By Ann K. Williams
Lookout Staff

May 27, 2011 – The Santa Monica City Council wrapped up three night's worth of budget review Thursday, after a parade of City department heads finished making their cases for a two-year budget totalling well over a billion dollars.

Despite a deficit looming over the city's finances in the near future, the budget – some $1.27 billion for two years – is balanced, said City Manager Rod Gould.

“I am pleased and proud to present this two year proposed budget for Fiscal Year (FY) 2011-13,” Gould told the council Tuesday.

“In fact I believe that any of my colleagues throughout the state would be equally pleased and proud,” he said, adding that California “cities are struggling...with a tepid recovery from a blistering recession.”

FY 2011-12 matches $647.1 million in expenditures with $532.9 million in income. The following year, FY 2012-13, sets $624.2 million in expenses against $535.5 million in revenues.

The differences between the income and expenditure figures are mostly due to redevelopment agency funds that don't show up in revenues but do show up in expenses.

The FY 2011-12 budget is more than 16 per cent higher than the revised 2010-11 budget of $554.7 million. Again, the increase is mostly due to redevelopment agency capital costs. As these decrease, the 2012-13 budget shrinks a little.

The General Fund – the source of employee payroll and funding for most city departments – amounts to $283.4 million in FY 2011-12 and $290.2 million in FY 2012-13.

The (FY) 2011-2013 budget is a first, not only in terms of magnitude, but also in duration, replacing the traditional one-year format. Gould said that planning for two years will reduce staff time, improve long range planning and provide better program evaluation.

The overall health of the budget is due to the relative strength of Santa Monica's economy – largely based on tourism, a growing sector of the economy – and “prudent financial management,” said Gould.

“The next 24 months will witness cities struggling mightily to fend off decline,” the City Manager wrote in his preamble to the budget document.

While he anticipates that “our city will escape the ravages that plague our sister cities,” Gould noted several threats to Santa Monica's economic well being.

Foremost among these are rising salaries and benefits. In FY 2011-12, CalPERS pension rates are expected to climb 18.8 per cent before dipping down to 5.7 per cent the next year. And health insurance, after dipping 4 per cent in FY 2011-12 will jump back up 11 per cent in FY 2012-13.

Also, redevelopment agency funds, a mainstay for widespread capital improvements throughout the city, may be a thing of the past if the state legislature passes Governor Jerry Brown's proposal to eliminate the agencies in California.

And the same “tepid” economic growth that afflicts the nation is a factor in Santa Monica. Sales taxes and property transfers, both a big part of the city's revenue, took a hit during the recession and are just now starting to pick up again.

Gould further warned that, while a deficit staff feared would grow to $37 million by 2015 has been reduced by $23 thanks to a series of cost reductions and revenue-building actions, the city is still not out of the woods. Current predictions show the deficit growing from 2013-15, reaching nearly $15 million.

So while the overall numbers on the budget look large, Gould said it represents a “prudent” strategy of “relatively flat spending” along with cost-cutting measures and actions to support business development.

Specifically, the 2011-12 budget calls for $185.7 million in redevelopment spending; the figure for 2012-13 is $153 million. The money will be spent on infrastructure, including amenities to make the city more attractive to economic development, which, city staff hope, will in turn raise revenue.

Gould also recommends the city spend $10 million to pay down CalPERS liability to take advantage of the state pension agency's better return on its investments. He says CalPERS staff estimate a saving to the city of $800,000 a year for some 20 years.

Labor negotiations are on the city manager's list of potentially cost-cutting measures, and Gould expressed his gratitude for city workers' past willingness to share the cost of their benefits.

And, among other measures designed to protect the city's coffers, he advocates increasing the “Economic Uncertainty designation” by $1.5 million, bringing the total to $9.7 million. Combining that with the 10 per cent “emergency designation,” the city's reserve will amount to 14 per cent of the General Fund.

City staff took pride in the format of the budget, which can be seen on its website. http://www01.smgov.net/finance/budget/2011-13/Index.htm

Holding up the FY 2011-13 budget folder, Assistant City Manager Kate Vernez showed the Lookout what it looked like compared to FY 2010-11 folders – less than half as thick, despite covering twice the time.

A perusal of the “Department Summaries” heading on the website shows Gould's emphasis on city services and clarity. Each department's mission heads lists of goals, objectives and “service benchmarks,” along with an easy-to-read synopsis of each department and sub-department's budget, quite a contrast with last year's ledger sheets.

And the budget comes with a glossary for those who are unfamiliar with the arcane language of urban accounting.

In keeping with the city's emphasis on sustainability, hardcopies of the budget were hard to come by in the city manager's office, though the link to the website was easily available.

The City Council will return to the proposed FY 2011-13 Budget on June 21 to vote on its adoption.