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City to Dip Into Emergency Reserves as Economic Downturn to Last Until 2025

Bob Kronovetrealty
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By Jorge Casuso

January 21, 2021 -- Despite deep cuts, Santa Monica's crippled economy has pushed the City's current budget into the red, and it's not expected to fully recover for at least another four years, City officials said.

After using $117 million in one-time funds to balance an already pared-down budget last June, the City will have to use $14.6 million of the $20 million it had squirreled away for a winter COVID-19 surge.

The proposed adjustment is included in a mid-year budget report the City Council will take up next Tuesday as it grapples with what staff calls "the worst economic crisis of our generation."

"The pandemic has severely depleted many of the City’s previously reliable revenue streams while also requiring City staff to provide new emergency and recovery services," staff wrote in its report.

It has also accelerated "other economic shifts, such as declining in-person retail and increased online shopping, that further impact traditional revenue streams as well as how and where people work."

City finance officials forecast that Santa Monica's won't regain its economic footing until at least 2025, when it will reach the level it was at during the 2018-19 Fiscal year.

"These are our best guess at reality," said City Finance Director Gigi Decavalles-Hughes. "We worked with consultants looking at different trends.

"It assumes tourism will take some time to reach the levels where it was before," Decavalles-Hughes said. "Some businesses will not reopen."

Staff's mid-year budget report proposes eliminating five vacant positions in the Police Department in order to boost funding to address homelessness, enhance code enforcement and improve customer service for residents.

The savings also would help divert non-emergency calls to a new 3-1-1 line, provide eviction counseling for tenants behind on their rents due to the shutdowns and hire an inspector general to support the newly formed Public Safety Reform and Oversight Commission.

In addition, the City is exploring new revenue streams that include installing as many as 50 advertising kiosks in public spaces and offering naming rights and sponsorship opportunities at City owned facilities and spaces.

On the upside, the local real estate market remains strong, which should provide a funding boost from Measure SM, the newly approved local measure that hikes the City's "luxury" real estate tax to help pay for essential services.

The new tax is expected to generate $3 million in revenues in its first year and $6 million a year after five years, said Decavalles-Hughes.

The City is also expected to see an increase in federal funding under the Biden administration, which is proposing $350 billion to help bail out state and local governments hit hard by the coronavirus shutdowns.

The City received little more than $1 million in stimulus funding from the Trump administration, which used a population-based formula that disqualified Santa Monica from most emergency funding.

But the money could increase significantly under new guidelines being proposed as part of Biden's $1.9 trillion stimulus plan, said Interim City Manager Lane Dilg.

"We are advocating at every level that funding be allocated under a fair and equitable allocation formula," she said. "We hope to see stimulus funds in a greater amount than we've received to date."

The City, Dilg said, is now in a "stable financial position" that will allow it to "no longer just weather the storm but provide core excellent City services" without further staffing cuts.

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