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Fiscal Forecast Improves but Red Ink Looms for Santa Monica City Hall

 

Bob KronovetrealtyWe Love Property Management Headaches!

SMTT tourism and economy

Harding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore
Kutcher & Kozal, LLP

By Niki Cervantes
Staff Writer

February 8, 2018 -- Cobbling together a record $45 million payment last year for unfunded employee pensions helped postpone a deficit at Santa Monica City Hall, but millions of dollars in red ink are coming anyway, according to a new fiscal forecast.

When the City was formulating a $1.57-billion biennial budget for fiscal years 2017-2019, the finance director warned City spending was outpacing revenue and -- combined with a slowing of the economy -- would face escalating deficits from fiscal years 2019-2020 to 2021-2022.

In an update to the City Council, officials now say the City has skirted a deficit next year, primarily because of the pension paydown it made last year ("City Council Approves Record Payment Toward Santa Monica's Unfunded Employee Pensions," June 15, 2017).

But the red ink sneaks in by 2019-2020 at $0.3 million, although it is less than originally projected, and reaches $10.6 million the next fiscal year, compared to the $16.4 million at first predicted.

The mid-year update goes to the City Council at its meeting next Tuesday and was prepared by Gigi Decavalles-Hughes, director of finance; Susan Cline, director of public works; and Donna Peter, director of the human resources department.

Like others in California, Santa Monica officials are still bracing for an economic slowdown.

The forecast has improved, the report to the council said, pinning the better picture due to the City’s $45 million payment -- which was used mostly to paydown its now $460 million unfunded liability -- and a “negotiated one-year rate maintenance with the City’s primary health insurance provider,” the report said.

But the City also bumped up revenues after staff “converted some revenue sources from one-time to ongoing streams based on recent years’ actuals (e.g., partial Transient Occupancy Taxes from short-term home rentals, Building and Safety fees),” the update said.

The authors noted that Santa Monica’s economy remains relatively strong, due in large part to its geographic location and its diversified tax revenue base.

But growth of its biggest sources of funding is slowing.

Property values -- the third largest in Los Angeles County -- are expected to fall from increases of about six percent annually to between three and four percent.

Sales taxes are also slowing.

But tourism is still strong. Hotel taxes, which have jumped an average annually of more than nine percent for seven years, are expected to yield healthy increases as more hotels open.

Officials are still weighing possible future scenarios. In the best-case version, the budget’s General Fund -- the lion’s share of spending -- stays out of the red and reaches a positive balance of $3.9 million.

In the worst case, shortfalls arrive in 2018-2019 and escalate to reach $29 million in fiscal year 2021-2022.

 


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