The City of Santa Monica continues to lose money due to the ongoing pandemic and officials predict the economy won’t recover until 2025.

Council will hear a mid-year budget report at its Tuesday meeting with additional details on continued efforts to keep the city afloat including reprioritizing spending and anticipated help from the new Biden administration.

At the start of the pandemic, the city made a series of adjustments to handle massive projected deficits over the next three years. At the time, officials expected to lose $48 million in 2019/20, $102 million in 2020/21 and $74 million in 2021/22. Officials cut more than 300 staff positions, reduced services and postponed expenses to handle the crisis. The 2020/21 adopted budget used $117 million in one-time funds to continue providing essential services to residents. The budget also set aside a $20 million “Shutdown Reserve” to prepare for the possibility that a winter COVID-19 surge between December 2020 and February 2021 would result in another shutdown of the economy and City revenues.

That possibility has become reality, and staff has since reviewed the City’s actual revenues and expenditures to date and compared them to the targets that were set as part of the FY 2020-21 Adopted Budget.

“City revenues are expected to come in $14.6 million lower than anticipated as a result of the extended closures from the pandemic, and the City will therefore need the $20 million Shutdown Reserve that was set aside in order to balance the FY 2020-21 budget,” the staff report states.

Staff said Santa Monica’s economy is particularly vulnerable to the impacts of the coronavirus.

“Tourism and hospitality are key components of the Santa Monica economy. Transient occupancy taxes have historically accounted for a higher proportion of General Fund revenues (17%) than in most cities, and sales taxes generated by tourists and daytime visitors at restaurants and retail outlets also contribute greatly to the City’s revenues. In fact, these two sources, along with parking related revenues accounted for nearly one-half of General Fund revenues prior to the pandemic and are now projected to decrease 44% from pre-COVID levels (this is a greater reduction than the 35% decrease that had been anticipated in the FY 2020-21 Adopted Budget),” said the staff report.

Business shutdowns have also hit revenue sources and staff said some impacts will linger despite vaccine rollouts.

“It is anticipated that some physical distancing measures will be kept in place in hotels, restaurants, and shopping establishments for a period beyond widespread distribution of the vaccine. It will likely be months or even years before international and interstate travel resume in a meaningful way, and business travel may never return to pre-virus levels. People’s shopping habits may also be altered for a significant amount of time or forever,” said the report.

The budget update proposes eliminating five vacant positions in the police department to provide additional resources to addressing homelessness, enhancing Code Enforcement services, improving customer service for residents and diverting non-emergency calls away from 911 by offering a 311 line. The city also hopes to provide eviction counseling to assist tenants who face losing their homes due to rent unpaid during the pandemic, and fund the inspector general position that will support the newly formed Public Safety Reform and Oversight Commission.

In addition to discussion of priorities, staff are asking council for direction on several topics including additional fees for some services, public/private partnerships to support some operations, management of local grants and possible advertising revenues from digital kiosks.

City leaders noted none of the changes are written into stone yet but the public should be aware that there is little room to add spending without federal stimulus funds. So far, Santa Monica has received $1.1 million in federal aid but officials hope a new stimulus package from the Biden administration could improve the city’s fiscal health.

“This is a check-in on the fiscal year that we are in,” Interim City Manager Lane Dilg added in a discussion about the budget report, which is now available at smgov.net.

Other Items on the Agenda:

City Council is expected to adopt two separate ordinances that would prohibit certain fast food restaurants on the Third Street Promenade and establish a Public Safety Reform And Oversight Commission.

Council will meet online on Jan. 26. Closed session begins at 5:30 p.m.

Brennon@smdp.com