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Santa Monica Faces Possible $29 Million Deficit by 2018

Santa Monica Real Estate Company, Roque and Mark

By Jason Islas
Staff Writer

January 18, 2013 -- Santa Monica could be facing upwards of a $29 million deficit by 2018, if steps aren't taken to streamline programs and control staff costs, according to the City's mid-year budget report.

But the report also shows that, if the City takes measures to deal with increasing pension costs, program costs and the loss of Redevelopment Agency (RDA) money Santa Monica would find itself between $1 million and $15 million in the black.

In order to avoid a major deficit, the City would need to find increase revenue by five percent, decrease expenses by five percent or some combination of the two, staff said.

“While I hope the economy is 'increasingly resilient' as the Treasury Secretary said, the City must continue along a cautious path and work to rebuild our rainy day reserves,” said Mayor Pam O'Connor. The City needs to “identify ways to fund needed capital improvement projects as we strive to provide the high level of services that are important to our residents.”

The budget projections include more than $21 million a year starting in 2014 for capital improvement projects like the Lincoln Boulevard Streetscape and the renovation of the City's Corporation Yards.

The City lost more than $50 million a year in money for capital improvement projects and affordable housing last February when Governor Jerry Brown's law ending RDAs throughout the State was upheld by California's Supreme Court.

In addition, the State Department of Finance maintains that Santa Monica's former RDA still owes the County $43 million -- money which City officials maintain shouldn't have to go back to the County because it had been tied up in legally enforceable contracts.

Finance Director Gigi Decavalles-Hughes said that the State's position on the dissolution of redevelopment is “unbelievably arbitrary,” making it hard for municipalities to predicate the exact impact of the law.

“I can't say anything because we don't know what the State is going to do to us in the next round,” she said. Though the City made a $12.5 million payment to the County per the RDA dissolution law, officials are waiting to hear back from the State Department of Finance about the other $43 million, Decavalles-Hughes said.

The loss of RDA money isn't the only thing putting strain on Santa Monica's pocketbook.

Pension costs have skyrocketed over the past decade. The City paid $38 million to California Public Employees' Retirement System (CalPERS) in 2011/2012.

Decavalles-Hughes expects the City's share of its employees' pension costs will be about the same in 2012/2013.

Less than a decade ago, the City was paying approximately $10 million a year. A city's contribution to their employees' pension is determined by projected returns to CalPERS investments. Lower projections mean higher costs to cities.

And even though CalPERS, the nation's largest public pension fund with assets of approximately $235 billion, saw a 13 percent increase in returns to its investments in 2012, it will take a few years before cities will benefit.

As a result, Santa Monica officials will meet with the union leaders in spring to look at solutions including reviewing salaries, pension and health insurance costs, staff said.

“Staff will be considering the total value of salaries and benefits, in negotiations with the City’s two largest collective bargaining groups this Spring,” according to the report.

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