City officials prepare for serious department cuts
(Editor’s note: This is the first article in an on-going series that examines the city’s current financial crisis. Saturday’s article will focus on the city’s plan to balance its growing deficit.) It will be years before the city’s dismal financial situation improves.
Proposals of lay-offs and tax increases are on the horizon as city officials strategize on how to close a $12 million gap in its budget.
“It’s the most pain the city has gone through in years and we are not good at pain,” said City Manager Susan McCarthy.
The expected cuts will be far greater than what the city was forced to do in 1992 — the last time the city found itself in serious economic turmoil. But the city recovered quickly because of a decade of unprecedented fiscal expansion.
This time around, the city won’t bounce back as quickly. The days of enjoying a strong city budget are over — at least for the next three years.
City officials released their latest projections on Thursday, which point to serious belt tightening and creating new revenue sources through at least 2006. The city’s budget deficit was estimated in January to be $9.1 million. In February that estimate grew to $11.2 million and now that the United States is engaged in a full-blown war with Iraq, city officials revised the deficit to $12 million, mostly because of revenue losses.
“That’s because of effects of the recession and 9/11 took longer to recover from what was projected and the ramp up to the war,” said city finance director Mike Dennis. “Now it looks like at least three years of difficulty.”
By the end of 2006, officials predict that the city will have had to close between a $29 and $31 million budget gap. The fiscal year of 2004-2005 will bring a $10 million deficit and between a $7 to $8 million deficit in 2005-2006, officials predict.
Major revenue sources for the city’s $383 million budget includes user utility taxes, sales taxes, property taxes, hotel bed taxes, business license fees, parking fines, tickets and fees. About 66 percent of the city’s expenditures are used for salaries and wages, including retirement, medical and worker compensation benefits.
Officials said extraordinary costs beyond the city’s control and reductions in revenue have created a financial situation so severe that every department in City Hall, with the exception of police and fire, will have to be cut by at least 5 percent this year and another 5 percent next year.
Dennis said increases in the city’s retirement system contributions have created added expenditures because of heavy losses by the state’s Public Retirement System. That’s coupled with increased health insurance premiums, which were accelerated by cost pressures in the industry and increased workers compensation costs due to legislative changes.
Operating costs and debt service for multi-million dollar projects like the new municipal pool and public safety building have added to the budget strain, officials said. Those costs will increase in the next few years with more projects like the Virginia Avenue Park expansion, the new Main Library and a new park at the airport being built.
City officials also predict that the state will take back about $4.1 million to help close its $35 billion deficit, which is not yet calculated in the local deficit because the state has not yet proposed how it will fill the gap.
“We are dealing with a certain amount of uncertainty,” McCarthy said.
Originally published in the Santa Monica Daily Press print edition on April 11, 2003. Read the original PDF.