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Pension Costs to Put Santa Monica in Red

Santa Monica Real Estate Company, Roque and Mark


Rusty's Surf

By Jason Islas
Staff Writer

May 21, 2013 -- While Santa Monica can balance its budget over the next two years, it will likely face a $13 million deficit by 2017 due to rising pension costs and the end of its Redevelopment Agency (RDA), according to the City's proposed budget released Monday.

The proposed $520.9 million budget, which will be discussed by the City Council next Tuesday, calls for the layoff of as many as 13 workers, all from the Civic Center, which the City will close at the end of June.

It is likely the first time in more than a quarter century that workers would lose their jobs, according to long-time City officials.

Some 58 percent of the proposed budget would pay for salaries and benefits for the City's approximately 1,900-member workforce and pensions for its retirees.

Personnel costs account for about 72 percent of the City's $306 million General Fund, which pays for services and is bankrolled by taxes, grants and services charges.

The biggest increase is in pension costs, which have jumped from $10 million a decade ago to more than $40 million a year due to low returns on investments made by CalPERS, the state's public employee retirement fund.

Under proposed changes in the formula CalPERS uses, municipalities will have to pay a greater share of the cost of their employees' retirement funds, largely due to people living longer.

“We've done a lot to try to control those costs,” said Director of Finance Gigi Decavalles-Hughes.

She noted that the City introduced a new tier of benefits that would require new non-public safety employees to pay more for their benefits.

“The key is that none of the cost-saving measures are impacting services,” Decavalles-Hughes said, adding that most of those measures involved rearranging schedules, eliminating overtime and cutting vacant positions.

“It's a balanced budget and the departments funded by the General Fund worked hard to find ways to be more effeicient and improve cost recovery,” she said.

One step the City will take to lower costs is closing the Civic Auditorium at the end of June. The move – which includes laying off as many as 13 of the Civic’s 26 employees -- will save about $2 million a year and.

“I cannot recall the last time the City laid off employees,” said Council member Bob Holbrook, who has sat on the Council for 23 years. In the past, he added, “We've been able to reassign people to other jobs.”

Even with the cost-saving measures and under the best-case scenario, the twin specters of the RDA dissolution and skyrocketing pension costs will put Santa Monica in the red.

City finance officials project the City will face a “projected functional deficit” of about $3 million by 2017.

The dissolution of the City’s Redevelopment Agency will result in an annual loss of at least $20 million in revenue to the City, officials said.

Another $22 million would be up for renewed negotiations with the State, which is seizing RDA funds they believe have not been committed “threatening redevelopment assets,” officials said.

Despite the loss of RDA money, the budget sets aside more than $22 million for capital improvement projects over the next year, including the Pico Library and the Colorado Esplanade.

Over the past 25 years, the General Fund has grown from $107 million in 1998 to $252 in 2008 to the current $306 million.

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