While the booming economy continues to bring tourists to Santa Monica from all over the world filling hotel beds, stores nearby are increasingly finding themselves empty. The City Council will hear more about how the ‘retail apocalypse’ has hit the city when they get a mid-year budget update Tuesday night.

Hotel tax revenue for the city has increased at an average annual rate of nearly ten percent over the past seven years, according to the budget report from the City’s finance director. Gigi Decavalles-Hughes anticipates revenues will continue to grow with the opening of two new hotels at Colorado Avenue and 5th street and a third under construction.

“Santa Monica’s economy remains relatively strong due in large part to its geographic location and its diversified tax revenue base. However, there are signs of moderation in the local. economy’s growth rate,” the report said.

While beds are full, sales tax growth has not kept pace, growing less than three percent a year. In addition, Decavalles-Hughes says Business License Taxes are showing weakness over the next few years, with at least one major company leaving Santa Monica (she did not name which one).

The so-called “retail apocalypse” shuttering stores in malls across the United States has yet to peak, according to estimates by commercial real estate firm Cushman & Wakefield. More than 12,000 stores are expected to close in 2018 and as many as 25 major companies could file for bankruptcy. Malls like Santa Monica Place are increasingly looking outside of the box for new tenants, with the Zimmer Children’s Museum moving in this year and The Gourmandise School of Sweets and Savories expanding to fill space where retailers have left. On the Promenade, temporary pop-up stores like Taylor Swift’s brief promotion in December fill spaces that are otherwise vacant.

Santa Monica’s emphasis on alternative transportation is also draining a portion of the City’s revenue as more visitors leave their cars at home. This year alone, revenue is anticipated to decrease seven percent. Garages are becoming less congested as more people take the Expo and rideshare services like Uber and Lyft to get around.

“The City, along with cities across the country, has entered a period where changes in the economy at large, such as online sales, and regional factors such as alternative transportation choices, are beginning to impact our traditional revenue streams,” the report said.

The City’s finance director anticipates the General Fund will hit a shortfall of $300,0000 in 2020 that will increase to $10.6 million in 2021.

“The major challenges to the City’s budget continue to be pension, health insurance, and worker’s compensation costs, which are projected to grow at rates of 6 percent, 8.5 percent, and 10 percent per year, respectively,” the report said.

Three of the City’s funds are already projecting shortfalls: The Housing Authority, the Cemetery, and The Pier. The Housing Authority is projecting a deficit of nearly $1 million annually for the next few years and will need subsidies for the foreseeable future. Staff is assessing a long-term plan for the Cemetery Fund to address structural problems. The implementation of a green burial program at Woodlawn Cemetery has not helped increase revenues. Finally, the Pier Fund cannot cover its operating costs and big projects and will need money from the General Fund.

Even still, Decavalles-Hughes says the City has the funds for an $8 million Civic Center Multi-Use Sports Field with $1 million in additional funding.

On Tuesday, the Council will likely accept grants for the Safe Routes to School program, Wilshire Boulevard Safety Enhancement Study, and computer improvements at the Santa Monica Public Library.

 

kate@smdp.com

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