By Jonathan Friedman
Lookout Staff

February 1, 2010 -- Although City officials stressed that the financial situation here is not as bad as it is for most other cities, Santa Monica is not immune to the sour economic climate. Unless cuts are made to the budget, the City’s deficit could reach as much as $52 million by 2014.

The City must cut at least $6.9 million in spending next fiscal year, which begins in July, to maintain a balanced budget, according to a presentation by Finance Director Carol Swindell at last Tuesday’s City Council meeting.

The actual deficit is projected to be higher than that, but approximately $6 million will be taken from the City’s “economic uncertainty fund” to bridge some of the gap between revenue and spending.

“It will take several years to work out of the structural deficit,” said City Manager Rod Gould, who was attending his first meeting after just his third day on the job.

The “optimistic” scenario presented by Swindell shows the budget deficit rising to $30 million by the 2014-15 Fiscal Year. A “probable” situation shows a deficit slightly higher than that. And a “pessimistic” scenario shows a deficit of $52 million in four years.

The City’s loss of revenue was blamed on decreased sales for Santa Monica’s various major tax contributors. Car sales, which cover more than 20 percent of the City’s sales tax revenue, dropped 13 percent from 2007 to 2009.

Tax money earned through tourism is also down as fewer people travel. Additionally, the temporary closure of Santa Monica Place has not helped total retail sales.

While the City has less money coming in, employee compensation is expected to rise 5.3 percent to 6.8 percent over the next five years, based on previously arranged agreements with the employee unions.

This includes a drastic increase in the City’s required contribution toward the California Public Employees' Retirement System (CalPERS) to cover its recent losses in the stock market.

Council member Bobby Shriver wanted City staff to come back with scenarios for a public discussion regarding how the budget would be affected if salaries were reduced.

“That’s just an impossible trend," Shriver said. "There’s just no way to make (the budget) come anywhere near to balance if everybody’s going to get a six percent raise when the revenue goes down to two or three percent a year.”

Gould jumped in to remind Shriver that, for the most part, the employee compensation increases have nothing to do with actual salaries.

Shriver responded that this was not the point. The issue, he said, is that the City would be spending more on employee compensation (including salary and benefits), which accounts for about 70 percent of Santa Monica’s General Fund expenditures.

City Attorney Marsha Moutrie told Shriver the issue would best be discussed during an upcoming closed council session dedicated to employee compensation.

Several council members said if budget cuts need to be made, they should have a minimal impact on what Council member Gleam Davis called “the most vulnerable members of our community.”

Davis said this includes the homeless, youth, seniors and the socially and economically disadvantaged.

Council member Kevin McKeown agreed. “That has to be a baseline for a compassionate and caring community," he said.

The City Council will hold two budget discussion workshops in May prior to voting on the budget at its June 15 meeting.