The City of Santa Monica could lose between $10 to $40 million each year in the 2020s – even more if a recession hits in the new few years – if it doesn’t cut services.
The City released a ten-year projection of its revenues and expenditures on Friday. It will start spending more money than it takes in by fiscal year 2020-2021, and by FY 2028-2029 it could lose up to $50 million if a recession affects revenues. City Council will discuss the forecast and funding for certain programs on Tuesday.
The primary culprit is the City’s unfunded pension liability, a $467 million shortfall between the value of its pension fund and the amount it must pay out to former employees.
The Great Recession depleted the state’s pension fund, CalPERS, and it still doesn’t have enough money to pay retired employees after a decade of economic recovery. The City will likely adopt an accelerated repayment plan to pay down its own CalPERS liability by 2033, which will save $100 million in interest but still dramatically increase its annual expenditures. It has also made $77.5 million in pre-payments on its debt.
Under an accelerated repayment plan, the City will spend $6.2 million more than the revenue it generates from services and sales, hotel and property taxes next fiscal year. By 2025, that number will balloon to at least $28 million and could even reach $40 million in a recession. The gap will continue to widen until the end of the decade.
City staff are not revealing budget specifics until April but the report released Friday hints that the 2019-2021 budget, which Council will start work on at its Jan. 26 retreat, is going to include some cuts to services.
The report also outlines the solvency of various City funds, such as the Big Blue Bus, beach and pier funds. Many of them will fall into debt by the mid-2020s.
Reserves for the water and wastewater funds’ will fall below recommended levels by 2021. The resource recovery and recycling (RRR) fund will be in the red by 2021 because China is not longer importing American trash. The City will likely cover the shortfall by increasing solid waste rates.
The beach fund will not take in enough revenue to cover expenses by the late 2020s because demand for parking, a crucial source of money, will decrease even as more people visit the beach, creating additional need for maintenance, security and recreational programming.
Funds that will remain steady include the Big Blue Bus fund, which recently cut service by 5 percent and redirected it toward higher-demand areas, the community broadband fund and the cemetery fund.
The City’s General Fund is also projected to remain fairly healthy after seeing rapid growth over the last six years as the country recovered from the recession.
The fund will grow at 2.3 percent annually during the 2020s, on average, after growing at four percent over the past three years as Santa Monica absorbs the impacts of the retail apocalypse on sales taxes. Tourism revenue will remain strong, while parking revenue will continue to fall because of the Expo Line and ridesharing.
City Council will meet on Jan. 22 in City Hall, 1685 Main Street. Closed session begins at 5:30 p.m. Open session begins no earlier than 6:30 p.m.