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Coronavirus Shutdown Forced Inevitable Cuts, Fiscal Expert Says

Bob Kronovetrealty
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By Jorge Casuso

May 13, 2020 -- The sudden and drastic budget cuts the Santa Monica City Council is making were inevitable, even without a coronavirus shutdown, according to a prominent member of a disbanded citizen's budget advisory committee.

The dramatic impact of the pandemic only accelerated the layoffs and service cuts needed to address years of unbridled spending and a ballooning pension debt, said Dominic Gomez, a former member of the Community Compensation Advisory Committee.

"At the end of the day, the City was headed for a fiscal reckoning absent this pandemic," Gomez told the Lookout. "What the pandemic did was accelerate what the City had to entertain.

"We've been sounding alarm bells for not weeks or months but years, while the City is spending money at a rate that is breathtaking," said Gomez, the former CEO of Movius Interactive.

While the Council this month slammed the brakes on a decades-long spending spree to fill a projected $150 million deficit triggered by the coronavirus shutdown, a gaping budget hole had already been dug, Gomez said.

Last June, Santa Monica's pension debt reached an estimated $448 million. And that doesn't include the approximately $52 million annual contribution the City is required to make to California's Public Employee Retirement System (CalPERS).

As the pension debt ballooned, the City maintained one of the highest-paid municipal staffs in the country -- with 105 workers clearing more than $300,000 in pension and benefits in 2016 ("Santa Monica Defends High City Salaries as Key to Quality Services," December 6, 2016).

That year, Santa Monica's police chief was the highest compensated in the state, according to an analysis by Transparent California, part of the Nevada Policy Research Institute

So was the Deputy Police Chief, the City Attorney, the Assistant City Attorney and the Assistant City Manager.

One Police Sargent made $475,546 in salary and compensation; the Assistant City Librarian made $220,558.

"We have a City Council that is obligated to special interests and does not have the financial aptitude to effectively manage the City," said Gomez, who is a graduate of the Harvard Business School’s Executive Program for Management Development.

The Council was also bankrolling major projects -- a $76,760,000 uber-green City Hall annex to house 240 workers, an $800 million 10-year plan to fight climate change.

These are projects that "from a philosophical perspective have merit but are completely nonsensical," Gomez said, noting that in 2018 the Council allocated no money to pave Santa Monica's streets and alleys.

"If you were in the private sector and you proposed (these projects), you'd be terminated," said Gomez, who has been a top executive for several major telecommunications firms.

More than three years before the coronavirus struck, top City staff sounded the alarm as pension payments reached unprecedented levels ("City of Santa Monica on Top List of Biggest Public Pensions in California," August 10, 2017).

In May, 2017, former City manager Rick Cole warned that shortages in revenue were set to double (“'The Wolf is Here,'” Santa Monica City Manager Warns as Budget Woes Mount," May 25, 2017).

Pensions, Cole warned, were expected to account for $13 million of the $19 million deficit projected for 2021-2022 fiscal year.

“We’re not crying wolf,” Cole told the council. “The wolf is here.”

The following February, Laurence Eubank, who with Gomez was a member of the advisory committee, issued the “2030 Challenge” ("Member of Santa Monica Audit Advisory Group Urges City to Pay Down $461 Million in Unfunded Pensions by 2030," February 28, 2018).

The plan called on the Council to set aside $40 million a year and impose across-the-board freezes on salaries and/or hiring in order to dig out of the pension hole by 2030.

By doing so, Eubank wrote, the City would save approximately $100 million.

Two months later, in May 2018, Eubank and Gomez issued an urgent warning and asked the Council to continue the advisory committee ("LETTERS -- Citizens’ Committee Members Sound Alarm, Want to Continue Work," May 30, 2018).

"Hard choices must be made to put our fiscal house in order, including exploration of alternatives for acceleration of the retirement of our unfunded pension liability," they wrote

"With the next recession -- certain as tomorrow’s sunrise -- the existing pension shortfall will likely balloon over a half billion dollars, becoming an existential threat to our fiscal sustainability," they wrote.

Cole responded that Eubank and Gomez's letter presented "an unbalanced picture" ("LETTERS -- City Manager Rick Cole Responds," May 30, 2018).

"If you cite the long-term pension obligation as demonstrating that the City spends 'all it takes in and more,' then it would only be fair to point out that the City has net assets over a billion and a half dollars," Cole wrote.

"It’s an unbalanced picture to cite the $461 million liability without citing the $2 billion in assets in the form of cash, investments and valuable physical infrastructure."

On May 8, 2018, the Council bid farewell to the citizen audit committee ("After 'Frank' Exchange of Views, Santa Monica Citizen Committee Is Bid Farewell," May 2018).

Gomez used the opportunity to again hammer home the need to address unfunded liabilities and pensions, telling the Council the amount “is approaching a half billion dollars.”

“It’s astonishing," Gomez said. "It’s really important to follow through with bold and decisive action. This debt will keep accelerating.”

At the 2018 meeting, Councilmember Gleam Davis attributed the high employee costs to the City's choice to perform the work in-house, instead of hiring contractors.

"There's no reason to panic," Davis said. "We're in pretty good shape."

Less that two years later, the effects of the coronavirus shutdown fully exposed the fiscal crisis that had been building for decades.

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