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City Faces $226 Million Budget Gap Due to Coronavirus Shutdown

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By Jorge Casuso

April 13, 2020 -- The City of Santa Monica faces a $226 million budget gap by July 2021 that will force it to immediately slash services and offer buyouts to several hundred employees, according to a staff report to the City Council released Monday.

The report -- which will be taken up by the Council on Tuesday -- warns that the City is "facing massive deficits" to its budget after government-ordered shutdowns of its key industries.

The blow to revenues from shopping, tourism, dining and entertainment will contribute to a $72 million budget gap through June 30.

An additional $154 million deficit will be added over the upcoming fiscal year -- from July 1, 2020 to June 30, 2021 -- if the city begins "a methodical and safe reopening in July," which is uncertain.

"Our City has never been faced with harder decisions," Finance Director Gigi Descavalles-Hughes and City Manager Rick Cole wrote in their report.

"As we confront this public health crisis, we anticipate that a comprehensive restructuring of our organization will be needed.

"Under any plausible scenario of the magnitude of how our services will need to change, our workforce will be significantly reduced," the report states.

The City will need to prioritize public health and safety related services, while "pushing the pause button on many of our ambitious and successful programs, services and initiatives."

"The financial impacts of the emergency force us to quickly consider what are the essential services that the City must provide and only the City can provide," Descavalles-Hughes and Cole wrote.

"We think public health and safety must be maintained as much as possible," while revenue-producing programs will be "reduced to self-sustaining levels."

According to the report, many City facilities will remain closed "for the foreseeable future."

"When and if they reopen, likely in phases and stages, we will be working with our community in a new social and economic landscape," the report said.

Officials expect to use all of the City's Economic Uncertainty Reserves and some of its "rainy day fund" to fill the General Fund gap.

The report proposes setting aside $1.8 million to offer a Voluntary Early Separation Incentive Program (VESIP) to eligible staff as part of an effort to "significantly restructure" governmental operations.

"The VESIP provides a way to maintain the City’s commitment to its employees’ health and financial security by incentivizing voluntary early separation of employees," the report said.

The proposed VESIP offers staff members with a minimum of ten years of service with the City $10,000 and 18 months of City-paid HMO medical benefit coverage.

Those with a minimum of five years of service would receive $5,000 and 18 months of coverage.

The cost of the program "is difficult to estimate because it is unknown how many of the eligible staff will avail themselves to this program."

"Other funds would need to cover any amounts necessary for the VESIP for employees whose salaries are paid form those funds," the report said.

Santa Monica's total annual budget for the current fiscal year is $712.1 million and $755.9 million for fiscal year 2020-21.

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