Economic forecasting heavily relied upon for city budget
The latest financial forecast out of City Hall shows the city lost more than $8 million in sales tax revenues this year.
“Our shortfall this fiscal year in total is going to be about $8.8 million,” said city finance director Mike Dennis, after reviewing the city’s second quarter sales tax revenues, which were recently released by the state.
As expected, the biggest hit to the city budget was lost revenues in retail, restaurants and retail. Simply put, fewer people visited Santa Monica and its residents kept closer tabs on their cash by not going out to eat or buying “luxury items.”
The city projected to earn about $27.9 million in revenues this year, which was a 6.3 percent increase over the previous year. But after a slowing of the economy last summer and Sept. 11, the city will actually be down 11.1 percent of what was estimated.
The city, which has a total budget of about a $327 million, will bring in about $24.8 million in sales tax revenue this year.
But number crunchers have freed up about $6.2 million to make up for the shortfall, leaving the city down only $2.6 million.
Money left over from completed capital projects total $1.9 million and because parking revenue is up at the beaches, the subsidy from the beach fund is about $1.3 million, Dennis said. Another $3 million will be found through departmental budget cuts within City Hall, although none of them will be in personnel.
Dennis said some anticipated capital improvements may be put off because of the shortfall, but city officials won’t be able to determine which ones could be delayed until June.
The sales tax figures for the city’s second quarter, which was from October to December, will be the last city finance officials use in projecting next year’s budget since the process begins in June. Third quarter figures, which track January through March sales tax revenues, won’t be released from the state until the end of May, and fourth quarter figures will be ready by mid-summer.
But Dennis, who likens economic forecasting without final figures as “budget roulette,” has a pretty good idea of what’s to come, based on national and regional economic forecasts. And it’s not too rosy of a picture, particularly when terrorist threats loom and an unstable economy continues.
“It’s difficult to digest all of the economic forecasts and there is a potential for unique events to occur,” Dennis said. “But we’ll identify a range of scenarios.
“We tend to be a bit conservative on our forecasts,” he added. “But, yes, we are struggling with where to land.”
He added that for the past 15 years, the city on average has come within 2 percent of what was budgeted to what it actually brought in.
Dennis said it will take 18 months just to get back to last year’s sales tax revenue of $26.2 million.
Although business and tourism bounced back significantly the past three months, it’s not enough to compensate for the dramatic loss felt over the entire year.
“We have to look at the longer term trends,” Dennis said.
Originally published in the Santa Monica Daily Press print edition on April 10, 2002. Read the original PDF.