Economic downturn and terrorist attacks have ravaged city finances
Fallout from the national recession and the terrorist attacks have officially caught up with Santa Monica.
As tourism floundered after Sept. 11, the city lost millions on taxes from hotel rooms and sales, creating a projected $7 million shortfall for this year alone. Municipal services will not be affected for this fiscal year due to the city’s large current budget surplus and because many departments cut future programs and activities.
But senior city officials warned the Santa Monica City Council Tuesday that revenue shortfalls will continue over the next five years. Depending on the severity of the recession, by 2005 there potentially could be a nearly $14 million difference between the amount of money the city makes in taxes and what it spends on services.
“My responsibility is to urge council to maintain financial flexibility in your future budgets,” said Michael Dennis, the city’s finance director. “It is likely we will be preparing to come to you with a set of budget cuts, after we have a few more months of data.”
Budgets are approved in July, when the next fiscal year begins, but the process began Tuesday night with the council outlining budget priorities for the staff to consider. The staff will now begin the lengthy process of writing a budget rough draft which will be presented in early June.
Neither the city’s staff nor council members mentioned any areas where they were likely to begin making cuts, but officials did make mention of delaying or canceling any non-essential capital improvement projects, as well as stopping municipal subsidizing of beach parking.
“You (council) have been criticized from time to time for not spending more freely, and certainly the demands made upon you are great and needy causes,” said City Manager Susan McCarthy. “But you really have to act in the best long-term interests of the city.”
City staff said anywhere between 2.5 to 5 percent cuts in municipal services would have to be made for next year, depending on the length and severity of the recession.
“We could get away with a 2.5 percent cut in services without it affecting many people, but a 5 percent cut would have a very visible impact on city services,” said McCarthy. “Many of our constituent groups would be effected.”
Overall, the city is projecting a $14 to $18 million loss in tax revenue for next year. That figure does not consider the state defaulting on repayment of loans the city took out during the energy crisis, the projected $1.8 million resulting from the implementation of the proposed living wage ordinance or the culmination of three “large scale” court cases where the city could be forced to pay large sums in settlements.
“We just don’t know at this time how these factors will pan out so we could not include them in this analysis,” said Dennis.
After the city finished its dreary financial forecast, a parade of residents appeared before the council championing special causes from residents with disabilities and the city’s recreation department to the needs of the school district and neighborhood group causes.
Each recognized the dire economic circumstances the city finds itself in, but asked their cause not to be the one to face the brunt of budget cuts.
Council members voted to prioritize the budget by education, quality of life, affordable housing, mobility and sustainable growth. Under each heading, everything from senior citizen and youth programs to traffic remediation efforts is targeted.
“This certainly looks like it will be a difficult year to find money,” said Councilman Robert Holbrook. “My priority would be to find ways to pay for one-time things rather than creating more on-going funding needs.”
Mayor Mike Feinstein agreed, but he also asked the staff to come back with a list of long-term commitments the city has made, such as the city’s $25 million open space plan.
“I don’t think we can even begin to divide up the pie until we know how much is left to be divided up,” he said.
Many council members said there would be tough financial choices to be made over the coming months, but said they believed there were ways of reducing city spending without cutting many services.
“We have a rainy day here, but it’s not a historically bad storm or anything,” said Councilwoman Pam O’Connor. “It’s going to take lots of discipline and not taking on many long range projects, but I think we can do this.”
Some council members even see the economic downturn as an opportunity for the city to make tremendous changes for the good.
“During a downturn like this what better time to look locally at our production and consumption cycles and try to replace the wasteful non-local transportation process society has told us is the only way to live,” said mayor pro tem Kevin McKeown. “So I think it’s not really going to be a depressing year but a year of new chances and new choices.”
Originally published in the Santa Monica Daily Press print edition on January 10, 2002. Read the original PDF.