City braces for state budget
CITY HALL — Business is booming in nearly every corner of Santa Monica, sales tax revenue figures show.
Fourth quarter sales tax revenue for 2004 shows a 10.6-percent increase over the same quarter a year ago. Visitors and residents spent more on liquor, fast food, hotels, office equipment and women’s clothing than they did during the same period last year. The increase in sales tax revenue was reflected in nearly every major business group.
The only areas of the city that experienced a decline in sales in the last part of 2004 was the aging Santa Monica Place Mall and along Pico Boulevard, down 0.7 percent and 10.8 percent, respectively. City finance officials say business closures and businesses moving out of the area are to blame for the declines.
The largest gains were enjoyed on Ocean Park Boulevard, which was up 20.7 percent; while Main Street saw a 19.4-percent increase and Lincoln Boulevard was up 19 percent in the fourth quarter of 2004 compared to the previous year.
And while those areas saw the largest increases in sales, they weren’t the biggest revenue producers — car dealerships continue to be No. 1 in the city. Santa Monica Boulevard, where most of the car dealerships are located, saw an increase of 11.2 percent in the fourth quarter of 2004.
The next two largest revenue-producing areas in the fourth quarter of 2004 were on Wilshire Boulevard and the Third Street Promenade, up 9.7 percent and 13.2 percent, respectively. Other areas with upswings include Montana Avenue, with a 13.4-percent increase; Ocean Avenue and the hotels, with a 10.3 percent-increase; and the Bayside District, which comprises downtown, with an 8.3-percent boost. (See graph.) General consumer retail goods, the city’s largest tax-generating business group, increased by 7.4 percent; autos and transportation by 6.9 percent; restaurants and hotels by 10.8 percent; business and industry grew a healthy 14.9 percent and construction increased 4.5 percent. (See graph.) Increased economic activity, including tourism and the opening of some new businesses, account for the upward swing.
“Overall, the local economy appears to be relatively strong, based on sales tax revenues and tourism increases over the last 12 to 18 months and the gradually improving economy at state and national levels,” said City Hall Finance Director Steve Stark. “Sales tax growth in the fourth quarter was very strong after somewhat lower growth in the previous two quarters.”
Despite that the city experienced slow-er growth earlier in 2004, Santa Monica’s economy is faring well. Stark estimates that sales tax revenue growth was between 5 and 6 percent last year. Last year, City Hall officials budgeted for just a 4.5-percent increase.
Consumers in Santa Monica are currently taxed 8.25 percent on retail sales, with 1 percent going to City Hall after the state government redistributes the revenue it collects from municipalities.
A steady increase of sales tax revenue over the past three years shows that the local economy is on the upswing. In 2004, Santa Monica brought in $26 million, compared to $24.4 million in 2003 and $22.4 million in 2002.
“We are trending a little better than our original projections,” Stark said. “But it’s consistent with regional trends.”
For the fourth quarter of 2004, the state saw an increase of 11.6 percent and Los Angeles County experienced an increase of 11.1 percent.
The three-year increase paints a much different picture for Santa Monica than what it experienced in 2002, which saw a significant decline from 2001. The decrease translated into more than $1 million in lost revenue. In 2000, City Hall brought in $22.8 million in sales tax revenue as compared to $23.6 million in 2001.
The local economy had been faring well up until 2002, but that year’s decline in sales tax revenue forced City Hall to make serious slashes to its budget, cutting services and personnel, and delaying capital improvement projects throughout town.
“At the same time as 9/11 occurred, we were kind of going into a recession anyway,” said City Hall treasurer Dave Carr. “But 9/11 exacerbated it.”
City Hall is cautiously optimistic that the sales tax will continue to increase at a moderate rate, which is included in the budget forecasts. City officials will embark on their next budget review at the end of the month, with the 2005-06 fiscal year budget being approved by the City Council in June.
Full year 2004-05 revenues for Santa Monica are projected to be between 3 and 5 percent greater than last fiscal year, and it’s anticipated that taxes will grow in upcoming years at rates consistent with historical trends.
City officials are once again waiting for what the state government plans to do in its budget, since it has historically taken revenue away from local municipalities in the form of sales tax revenue and vehicle license fees in order to fill in its own gaps. However, a voter-approved ballot measure last year now gives cities a greater level of protection from state takeaways.
“Cities are still hopeful Prop. 1A will provide us with the protection,” Stark said, adding he will travel to Sacramento on May 19 to participate in the state government’s revised budget sessions. “We’ll know more then.”
City Hall has historically budgeted for state takeaways — in previous years it projected a $4.2 million shortfall. Last fiscal year, that projection was lowered to $2.4 million.
“That is the reserve for the unknowns, but at this point we feel more comfortable with what the state will do,” Stark said.
Still, what happens in the political arena typically keeps city financiers cautious.
“Economic and political events at the state and national levels, including higher energy prices, the threat of higher inflation and higher interest rates, continue to cause uncertainty in the economy,” said Stark
Originally published in the Santa Monica Daily Press print edition on May 12, 2005. Read the original PDF.