Council Gets Initial Look at Scaled-back Budget

This is the first in a series of articles that will look at how the proposed $353.7 million City budget will impact departments and the services they offer.

By Erica Williams
Staff Writer

May 29 -- Faced with one of the worst fiscal crises in recent memory, the Santa Monica City Council this week hunkered down during a series of study sessions on the proposed budget for the upcoming fiscal year beginning July 1.

City Manager Susan McCarthy opened Tuesday’s four-hour session with guarded optimism, advising the council that what would be “a difficult few years ahead” is nevertheless “a survivable situation” given the belt-tightening measures implemented this year and proposed for 2003-04 and 2004-05.

“In fact, we believe we can make it through these years sustaining a higher level of service and a wider variety of programs than most California cities enjoy even in good times,” McCarthy said.

“That doesn’t mean an absence of pain,” she cautioned. “The survival strategy for the next two years calls for both expenditure reduction and revenue increase.”

The City’s $353.7 million budget for 2003-04, a 10.3 percent reduction from the current year, attempts to bridge a $16.1 million gap in the City’s General Fund. The City is bracing for even larger shortfalls expected to top $20 million in 2004-05 and $28 million for each of the following two years.

The City could also 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 $38 billion shortfall.

Cuts in spending, McCarthy summarized, have been achieved by implementing a 5 percent cut in funding for all departments except public safety; a hiring freeze coupled with the elimination of 31 full-time positions next year -- only four of which were occupied -- and 19 in 2004-05; and a freeze on cost of living increases for 2004-05. The latter, McCarthy, said, “helps to avoid (further) layoffs.

“Fee and fine increases are really the only methods we have for the revenue side of the budget,” McCarthy said.

Those include a hike in parking meter rates and business license application fees; fines for parking meter, street cleaning and preferential parking violations, and fines for disobeying posted regulations and parking in a red zone.

But those revenue-generating measures are not enough to bridge the shortfall, McCarthy told the council. “We must ask the voters to approve one or more tax measures -- most likely TOT (hotel), business license and sales tax increases -- to move toward balance.”

The total general fund budget over the next three years, said City Finance Director Mike Dennis, “is going to be essentially flat.” That’s mostly due to a steep decline in transient occupancy and sales tax revenues from a peak in 2001-02 that has since leveled off and is not expected to return to those levels until 2003-04.

“It’s this leveling off while expenses have continued to increase (that accounts) for the gap,” said Dennis, referring to skyrocketing costs in pension, health insurance and workers compensation costs. The City’s share for the pension fund alone is expected to increase by nearly $7.3 million next fiscal year and by another $5 million in 2004-05.

Dennis, who is retiring in July and was commended by the council for his three decades of service, detailed a number of factors that could hit the City hard if they occurred.

They include “new system shocks,” such as terrorism and SARS, deflation, a drop in Gross Domestic Product (GDP) from a projected growth of between 2 and 3.5 percent, rising federal deficits and the State’s threatened transfer of motor vehicle in lieu fees and redevelopment agency funds from local governments to bridge its budget gap.

Additionally, Gov. Gray Davis’ proposal for fiscal reform, which would swap 50 percent of sales taxes for local property taxes, “will put the City likely at risk,” Dennis said.

In addition to cuts in the General Fund, staff unveiled proposals that would slash Capital Improvements Programs by nearly 50 percent from its peak in 1999-00.

Finance analyst Mona Miyasato presented the “nuts and bolts” of the $77.1 million CIP budget for 2003-04 which represents “the lowest level in five years,” down from its peak in of $150 million in 1999-00.

“It doesn’t look like we’ll be able to replace this level of funding in the near future,” Miyasato said.

The CIP funds basic services, such as street, alley and sidewalk repairs, as well as street lights and signal and traffic improvements. It also funds capital projects such as construction of the new Main Library and the Virginia Avenue Park expansion.

The Big Blue Bus campus expansion is the biggest chunk of the capital budget next year. It accounts for nearly 30 percent, or $22.1 million, of the CIP.

The General Fund CIP budget reductions were made by eliminating $700,000 in additional funds for seismic retrofitting of City Hall; lengthening schedules for vehicle and computer replacement; lengthening the alley revitalization schedule; and eliminating additional landfill mitigation costs, Miyasato said.

Cable TV equipment that is almost a decade old must be replaced next year, and staff plans to identify and borrow from General Fund projects to cover those costs, Miyasato said.

The General Fund CIP budget represents the basic level of service required, Miyasato cautioned. “Our challenge in the next years includes maintaining this (basic) level of service,” she said.