New Report Finds Santa Monica City Government Might Require “Painful” Fiscal Changes

By Niki Cervantes
Staff Writer

May 22, 2018 -- Santa Monica’s City government will require “tangible and likely painful” changes in the coming years as it shudders under $461 million in red ink for unfunded employee pensions and other costs continue to outpace revenue, a new fiscal update warns.

The report by City staff updates the 2017-2019 $1.57 biennial budget and begins looking ahead to its two-year successor, which is likely to face a deficit of about $7.1 million in the 2020-21 fiscal year and, as it now stands, a shortfall of $15.2 million the following fiscal year.

“Health insurance and workers’ compensation costs continue to be cost drivers, although the largest challenge is the significant rise in the cost of pensions,” said the report by the Finance Director Gigi Decavalles-Hughes, the Human Resources Director Donna Peters and Public Works Director Susan Cline.

On the City Council’s agenda Tuesday, the report recommends mostly minor adjustments to the 2018-2019 City budget of $732.5 million, $439.1 million of which is in the General Fund, the largest portion of City revenues.

According to the report, net pension contributions in the general fund are expected to jump 37 percent, or by $14.9 million in the 2021-22 fiscal year and to continue rising.

“Over the next several months, staff will study the feasibility of various methods to lower pension contributions and healthcare costs and will ask Council to consider alternatives as part of the next biennial budget,” the report said.

Overall, spending for operations is expected to grow an average of 3.8 percent a year during this period, well beyond the average 2.4 percent increase in revenue per year.

Because its local economy is diverse, Santa Monica City’s fiscal health has been spared most of the financial problems other local governments have experienced, such as cutbacks in services or layoffs of employees.

Still, its pension costs -- like those throughout the public sector -- are rising fast and its $461 million bill for unfunded liabilities (or unfunded pensions) is consuming more of the City’s budget.

The longest economic period of good health for the country in the post WWII-era is also slowing down, with a recession, at least in California, anticipated in coming years.

Tuesday’s report does not discuss major remedies, although it does note the City is generating more revenue to catch up with spending through a string of new fees.

Most of the City’s existing user fees increase by 4.4 percent on July 1, “reflecting the projected FY 2018-19 increase in total City compensation, which includes salary, healthcare, retirement and workers’ compensation costs,” the report said.

In addition, City staff proposes five new fees:

* A $361 “Address Assignment Fee" for processing “of new address assignments and change requests to existing addresses”

* A $95 “Mobility Impound Fee”

*A $20 administrative fee for canceling a “Parking Citation Dismissal: Disabled Permit"

* A $20 administrative fee for dismissing a citation of a “ Preferential Residential Permit"

* A $1 fee to copy extra sets of nomination papers (the first two sets are free).

The City also is proposing to increase fees for adult sports leagues, field rentals and rental of the Miles Playhouse.

In addition, staff recommends creating eight new user fees for The Cove Skate Park and one new fine/penalty charge for late cancellation or no show of field rentals.

“Staff anticipates implementation of the proposed fees will result in approximately $191,000 in additional annual revenue,” the report said.

The budget increase is included in the FY 2018-19 Proposed Budget.