Santa Monica Lookout
|Improved Santa Monica Budget Forecast Shows “Probable” $3 Million Shortfall|
By Jason Islased
February 18, 2014 -- Santa Monica will no longer be in the red $9 million by 2017 thanks to increased tax revenue and lower-than-expected personnel costs, City officials told the City Council Tuesday.
But despite the sunnier forecast, staff told the Council during the City’s mid-year budget report that the bayside city could still see a deficit anywhere between $700,000 and $8 million in the next five years.
Staff's most likely scenario saw the City $3.2 million in the red by 2017.
Compared to staff's five-year projection in May that Santa Monica could be facing a $9.2 million deficit, the City's finance director called the new projection “manageable.” (“City Council Reviews Santa Monica's Half Billion Dollar Budget,” May 30, 2013)
“While our financial picture is generally good, we still need to exercise some restraint,” Santa Monica’s Finance Director, Gigi Decavalles-Hughes, told the Council Tuesday night.
Rising compensation costs, almost three quarters of the City's half-billion dollar General Fund, continue to “grow at a pace faster than our revenues are growing,” she said.
And, health care costs keep going up.
Decavalles-Hughes said that Santa Monica could see “as much as a $2.5 million increase in added health cost” by 2018-2019 due to taxes imposed on “Cadillac” health plans by the Affordable Care Act.
Since May, the City has taken steps to streamline operations and cut costs. (“Facing a $9 Million Deficit, Santa Monica Tightens Its Belt,” August 19, 2013)
The most dramatic example came in June when the City closed the Civic Auditorium at the end of June to save roughly $2 million a year. As a result, the City also laid off around 13 employees, the most it has laid off since 1992.
Another reason for the improved forecast is an “almost $7 million” bump in tax and parking revenue, said Decavalles-Hughes.
The projection was also helped by the City's financial impact of the two biggest problems facing Santa Monica -- dissolution of the City's redevelopment agency and ever-increasing pension costs -- becoming clearer.
Because Santa Monica is a member of the California Public Employee Retirement System (CalPERS), it has seen its pension costs jump from $10 million a decade ago to about $40 million a year.
In May, the CalPERS board was considering changes to the agency's formula that would have put significant strain on its members.
CalPERS made fewer changes than anticipated and costs didn't go up as much as expected, but the costs aren't expected to go down, said Decavalles-Hughes.
“We need to make sure that all staff is paying its fair share of the retirement contribution,” she said. “Our ability to do that will directly impact our ability to maintain services to the public.”
In its ongoing battle with Sacramento, the City also managed to hold on to more of its former redevelopment agency (RDA) money than anticipated, even though Santa Monica has paid more than $70 million to the State, Decavalles-Hughes said.
Some of the improved outlook was offset by pending future expenses, including a new minimum wage for City employees of $15.37 an hour. (“Santa Monica Mayor Wants Higher Living Wage for City Employees,” January 27)
Still, she said, staff is working on cutting expenses and looking to increase revenue to assure that Santa Monica's budget stays in the black.
Staff will go back before the Council with an updated budget report in spring.
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