CITY HALL — While city officials just last month celebrated the upgraded bond ratings for two local redevelopment zones, the mood has changed substantially in the days following the state’s budget adoption.
The Santa Monica Redevelopment Agency (RDA), which finances neighborhood revitalization projects, is expected to take a nearly $21 million hit this year from the state’s plans to shift approximately $1.7 billion from redevelopment agencies throughout California to help plug a $24 billion deficit. RDA officials originally anticipated losing about $4 million.
In the wake of the budget’s passage on Monday, local officials are still trying to ascertain the impact on City Hall, Santa Monica College, the Santa Monica-Malibu Unified School District (SMMUSD), and whether to brace for more cuts when the mid-year budget rolls around.
For the Redevelopment Agency, whose promotion in the bond rating should lead to lower interest rates when it comes time to borrow in the future, the result of the state takeaway could mean it will experience a challenging time issuing bonds for future projects because of uncertainty by investors.
“The uncertainty that the bond investor faces is how much the state can take away in any give year when they can grab this much money (now),” Andy Agle, the director of housing and economic development, said. “It may affect how we are able to think of the long-term investment of funds.”
The result could be a delay in about $283 million in projects that in June were earmarked to receive RDA funding, such as $57 million for joint-use projects at Santa Monica High School, $25 million for shared parking, and $43.6 million for affordable housing.
“What we’ve done in the current fiscal year is put money into primarily design and predevelopment work for all these projects and essentially this means we are going to have less money to expedite those projects,” Agle said.
The California Redevelopment Agency is planning on suing the state over the takeaways, claiming that it’s unconstitutional. The outcome of the lawsuit could dictate whether investors will be interested in buying bonds in the future.
“I hope they are successful because then that doesn’t mean a continued temptation for the state to use RDA money as a way of solving budget problems,” Finance Director Carol Swindell said.
City Hall will lose out on $3.1 million in one-time funds as part of approximately $1.9 billion that the state will borrow from cities through Proposition 1A property tax revenues. That money must be paid back within three years with interest.
Swindell said that city reserves will be used to fill that hole.
“I think there is a concern that many have that given the state’s precarious financial conditions, there is a question of whether they will be able to repay that loan in three years,” she said.
More cuts are expected over at Santa Monica College where the recently approved budget will leave it with $6 million less for the coming school year.
College officials said they will begin exploring ways to save money as soon as they can confirm the final figure that SMC will lose. Those savings could come through cutting 50 percent of courses for the winter session in 2010 and cutting programs that provide tutoring and counseling for socio-economically disadvantaged and disabled students.
Bob Isomoto, the vice president of business and administrative services, said that the college is not exploring furloughing or layoffs at this time. The college will also try to keep its fall and spring semester course schedules intact.
About 6 percent of course sections were eliminated in the spring semester because of the economic downturn, all while enrollment has increased.
The school district came out of the state fiscal crisis facing the same predicament post budget, still anticipating to lose $10 to $13 million over the next 18 months, though the figure is edging closer to the latter.
Approximately $4.5 million in cuts have already been made for this year by reducing one house at Santa Monica High School, increasing class sizes and reducing contracts. The remainder will come in fiscal year 2010-11.
Jan Maez, the chief financial officer for the SMMUSD, said the district was fortunate to enter the downturn with large reserves, giving it extra time to think through changes carefully and more thoughtfully.
The approved budget for the 2009-10 year shows the district spending more than it’s taking in, using about $8.5 million in reserves to help it balance the books.
The county requires that the district have a reserve level of at least $3.5 million. The district is expected to have about $12.8 million in reserves left at the end of the year.
Maez said the district could spend down its reserves very quickly over the next few years unless some changes are made.
“We have work to do ahead of us with the budget we adopted in June and this state budget hasn’t really significantly changed the amount of work the district needs to do,” she said.