City Budget Woes Worsen

By Oliver Lukacs
Staff Writer

Feb. 26 -- The City's projected budget gap has doubled to $3.3 million for the current fiscal year, could widen to $16.8 million next year and swell to $30 million in six years, according to a financial forecast presented to the City Council Tuesday night.

"The city's revenue picture has worsened," began the report, which was part of the annual midyear budget review. The bleak opening sentence was followed by a chart resembling an iceberg growing year by year with the word "deficit" printed on it in capital letters.

"The next few years won't be business as usual in Santa Monica," said City Manger Susan McCarthy, who warned that the City is entering "an extended period of downturn."

"Denial is here and anger and mourning are yet to come, because we are really proceeding through stages of a withdrawal," said McCarthy, using terms normally associated with rehabilitation programs.

"Pull up your boots folks, we're in deep," said Mayor Pro Tem Kevin McKeown.

The grim news was delivered before a chamber packed with education supporters who have been lobbying the council to double the City's $3.5 million annual allocation to the School District, which faces a shortfall that could reach nearly $13.8 million in the upcoming school year.

Bringing the audience to its feet in a silent show of solidarity, education activist Cheri Orgel said she was speaking on behalf of the more than 1,000 parents, students and school district employees who descended on City Hall last month.

"Do not forsake our community's future," Orgel told the council. "It's tomorrow's teachers and firefighters, and doctors and nurses, caregivers, mayors, and city council members. It's your children and grandchildren, mine, ours. The opportunity to educate them won't come again."

The City's growing shortfall is the result of current and future State budget cuts, ballooning rates paid by the City into the State retirement system and the drying up of revenue streams, said Finance Director Mike Dennis. In addition, the slowly recovering local economy stands to be hard hit by a possible war with Iraq, Dennis cautioned.

While the current $3.3 million shortfall will be offset by one-time savings the Council set aside at the end of last fiscal year, City officials have started taking steps to tackle the subsequent budget gaps.

The City will be instituting a selective hiring freeze and will begin preparing to eliminate positions in the upcoming fiscal year, McCarthy said. On Tuesday, the council also approved the first parking meter rate hike in 12 years and approved in concept ratcheting up fines for parking violations for the first time since 1993.

City officials acknowledged that even their initial conservative revenue calculations were "overly optimistic." The combination of decreasing sales tax revenues (which are on a "delayed recovery path"), a decline in hotel bed tax revenues, a one-time dip in property tax revenues and a "considerable decrease" in utility user tax revenues, could more than double the budget shortfall in the coming years, Dennis said.

As a result, City officials have readjusted their initial projections from an estimated $9.1 million shortfall next fiscal year to $11.2 million and $21.3 million the following year "absent State-imposed reductions or possible losses should we engage in military action against Iraq," according to the staff report.

Those numbers, Denis cautioned, don't take into account possible changes in motor vehicle funds for the City in the 2003-04 State budget, which could translate into an additional loss of $4.1 million next fiscal year.

"I think it is becoming increasingly clear that the local government will be participating in solving the budget crisis of the State," Dennis said, responding to Mayor Richard Bloom's question whether the extra revenue shortfall is unavoidable.

In addition to the impacts of a historic $34.5 billion State budget shortfall, Santa Monica's economy could be hit by a war with Iraq, which could lead to another $1.5 million in lost sales tax revenues, bringing the total shortfall to $16.8 million for the upcoming fiscal year.

"Thereafter the possibility of continuing losses are contingent upon the progress of such a war and whether or not terrorist reprisals were implemented," Dennis said. "What's particularly troublesome is that LAX has been identified as the number one target, at least in California.

"However we should generally be back on track with our original five-year forecast by the latter part of 06-07, or 07-08," Dennis said.

One particularly disturbing trend is the drop in the utility user tax revenues, which decreased considerably and are expected to continue dropping, Dennis said.

The downward trend is "almost entirely due to people switching from taxable hardwire telecommunications to wireless at a cheaper cost," Dennis said.

In an effort to bridge the shortfall, the City will impose a selective hiring freeze by leaving positions that become vacant unfilled. The freeze will not affect essential public safety staff or staff deemed essential for generating revenue, regulatory control and certain other core functions.

"The freeze will both achieve savings to ensure a balanced budget and may provide slots to which employees facing potential layoff in FY 2003/04 could be moved," according to the staff report.

To increase revenues, the council voted to boost the cost of meter parking in the Downtown and along the coast from 50 cents an hour to $1 and from 35 to 75 cents an hour in the rest of the city.

In addition, 360 new meters will be installed on Pearl and 16th Streets near Santa Monica College and John Adams Middle School and along the side streets of Wilshire and Santa Monica boulevards.

The rate hikes and additional meters are expected to boost the revenues generated by the City's 6,000 current meters from $4 million to $7 million a year, although this will be offset next year by one-time equipment costs of approximately $2.5 million, according to City officials.

The council also approved in concept raising the amount of fines for parking meter, street cleaning and preferential parking violations, as well as fines for disobeying posted regulations and parking in a red zone. The fines and penalties would be increased to the higher levels observed in surrounding cities.

The fines, McCarthy said, "will enhance compliance with parking regulations, ensuring the kind of parking turnover that enhances business activity and customer convenience."

Bracing for a backlash McKeown cautioned: "Some of what we're about to do here in raising parking meter fees and fines are not popular things, and it might contribute to the anger phase of what we're going through.

"But in truth it's the leadership this council has to show to move us through the anger phase into the clarity of acceptance and action to solve the problems," McKeown said.

Anticipating the news, school officials, concerned parents and members of the business community turned out in mass to plead with the council to help bail out the cash-strapped school district, which faces 200 layoffs, increased class sizes and the elimination of popular programs.

Citing the $27 billion the U.S. recently gave Turkey for use of its land to invade Iraq and Gov. Gray Davis' decision to spend $200 million on building a new state-of-the-art death row, teachers union president Harry Keiley said the problem is not a lack of funding, but the priorities made by elected officials.

"It is the quality of public education that is the great equalizer in our society," Keiley said. "As the quality of our public schools decline, so shall the quality of life in our great city."

Former mayor Nat Trives, who is the vice chair of the Chamber of Commerce, said the business community is part of an unprecedented "coalition" resolved to save the school system at any cost, and implored the council to join its ranks.

"When crisis comes to a family, it takes courage to face it," said Trives. "And we are a family, and I think we have the courage to face it. I guarantee you the public policy developed in this chamber will resonate around the globe, because we are famous for solving problems here in Santa Monica. Have the courage to save our children."

Councilman Ken Genser responded with compassion, but echoed McKeown's position that the council was limited in what it could act on Tuesday night.

"I understand why people raise those issues of significant community concern, and I think I speak for all my colleagues that we heard your concerns," Genser said.