Council
Squirrels Away Money During Tough Economic Times |
By Jorge Casuso
February 25 -- Worried that the nation’s economic
woes could hit Santa Monica, the City Council last week voted to
hold on to $5.8 million in available resources, rather than appropriate
the funds for one-time projects.
The money was left over after the council appropriated some $20 million for
employee benefits, police and alternative fuel vehicles and a contribution to
the Education Foundation at its meeting last Tuesday.
After considering using the funds to purchase new park land or
finish parks on land recently purchased by the City, the council
voted not to use the money, which is not included in the City's
reserve that represents 10 percent of the general fund revenues.
“It would be extremely smart to take a very cautious view,” said
Council member Bobby Shriver. “I’m not an alarmist… but there’s
a chance now that something could go significantly wrong.”
“I don’t want to earmark it,” said Mayor Herb Katz. “I
want to keep it as general as we can.”
“There’s a lot to be said for not making recommendations tonight,”
said Council member Ken Genser. “Let’s just put the money aside
and put it in the bank where it accrues interest and make decisions later.”
But Council member Kevin McKeown argued for using the funds to move forward
capital improvements on land the City has purchased for parks.
“I want to be cautious about how cautious we are,” McKeown said
before voting with the other five council members present to reserve the funds.
“We’re a city of remarkable resources.
“I don’t feel comfortable with the idea of not making concrete
use of the money,” he said.
The decision came after the council heard from citizens lobbying to include
in its upcoming budget priorities boosting funding for the arts, providing safer
bike lanes and bankrolling childhood development programs.
Conspicuously missing from the community’s list of budget priorities,
several council members noted, was more funding to address the City’s
homeless problem, which has consistently topped the list of resident and business
concerns.
“The homeless is such a huge problem,” said Council member Bob
Holbrook, “I think we have to keep an eye on that ball.”
The discussion was preceded by a Five Year Financial Forecast that projected
three revenue scenarios in the midst of an economy that “has been giving
mixed signals for the past few months which have not been encouraging and even
characterized as ‘unstable’ worldwide,” staff cautioned.
“The economy continues to be uncertain, although we’re seeing a
stronger indication and more predictions that we will in fact hit recessionary
conditions this year,” said Carol Swindell, the City’s director
of finance.
The best case scenario “assumes very little economic downturn impact
and increases Sales, Property and Business License taxes,” according to
staff.
On the other hand, the worst case scenario “projects a recession and
its impacts on Property, Sales, Business License, Transient Occupancy and Parking
Facility taxes along with a loss of Utility User Tax revenue due to telecommunication
changes,” according to staff.
Under the “baseline scenario,” which is the most likely, “the
City can balance its budget in FY2008-09, but for the next four years the budget
deficit grows from $3.6 million to $16.4 million,” staff cautioned.
As the nation seems headed towards a possible recession, Santa Monica’s
economy will not be immune, staff warned.
“Historically, Santa Monica has tended to not be as negatively affected
as some areas in tough economic times due to a relatively strong, diversified
economy,” staff wrote. “However, the national and state economies
are having an impact on Santa Monica.”
Fewer building permits are being issued and sales tax revenue has been flattening
in recent quarters, reflecting a decline in new vehicle sales and leases, which
make up almost 22 percent of Santa Monica’s sales tax receipts, staff
noted.
“New auto sales for the quarter ended September 30, 2007 were down 12.7
percent from the same quarter a year ago, following national auto sales trends,”
staff wrote.
In addition, the closure of Santa Monica Place for remodeling could cost the
City $1 million in sales tax revenue during construction, which is scheduled
to last until the fall of 2009.
Property sales also have “decreased significantly, which will likely
result in decreased property tax revenues over the next few years,”
staff warned.
But Santa Monica’s diverse revenue sources should help it weather the
economic storm, with tourism remaining strong thanks to a weak dollar,
staff said.
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