City Council faces tough choices in budget
(Editor’s note: This is the third article in an on-going series that examines City Hall’s current financial crisis.) Closing City Hall’s growing deficit is a matter of simple economics — cut expenses and increase revenue.
That means Santa Monica residents and visitors will feel the pain in upcoming years as City Hall expects to face multi-million deficits through 2006.
City officials have been strategizing on how to close a $12 million gap for this year.
A proposed budget is expected to land in front of the Santa Monica City Council in the next two months with a final adoption in June.
That proposal includes 5 percent cuts in City Hall’s operating budgets, which include reductions in personnel, city services and capital improvements.
Residents and visitors also can expect proposals for increases in business license and development fees, sales taxes, transit taxes, parking fines and meter rates.
By the end of 2006, officials predict that the city will have had to close between a $29 and $31 million budget gap. They anticipate the fiscal year of 2004-2005 will bring a $10 million deficit and between a $7 to $8 million deficit in 2005-2006. Major revenue sources for City Hall’s $383 million budget includes user utility taxes, sales taxes, property taxes, hotel bed taxes, business license fees and parking tickets.
About 66 percent of the city’s expenditures are used for salaries and wages, including retirement, and medical and worker compensation benefits.
Voters could be asked in November 2004 to increase sales taxes and possibly business license fees, which haven’t been raised since the 1990s, said City Manager Susan McCarthy.
She added that if at least two new revenue sources aren’t established, City Hall will face much greater departmental cuts in the future.
“There is no question that if we don’t identify additional revenue sources, 5 percent won’t be enough,” she said.
LIKELY REVENUE SOURCES The City Council in March approved its ability to ask voters to increase sales taxes by one-quarter or one-half percent, according to city documents.
With the Council’s approval, Santa Monica is now included in state bill AB 1412, which seeks legislative authority to allow local voters to increase the city’s sales tax rate.
Assembly Bill 1412 has recently been introduced to authorize 32 cities, including Los Angeles, West Hollywood and Beverly Hills, to increase their local sales taxes.
The increase could generate $12 million or more in annual revenue for the cash-strapped city, officials said.
That would be in addition to Gov. Gray Davis’ proposal of a 1 percent sales tax hike statewide. If both tax increases are passed, Santa Monicans and visitors could be shelling out nearly 10 percent on all retail sales.
The city currently receives about $25 million in sales tax annually — about 1 percent of the 8.25 percent sales tax collected on local sales by the state and county.
Since the 1950s, sales taxes have been set exclusively by the state and county, City Treasurer Dave Carr said.
Sales tax in Los Angeles County rose from 8 percent to 8.25 percent on Jan. 1 of last year.
Another proposal would be to increase the tax placed on hotel rooms in the city. However, officials said Santa Monica would keep the tax strategically lower than surrounding cities. An increase in the tax would have to be voter-approved.
City staff recommended to the Council in February that planning fees for developments be increased, particularly for people who appeal planning commission denials. Development fees for conditional use permits, variances, development review permits and appeals on planning permits and noise variances could be raised significantly.
Parking fines also could be raised. Parking citation fines in Santa Monica haven’t been raised since 1993 and are lower than some surrounding cities, city officials said.
The lowest parking fine in Santa Monica is $28 for expired meters. The highest currently is $38, which is a penalty for parking in a street cleaning or red zone, and disobeying a sign. Motorists who unlawfully park in a preferential parking zone are currently fined $33.
The City Council approved in March new rates for parking spots along the beach and downtown. Parking meters will be bumped up from 50 cents an hour to $1 an hour and remaining meters will be raised from between 35 cents and 50 cents to 75 cents an hour.
In addition, the city will install 360 new parking meters along Pearl Avenue and 16th Street adjacent to Santa Monica College and on side streets off of Wilshire Boulevard and Santa Monica Boulevard downtown.
Officials estimate the new rates will generate an additional $3 million in annual city revenue.
LIKELY EXPENDITURE CUTS AND PROJECT FUNDING The city’s capital improvement budget for the next three years, which totals $39.2 million, could be drastically slashed to shore up City Hall’s deficit.
“We’ll be doing fewer projects, there is no question about that,” McCarthy said. “We know what we are targeting.”
Officials will spend the next month figuring out how each cut will effect city services and how dramatic the consequences will be for each project.
City Council members can expect an outpouring of community activists urging them to save their coveted projects and programs as they make tough choices in adopting the budget.
“There is a constituency for virtually everything in this city,” McCarthy said. “People are going to fight about every single cut.”
“There is a constituency for virtually everything in this city. People are going to fight about every single cut.” — – SUSAN MCCARTHY City manager
Originally published in the Santa Monica Daily Press print edition on April 14, 2003. Read the original PDF.