The Trimble family walks by the Georgian Hotel on Ocean Avenue on Wednesday afternoon. (photo by Brandon Wise)

CITY HALL — Painful spending cuts could be on the horizon as City Hall grapples with a bleak financial outlook, though officials said Santa Monica is in a better fiscal position than most cities.

“Things are so much worse in virtually every other place,” City Councilman Richard Bloom said, wrapping up the council’s budget discussion on Tuesday. The meeting was the council’s first in-depth look at City Hall’s finances ahead of the next fiscal year, which begins July 1.

The most optimistic forecast predicts a $30 million City Hall deficit by 2014 if spending isn’t cut, and a gap as high as $53 million if the economic recovery is slower than expected, Finance Director Carol Swindel said in her report to council Tuesday night.

The gap between revenues and expenditures for next year is expected to be $13.2 million, though a one-time transfer from an “economic uncertainty fund” will reduce the deficit to $6.9 million. Swindel’s “worst case scenario” projection for next year leaves City Hall with a $12.1 million deficit after using its one-time funds.

The budget shortfall is the combined result of significantly reduced revenues across Santa Monica’s diverse tax base.

Revenue from a tax on hotel rooms, for example, plummeted as tourism fell off last year, with City Hall earning 30 percent less from its transient occupancy tax last July compared with the year before.

Sales tax revenue from auto sales, an important chunk of Santa Monica’s economy, were down 13 percent from two years ago.

Meanwhile, City Hall’s health insurance costs are projected to grow at 12 percent each year and contributions to the California Public Employees’ Retirement System (CalPERS) are expected to far outpace revenue growth. Payments to the system for employees’ pensions have increased due to stock market losses in the past two years.

The situation presents City Council members with difficult and unfamiliar choices, even if Santa Monica’s economy rebounds faster than other cities.

The budget for the next fiscal year won’t be adopted until June, but the council began the process of setting priorities on Tuesday. Council members were short on specifics but gave general indications of where they believe savings should come from.

Councilwoman Gleam Davis said she thinks the council should “minimize our cuts in services to our most vulnerable members of our community.”

If spending is to be reduced, programs for at-risk youth, the homeless, the elderly and the economically disadvantaged should remain in tact, she said.

Councilman Bob Holbrook, though, said City Hall may have to make cuts to its non-traditional programs that most cities don’t fund. The priorities, he said, should be the core functions of city government — public safety and maintenance.

If City Hall is going to bring spending in line with revenue projections for the next five years, Councilman Bobby Shriver said the council will have to look at its biggest spending category — employees’ salaries. He said it will be impossible to achieve the kinds of savings that the budget outlook calls for without reducing compensation costs.

Seventy-one percent of City Hall’s budget is spent on salaries and benefits.

The council is scheduled to hold budget workshops on May 25 and 26 before adopting a budget June 15.

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