May 30, 2013 -- An impending structural deficit was the major concern aired during a four-hour City Council study session Tuesday, as the council began reviewing Santa Monica's proposed $520.9 million annual budget.

During the first of two back-to-back budget meetings, Council members weighed in on the challenges facing the beachside city and dealt with the finer points of department budgets. But at the top of the list of concerns was rising employee benefit and pension costs.

“If I'm reading this right, we have horrific increases in health care costs (of) 14 percent per year,” said Council member Kevin McKeown, adding that CalPERS, the State's public employee retirement system, “is socking us with unanticipated increases.

“But this is not something under the Council's control, where we can change what health care costs or change what PERS is demanding of us,” McKeown said. “We are working in negotiations with our employees to, in some cases, have employees pay a greater share of the health and retirement costs, if that can be negotiated with them.”

Between the loss of Redevelopment Agencies (RDAs) and rising pension costs for City employees, Santa Monica will likely be in the hole between anywhere from $6 million to $13 million in the next four years.

“Even though we are fortunate in Santa Monica to control greater resources than the great majority of our sister cities in California, changes in our external environment force budget adjustments to both revenues and expenditures to maintain a balanced budget and to protect our reserves,” City Manager Rod Gould told the Council Tuesday.

Gould likened the City's current budget to trying to put 12 pounds of sand in a 10 pound bag. “There's more sand on the way,” he said, adding that exactly how much is still unclear.

The impact of the dissolution of Santa Monica’s RDA – which has been a cash cow for capital projects for two decades – is not yet known, nor is it clear how deeply changes to CalPERS will impact the budget.

“As the dust begins to settle, we can now confirm that we've lost $20 million in annual revenue (from the RDA) that we relied on mostly for affordable housing,” said Finance Director Gigi Decavalles-Hughes.

In an effort to help save $5 million, the City will be closing the Civic Auditorium at the end of June, shaving about $2 million in annual expenses. As a result, as many as 13 City employees will lose their jobs, a fact which Gould called “a shock to the system,” since a lay-off of that magnitude hasn't happened in Santa Monica since 1992.

“In my time on the Council, we have never had to say to an employee, 'I'm sorry, but good luck in the job market,'” McKeown said.

Staff told the Council that they are working to place the remaining employees in other positions, possibly on an “as-needed” basis.

At the end of the two study sessions, the Council will vote to set a public hearing to approve a budget June 25. The City Council will continue to receive semi-annual updates.

The budget “should not be viewed as a status quo document,” said Gould, adding that staff will continue to be flexible in its responses to State and Federal forces.