CITY HALL — The City Council got a first crack at its two-year budget Tuesday night, an effort at financial planning that combines revenue increases and department-wide cuts to balance the books for the next two years, but cannot solve the looming problem of rising pension and healthcare costs that wait on the other side.
Overall, the proposed budget — $520.9 million for 2013-14 and a projected $527.7 million for 2014-15 — is an attempt to get through the next two years with minimal disruption to city services while officials get more clarity concerning the magnitude of the problems facing Santa Monica in the future and how they might be overcome, said City Manager Rod Gould.
“We will need to take additional steps in that period to handle increased costs in the next two years, so expect revisions every six months,” Gould told council members.
Citywide, departments trimmed 3.7 percent of their budgets for the 2013 year and 5 percent for 2014 both by bringing in new money and through cuts, said Gigi Decavalles-Hughes, finance director at City Hall.
However, the budget still had to contend with a $20 million loss from the dissolution of the Redevelopment Agency, an entity that funded infrastructure improvements and affordable housing production in Santa Monica, and another $1 million hit from healthcare taxes associated with federal changes to healthcare law.
The collapse of the Redevelopment Agency has already hit home, forcing the closure of the Santa Monica Civic Auditorium and with it the first layoffs Santa Monica has seen in over 20 years. Affordable housing production will also suffer, and many other projects have been canceled or postponed as a result.
Council members largely focused their comments on proposed fees, money-makers and service changes put forward by the various city departments that presented Tuesday night, approving cuts that left core city services intact and questioning those they felt might have undue impact on certain residents.
They gave a tentative nod to a wide range of fee increases, a plan to auction off old city computers rather than donate them to nonprofits and even an increase in the cost of classes provided by the Community & Cultural Services Department.
That list also includes a step-up in the cost of preferential parking permits. Those fees would get steeper the more permits requested in an attempt to put residents’ third and fourth cars back into their driveways or garages rather than taking up valuable street real estate.
Permit changes alongside the addition of 350 new parking meters could bring in as much as $1.3 million a year.
The City Council also looked at a review of 700 fees, which, if approved in their entirety, constituted a $2.1 million injection of new revenues, although finance officials only included $1.45 million in the projected budget.
Over 40 charges were raised by more than 100 percent, half of which fall on developers who request work done by city employees that had not been increased in many years, and raised little concern amongst council members.
They balked at certain changes, particularly a $175 charge to translate certain election materials into Spanish — opposed by Mayor Pro Tem Terry O’Day and councilmembers Gleam Davis, Tony Vazquez and Kevin McKeown — and grudgingly assented to charges for library cards for non-residents; O’Day requested an exemption for students who attend school in the city but do not live here.
Although the issues tackled Tuesday night will impact Santa Monicans — fee increases could begin rolling in as soon as July in some cases — there are beefier issues that could weigh City Hall’s finances down for years to come.
Trouble on horizon
The majority of Santa Monica’s budget woes come more than two years down the line, with a huge increase in pension costs projected for the 2015-16 fiscal year as a result of changes announced by the California Public Employee Pension System, or CalPERS.
The organization, which manages $257.4 billion in assets for governmental entities across the state, plans to increase employer contribution rates, settling on policies that will increase costs as much as 50 percent over the course of five years.
That will mean $5.8 million from the General Fund as soon as 2015-16, the first year of the next biennial budget, increasing to $18.1 million by the 2019-20 fiscal year.
At the same time, health care expenses are expected to increase 14 percent. The cumulative impact is an increase in the cost of public employees that’s growing faster than revenues projected to come into the city.
Those kinds of steep increases can only be countered through negotiations with the unions that represent municipal employees, or through painful cuts to essential city services.
Some try to remain positive saying that development could help drag City Hall out of its budget deficits.
The seven hotels in the planning pipeline alone could bring in as much as $20 million a year in new taxes if they all are approved by the City Council. That money comes out to 14 percent on each hotel room and constitutes 14 percent of the city’s revenues.
That kind of budgeting won’t work for Santa Monica, Gould said Wednesday.
Even if all the hotels were approved, almost none would be online before five years were out, meaning that Santa Monica would already have racked up huge deficits from employee benefits.
“We have to keep budgeting separate from land use decisions,” Gould said.
City Hall has two years to strike a deal with unions and puzzle out a way to get its future finances under control.
“No one is at fault in this, and no one is a villain,” Gould said. “If we manage it well, we can continue with the significant progress we’ve seen in Santa Monica.”
The City Council will formally vote on the budget in June.