SM’s diverse revenue sources give stability
CITY HALL — While money may not grow on trees, City Hall is definitely raking in the dough, with a checking account balance of $28.4 million, according to an independent review of the city’s finances.
Thanks to lower than expected facilities and equipment maintenance and replacement costs, plus a 27.9 percent increase in tax revenue, the general fund balance — which pays for essential services such as police, fire, libraries and parks and recreation — is $2.5 million more than projected earlier this year.
And if that isn’t enough, City Hall’s total net assets increased by $40.2 million during the current fiscal year and its bond rating was the highest possible, with an Aaa from Moody’s, an AAA from Standard & Poor’s and from Fitch, the foremost providers of independent credit ratings.
In short, City Hall is sitting pretty, which is good, economists said, considering somewhat rough times may lie ahead for many municipalities. Home sales could come to a screeching halt. In addition, a possible strike by television writers could put a damper on consumer spending, particularly in Santa Monica, where 43 percent of residents make their living in a creative field.
There is also uncertainty surrounding the local Utility User Tax, or UTT, a 10-percent tax on electricity, natural gas, cable and water/wastewater services. Current legal challenges involving the telecommunications industry and municipalities may reduce the amount the city receives under the UUT by an average of $12 million.
“While the city enters (fiscal year 2006- 07) in better financial shape than expected, uncertainties at both the state and the local level remain,” read the financial report, which was prepared by the accounting firm of Mayer Hoffman McCann P.C., and released last week.“At the state level, estimated operating shortfalls have not yet been addressed for the (upcoming) budget year.”
That could lead to higher taxes and fees, as well as cuts to government programs, placing a heavier burden on the back of local government, which could also struggle with increased health care and pension costs, said Jack Kyser, chief economist for the Los Angeles Economic Development Corp.
“All governing bodies are a little nervous,” said Kyser. “They have benefited from an unprecedented boom in the real estate industry as property values went way up. Everyone did quite well. But now governments are getting nervous, particularly those that rely heavily on taxes from home sales because we have seen some of the higher prices for homes softening along with the slow-down in the market... and that goes for condos as well as single-family homes.”
“ALL GOVERNING BODIES ARE A LITTLE NERVOUS.” — Jack Kyser, chief economist for the Los Angeles County Economic Development Corp
With gas prices also rising,a drop off in consumer spending could occur, however, a recession is not being predicted, according to the UCLA Anderson Forecast,a quarterly review of the economy in both the U.S. and California.
Historically, Santa Monica has enjoyed a stable economy and is somewhat insulated from economic downturns in other parts of the state or nation due to its diverse sources of revenue.
“We have three to four sources of revenue that make up the bulk of our funding, but not one of them represents anywhere near 50 percent of all the funding we receive,”said Candace Tysdal, acting finance director for City Hall.“Because of this, I think our financial outlook is favorable.”
This diverse economic base has held unemployment relatively stable, with a rate of 5 percent in 2005. This compares favorably with the County of Los Angeles (5.3 percent) and the state (5.4 percent), according to the financial review.
Santa Monica also continues to have a vibrant office market, both from a leasing demand and investment perspective, with available space being absorbed rapidly, even though leasing rates have reached $4 per square foot — the highest in the region. At the end of the first half of 2006, Santa Monica’s office market vacancy rate stood at a “healthy” 5.7 percent, one of the lowest of all Westside cities, the financial report found.
“The investment market in Santa Monica proves to be just as exciting as the leasing market,” the report states. “The mixed-use, 30,000 square foot building at 331 Santa Monica Boulevard sold in March 2006 for $18.7 million.”
Tourism is also a revenue generator for City Hall, and with the value of the dollar decreasing as compared to the Euro and other forms of currency, expect hotels to be filled in the coming months, Kyser said.
“Traveling to the U.S. is going to be very attractive to foreign tourists and this can only bode well for Santa Monica,”Kyser said. “I think you’ll see a lot of people hitting the beach this summer, and that means local businesses are going to see some heavy spending.
“I think Santa Monica is going to be just fine.”
Originally published in the Santa Monica Daily Press print edition on December 26, 2006. Read the original PDF.