current level of $3 million.

To increase revenues, the City Council decided in February to consider a number of fee and fine increases. Among the measures, the council voted to hike parking meter rates citywide as digital meters are installed.

The rate hikes and additional meters are expected to boost the revenues generated by the City's 6,000 current meters from $4 million to $7 million a year, although this will be offset next year by one-time equipment costs of approximately $2.5 million, according to City officials.

The council also approved in concept raising the amount of fines for parking meter, street cleaning and preferential parking violations, as well as fines for disobeying posted regulations and parking in a red zone. The fines and penalties would be increased to the higher levels observed in surrounding cities.

Last week, the council raised business license application fees and created landing and parking fees at the City’s airport (which may keep the Airport Fund from requiring General Fund subsidy).

Revenue projections for FY 2003-04 also include an increase in fees for development permit inspections, fire safety inspections and filming at parks and beaches, as well as for recreation fees.

The proposed budget also includes an accommodation for a “very limited use of one-time funds ($400,000 in FY 2003-04 and $300,000 in FY 2004-05) to achieve balance,” according to McCarthy.

That’s because the size of reductions in state revenue to the City won’t likely be known before the budget is adopted because “the State has a dismal record of reaching budget accord even in better economic and fiscal times.”

Some likely impacts of reductions in the budget over the next two fiscal years include shortened service hours for certain offices; fewer recreational opportunities; longer cycles for tree-trimming, street maintenance and landscape replacement and fewer printed notices and mailings with a greater reliance on electronic communications.

Non-profit organizations already have been hit with a 5 percent cut in funding for the arts and human services programs they provide.

To balance the 2004-05 budget the City is counting on raising taxes, a move that could hit the pocket books of businesses, customers and visitors. The taxes being considered are the Transient Occupancy (or bed tax), the business license tax and the City sales tax.

However, tax increases require the approval of voters in a general election, which means proposed measures could not go on the ballot before November 2004.

McCarthy warned that for a city that had experienced a decade-long economic boom, the belt-tightening measures may be hard to accept but should not be postponed.

“Perhaps the greatest impact of the new economic and fiscal situation following a resource-and service-rich decade, will be mustering the discipline necessary to continuously and closely prioritize expenditures and services, to scrupulously evaluate the costs and benefits of current programs and to resist calls to throw money at problems.”

To View the Budget: FY 2003-2004 PROPOSED BUDGET AND 2004-05 BUDGET PLAN