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By Olin Ericksen
Staff Writer
May 23 -- Entering the second year of a major reorganization,
City officials Tuesday rolled out a $437.2 million dollar
budget for 2007-08 that represents a slight decrease in revenues,
as the City's economic engine begins to show signs of slowing
long-term growth.
The proposed budget comes as indicators point to a cooling
in the housing market, long-term spending currently outpacing
revenues and the possible annual loss of an estimated $8 to
$12 million tax stream, said City Manager Lamont Ewell.
As a result, the City is taking a cautious approach one year
after the City Council approved the largest and most "aggressive"
budget in Santa Monica's 120-year history.
"We do have some challenges going into the next few
years," Ewell said during a press conference before unveiling
the proposed budget at Tuesday night’s council meeting.
"The (national) economy is going through a cooling effect,
and we are getting mixed signals."
While national economic indicators are still showing signs
of growth and the stock market is boasting sustained earnings
despite substantial sell-offs earlier in the year, the dramatic
slowing of the housing market nationally and in California
could begin to impact local revenue, Ewell said.
In Santa Monica, the number of foreclosures has risen dramatically
and homes for sale are staying longer on the market, Ewell
said.
So far this year, there have been 114 foreclosures in the
upscale beachside city, compared to 140 in all of last year,
according to foreclosures rates obtained by the City Manager's
office though the legal database, Westlaw.
The current foreclosure rate is double what it was in 2005,
when there were 65 foreclosures in Santa Monica, according
to the data.
"Assuming that you extrapolate that out, we are seeing
more foreclosures, and it's showing us that the housing industry
is continuing to take a hit," Ewell said.
While those indicators pose serious concerns for City officials,
Santa Monica is still projected to reap record revenues from
property taxes in the upcoming fiscal year -- nearly $33.4
million, or nearly a million more than last year, for a growth
of nearly 3.5 percent.
Between the 2005-2006 and 2006-2007 fiscal years, the City
actually lost nearly $300,000 in property tax revenue after
years of steady gain, according to City statistics.
In addition to a slowdown in the housing market, the City
continues to face the possible loss of as much in $12 million
in revenues from a telecommunications tax that is part of
the Utilities Users Tax, Ewell said.
"The single most potential threat to City revenues continues
to be legal challenges that could reduce or eliminate the
telecommunication portion of the City's Utility Users Taxes
(UUT) receipts," Ewell wrote in his report to the council.
City officials are continuing to monitor the progress of
the lawsuits, Ewell said.
With limited reserves in place, City officials will be turning
to voters to help put in place laws that will help stem the
loss of revenues, as lawsuits in Los Angeles, Long Beach and
other areas move forward.
"We are looking at changing some of our local legislation,
and we'll be recommending the council go back to the voters
in 2008," said Ewell.
City officials are also taking stock of the City's spending,
as expenses could begin out-stripping revenue over the long-term.
"For the next two years, we feel fairly confident about
where we are, and we'll continue to refine the budget in the
next few years," Ewell said.
Two strong economic signals are employment figures and the
Transient Occupancy Tax (TOT), commonly known as “bed
taxes” collected from local hotels.
With occupancy at Santa Monica hotels currently hovering
at 83 percent, this year’s TOT is the number one revenue
stream among the City’s five total sources of revenues.
To help further close the gap between revenues and expenses,
Ewell plans to seek increases in the rates of many the City's
Enterprise funds, which includes waste-water treatment, the
Santa Monica Pier and other funds that have been heavily subsidized
by City finances.
In the meantime, the City plans to move forward with a reorganization
of its departments, adding 13 new positions to its workforce,
the majority of tem falling under a new division being proposed.
With a $25 million budget, the new Community Maintenance
Division will comprise 10.2 percent of the City’s total
operating budget, City officials said.
The City is currently negotiating with four City employee
unions, before the proposed changes are put in place.
In a five-year budget projection earlier this year, staff
noted benefits and salary demands were the largest single
expenditure for the City in the 2006-2007 budget, comprising
60 percent of the current municipal operating budget, officials
said.
"It is essential to maintain controls on the growth
of the cost of labor while ensuring that labor rates and fringe
benefits offered by the City of Santa Monica continue to draw
quality job applicants and ensure retention of existing employees,"
the manager wrote in his report.
Hoping to hold a course charted last year when economic growth
seemed more promising, Ewell said the City will continue to
concentrate on improving community standards by offering better
services.
By refocusing resources, the City hopes to boost graffiti
removal, streetscaping, tree-trimming and make other improvements,
Ewell said.
"Within our limited revenue growth, this budget responds
to the challenge of balancing the maintenance of our infrastructure
with the community's high standards of quality in public safety,
education and quality of life, and additional demands,"
Ewell wrote the council.
Currently under discussion by City Council members, the budget
is expected to be approved by June.
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