Gaps between revenues and spending may grow to $15M
A city analysis shows while officials had millions left over from last year’s budget, deficits for the upcoming fiscal year may swell upwards of $8 million.
Officials released a study Wednesday that shows the city has $3.2 million left over from last year’s municipal budget. The extra money is attributed to budget reductions, a state refund and several late payments.
“The efforts by city staff to save money was greater than expected,” said finance director Mike Dennis. “There were some strong efforts and some good luck.”
But officials found sales tax revenues had fallen $300,000 below predicted levels, forcing the city’s financial analysts to decrease the amount Santa Monica is expected to take in over the year by more than $1.5 million.
City analysts believe as the slower sales trend continues, the projected budget gaps will increase from $5 million to $8.2 million next year. By the 2004-2005 budget, the deficit may grow to $15.6 million.
“What we are proposing is that the savings that were realized last year be set aside to cover shortfalls this year and what appears to be a substantial budget gap next year,” Dennis said.
“What we are proposing is that the savings that were realized last year be set aside to cover shortfalls this year and what appears to be a substantial budget gap next year.” — — MIKE DENNIS City of Santa Monica, Finance director
But future sales trends look bleak for Santa Monica, officials said.
Automobile sales, which traditionally lead all local business sectors in generating sales tax revenue, are predicted to hit record lows this year because dealers and car manufacturers offered steep discounts for last year’s models, sparking record sales nationally.
Economists are predicting most people who were in the market for a new vehicle have already made their purchase.
And businesses are concerned the holiday season will not generate large sales because there is one week less between the traditional six-week shopping period between Thanksgiving and Christmas.
In order to recoup growing sales tax losses, the city council will be asked next Tuesday to raise many fees charged for building permits and for city inspectors to review construction projects. The increased fees are predicted to bring in $600,000 for the rest of this year, but cannot be used to cover the looming budget shortfalls.
Many of the causes of the growing deficit are out of the control of the city, officials said. The state retirement pension system, CALPERS, has suffered enormous losses on its stock market investments, and cities across the state have been forced to pay much more for their employees’ retirement.
Nationally, there has also been huge increases in the cost of health care and insurance premiums.
“Those are largely uncontrollable by the city,” Dennis said. “It’s stuff outside our direct realm of control.”
Even before the economic fallout after the Sept. 11 terrorist attacks, Santa Monica officials began a series of budget cut backs and holding expensive capital improvements to keep the city’s spending proportional to the amount it was taking in on sales and hotel room taxes.
However, sharp declines in Santa Monica’s tourism industry deeply eroded much of the city’s tax revenues, leaving officials with a $20 million budget deficit.
To make up for the loss in funds, each city department was required to cut 2.5 percent of its budget, a hiring freeze was put into effect and more than $20 million capital improvements were put on hold.
While Santa Monica’s tourism industry appears to be rebounding, consumer confidence is being eroded by worsening economic trends and a possible war with Iraq, officials said.
With an already lean budget this year, officials believe any further cuts may require discontinuing some services and increasing fees and taxes.
“We are going to have to look at cutting services and raising revenues,” said Judy Rambeau, city spokeswoman. “There are a lot of things that could be looked at.”
“Community input on this to help the city council make these tough choices is going to be critical,” she added.
Originally published in the Santa Monica Daily Press print edition on October 17, 2002. Read the original PDF.