Bright spots in local economy offer hope
Slumping sales at stores throughout Santa Monica may lead to a loss of millions in tax revenue, officials said this week.
Sales tax revenues plunged $300,000 in the first quarter of this year, forcing officials to lower the amount the city is projected to make this year by at least $1.5 million and leaving city council members with more tough budget decisions.
City financial experts previously predicted Santa Monica would bring in $6.3 million in sales tax revenues during the first business quarter, which ranges from July 1 to Sept. 30. Sales tax figures were released to the city this month.
While they were off by $300,000, the figures indicate the city will lose between $1.5 to $2 million — or nearly 6 percent of its projected revenues — over the year, city officials said.
“We had in our budget what we would be receiving each quarter,” said Mike Dennis, the city’s finance director. “When the first quarter came in they were less than that amount, and we extrapolated that difference for the rest of the year based on the most recent economic forecasts.”
Those forecasts indicate sales will continue to slump locally as consumers worry about worsening economic conditions and a possible war with Iraq, Dennis said. However, the city hasn’t broke down which categories are bringing in the most revenues and which declined the most.
“There is not going to be a speeding up of activity,” he said. “We think there will be a slowing of sales activity.”
Predictions for how much the city would take in on hotel room taxes were on target, though hotel managers say they’ve reduce their room rates to lure guests.
Even more worrisome is that automobile sales, which lead all industries in local sales tax revenue sources, are projected to decline over the next year, Dennis said.
Future sales are expected to decline because dealerships and car manufacturers offered huge incentives to buy new cars over the past year, leaving less of a market for newer models currently being released.
“Nationally, it appears all the incentives that have been offered by car companies are in effect stealing future sales and bringing them into the present,” Dennis said.
The Santa Monica City Council deferred more than $20 million capital improvement projects this year to balance the city’s budget, which also amounted to 2.5 percent cuts in every department. The city had to undergo serious belt-tightening to make up for a nearly $9 million loss in tax revenue last year, mainly from a drop-off in sales and a low hotel occupancy rate. And officials are preparing for further reductions in state funding when the California legislature adjusts its budget in November.
City council members may have to further cut the city’s budget and delay even more capital improvement projects to make up for the recent sales tax deficit.
“It certainly is significant especially in light of the cuts we had to make when we adopted the budget last June,” said Councilman Ken Genser. “Any future cuts or changes will require a lot of thought and community dialogue.”
The city has begun a recent campaign to promote itself as a tourism destination and a regional draw for shopping and dining, which may help counteract further declines in sales tax revenues, Genser said.
“We’ve put more money back into tourism promotion and I think the best thing to do is continue to be the most desirable community we can, not just for the residents but one that will continue to attract people as well,” he said.
Kathy Dodson, executive director of the Santa Monica Chamber of Commerce, said while retail and automobile sales are expected to slide, there are still some positive aspects to Santa Monica’s economy.
She said business is picking up at many entertainment companies with headquarters in Santa Monica and three major local hospitals are planning “significant” expansion projects.
“There are some bright spots in the economy, but it’s certainly not where it was before,” she said. “I think the economy is going to expand slowly, and I don’t think it’s going to bounce back anytime soon.”
And Kathleen Rawson, executive director of the Bayside District Corp. — which helps manage the downtown for the city, said she has been noticing packed stores along Third Street Promenade on the weekends.
“People are saying one day they’ll have the absolutely greatest sales ever, but then the next day business is terrible,” she said. “The predictability is gone, that’s what I’m hearing.”
Originally published in the Santa Monica Daily Press print edition on October 16, 2002. Read the original PDF.