City may have to increase taxes if conditions worsen
These are tough economic times for Santa Monica.
Unfilled hotel rooms and unsold merchandise in 2001 led to the first decline in tax revenue for the city in more than a decade. The shortfall has produced one of the most severe budget shortages in Santa Monica since the recession of the early 1990’s.
The city council began a series of detailed budget hearings Tuesday night to discuss the depth to which city services and departments will be cut. The hearings continue tonight at 6 p.m. An optional hearing has been scheduled for Thursday night if needed.
Senior city staff are suggesting a series of $23.1 million in reductions as part of next year’s $387.3 million budget.
“We tried to select the cuts that would be least painful to the public,” said city manager Susan McCarthy. “Our goal was to continue with all the services we could.”
Furthermore, if economic conditions continue to sour over the next two years, or if the state takes back the amount of money slated for Santa Monica after the November election, the city may have to raise taxes for the first time since 1994, McCarthy said.
If taxes must be raised, they would likely target areas that would not affect residents directly, she said, including an increase in the tax rate on occupied hotel rooms, business license taxes, building permit fees and downtown parking rates.
“We are looking hard at all of these variables, and if over the next two years things do not improve, we will have to look at those possibilities more seriously,” said McCarthy.
But Mike Dennis, the city’s finance director, said tax increases that would negatively affect downtown businesses would not be considered until the local economy improves.
Just to get through this year, the city had to tighten its belt to come up with an $8 million gap between what it needed to spend and what it made in taxes.
A hefty decrease in sales and hotel room taxes, which stemmed from a drop-off in tourism resulting from the recession and the Sept. 11 terrorist attacks, was one of the major causes for the drop-off in revenue.
Taxes the city collects on occupied hotel rooms are down by over 16 percent, from $19.2 million last year to $16.1 million this year. Sales tax revenue dipped about $1.4 million, from $26.2 million last year to $24.8 this year — a 5.4 percent decrease.
Next year, city officials are predicting those taxes will rebound by a little more than $3 million.
“We think we are as on target as anyone can be at this point,” Dennis said.
More than $2 million is being cut from the city’s departmental operating budgets, and about $20 million in capital improvements will be cut from what was budgeted last year.
As a result, planning for several projects, like the $148 million civic center redevelopment plan, the $1.8 million Santa Monica Pier improvement plan, more affordable housing and general improvements around the city most likely will be put on hold indefinitely.
What won’t be cut from the capital budget, however, is the Virginia Avenue Park expansion, the Santa Monica Library redesign and a new park at the airport.
Fourth of July celebrations have been canceled, neighborhood and street improvements will be delayed, and organizations will receive less money.
Also, vacant city positions won’t be filled, city employees will receive minimal raises and benefits won’t be enhanced.
“There’s no magic wand to wave,” McCarthy said. “That’s why the spoon full of medicine — the budget cuts in this case — is going to be a bitter pill to take.”
Originally published in the Santa Monica Daily Press print edition on May 29, 2002. Read the original PDF.