Employee Costs Pose Major Fiscal Challenge for Santa Monica Officials

By Niki Cervantes
Staff Writer

May 23, 2017 -- Like the public sector elsewhere, Santa Monica is facing a daunting bill for unfunded pension-related liabilities -- $387 million in the City’s case, according to the record 2017-2019 biennial budget proposed last week.

The rise in pension costs begins in the 2018-2019 fiscal year with an extra $2 million, City officials said. By 2021-2022, pensions alone will be responsible for $13 million of the $19 million deficit the City is projecting.

City Manager Rick Cole cautioned that if the City can’t reduce those rising costs, it will need to start looking at its workforce.

“Future service levels and staff job security depend on acting now to reduce our pension liabilities,” he said.

Salaries and wages alone total more than $704 million in the 2017-2019 budget, up about 10 percent from the previous biennial budget, according to the proposed spending plan.

Workers’ Compensation is projected to rise from five to 10 percent year over year, due to the City’s aging workforce.

And health care is set to increase annually by 8 percent over the next five years, another major contributor to the City’s “increasing compensation burden,” Cole said.

Santa Monica also anticipates a 30 percent increase in costs of outside contractors because of a new state law requiring city-contracted construction workers be paid higher “prevailing wages rates,” officials said.

Going out to rebid could cost the City another $2 million within the General Fund alone, Cole said.

Construction costs in general are rising. And the City is awaiting word from the White House on possible cuts in federal money.

Meanwhile, revenue streams the City has long relied on, especially sales taxes, are barely growing.

Santa Monica has also hit the California cap on sales tax rates, or 10.25 percent. In any case, on-line shopping is taking an increasing bite out of brick-and-mortar businesses, further eroding City revenue from the sales tax ("Higher Sales Taxes Start Kicking in for Santa Monica," April 6, 2017).

Even Measure GSH, the half-cent sales tax increase approved by voters in November, can’t help much.

Its annual haul is $16 million. But only half is destined for the City (schools get the other half) and even that won’t help boost the General Fund.

The funds are dedicated for affordable housing, not general use, said City Finance Director Gigi Decavalles-Hughes.

Cole said the proposed 2017-2019 budget is forcing the City to re-examine how to operate in a shaky future.

“Our reliable economic engine needs an overhaul and rising costs (beyond our direct control) force us to re-evaluate how we work, how we deliver services and what matters most to our citizens,” he said.