Budget: It’s been a rollercoaster ride for budget projections over the past few years.

Nuggets of good news brightened the gloomy overtones of the City’s midyear budget review — like the announcement of a $30 million influx of unanticipated revenues, which ever so slightly lessens the sting of the $188 million in revenue lost and over 420 staff positions cut as a result of the pandemic.

This $30 million difference between the forecasted general fund revenues from Fiscal Year 2021 to 2022 and what is now expected signals that Santa Monica’s economy is rebounding faster than predicted. This windfall is thanks to an uptick in hotel occupancy, parking, sales and real estate deals, which were a boon for tax revenues.

Despite these promising economic signs, the fiscal curse of COVID-19 will continue to haunt the City for years to come.

General fund revenue is not expected to surpass pre-pandemic levels until FY 24-25 and even then is forecast to be $35 million less than it would have been had the pandemic not occurred. Furthermore, a return to pre-pandemic revenue levels will not mean the City can sustain pre-COVID era services, given the spike in inflation and increased costs of goods and services.

“Even if we find creative, more efficient ways to restore our services, our operating costs are going to be increasing during this period, some that are at a level higher than our revenue growth, which makes restoration at any level very difficult,” said Director of Finance Gigi Decavalles.

Further dampening news of the positive short-term recovery is the unfortunate truth that this $30 million increase in revenues will not translate into $30 million in new funding to rehire staff and restore services.

Over 90 percent of this revenue boost must be sliced up and allocated towards other purposes. This includes an 11 percent allocation towards fulfilling revenue sharing agreements with the school district and affordable housing commitments, and an 36 percent allocation towards rebuilding the financial safety net of the City’s severely depleted reserves. During the pandemic, the reserves were drained by more than $60 million and this new influx in cash will provide a sorely needed $11 million boost, which will ensure the City can finance future legal fees, emergency infrastructure fixes and other unbudgeted needs as they arise.

Thirty-two percent of the revenue bump will be allocated towards the City’s known liabilities, which include COVID-related costs, an increase in its CalPERS contribution, and an increase to the rainy day fund. Anytime the City increases its budget it needs to ensure that contributions to its rainy day fund reflects 12.5 percent of the overall budget. Further funding commitments include 4 percent towards budget adjustments made at the end of the last fiscal year and 11 percent towards budget adjustments approved by Council since then.

Ultimately, this leaves the City with $1.84 million, reflecting 6 percent of the $30.7 million, to dole out to new purposes such as rehiring staff or restoring services.

Nevertheless, this influx in funding is still a welcome sign and will be used to restore some positions and increase City services in a manner meaningful to residents. Over 30 positions will be gained across a range of City departments with an emphasis on rehiring administrative workers to reduce the lag time in service provision and allow more senior staff members to focus on long-term tasks.

“When we restructured our budget in 2020, we eliminated a very large number of administrative positions and directed our limited resources to frontline and emergency work,” said Decavalles. “During the past few years or past two years we’ve struggled to maintain basic operations from customer service to paying bills to negotiating contracts to recruiting, managers frequently have had to step in and complete administrative duties… As we look to grow the services and programs that we’re offering, we simply can’t support them.”

According to Decavalles, restoring these “back of the house” positions is a necessary precursor to expanding the services the City offers. With the midyear budget revisions, administrative support staff is being reallocated to City Council, Human Resources, the City Manager’s Office, City Attorney’s Office, Community Development, Public Works, Transportation and Information Services.

The City Manager’s Office is also gaining an Equity and Inclusion Program Manager, whose responsibility will be to institute policies, programs and services to advance equity and inclusion citywide.

“There’s a lot, a lot of work going on, internally amongst the department’s and in the community, but we need to kind of structure it a little bit more so that we make sure that we’re collaborating with the departments and with the community and keep it moving forward. We see it (equity and inclusion) not as a separate priority, but as something that should inform everything that we do,” said Decavalles, adding that for the next fiscal year’s budget proposals all departments must explain how their requests will take into account, or serve to further, equity and inclusion.

In the mid-year budget revisions, a portion of the additional revenue is also being allocated to recreation and library services. This will have an immediately tangible impact on the level of services available to residents.

The Community Services Department plans on increasing its community recreation programs and programs at Annenberg Beach House. According to Andy Agel, Director of Community Services, the proposed expansion includes 180 additional community classes and camps, 400 additional hours of gym access, expanded skate park hours and expanded aquatic programming.

The Santa Monica Public Library plans on reopening the Fairview Branch for the first time since the start of the pandemic under a self-service system. The library will also be receiving one additional literacy programming assistant and two part-time library service officers.

The library was one of the hardest hit departments by the City’s 2020 Covid-related budget restructuring. Prior to the pandemic, the department had part-time and full-time staff working hours equivalent to 112 full-time positions. In 2020, this dropped to just 47 full-time equivalent positions. All five library branches were closed to the public from March 2020 until June 2021, when the Main Library reopened for limited hours and in-person services. Since then the Pico Branch and Ocean Park Branch have reopened with limited hours and the Montana Ave Branch is slated to do the same in March.

Even with this staffing and budget boost, library services remain significantly underfunded, to the point where City staff are researching a potential ballot measure for a parcel tax that could help restore funding. This would require two-thirds voter approval and raise between $2 million to $4 million for the library.

The City is also examining other general revenue raising ballot measures to help accelerate its economic recovery and ability to restore services. These include raising the tax on lodging room rentals or on parking fees or modernizing the business license tax. The City has already maxed out its ability to raise sales taxes and recently approved an increase in document transfer taxes for high value property sales. Staff will conduct scientific polling in the spring and return to Council in earlier summer with recommendations for the best ways to move forward with ballot measures.

Raising revenues is important not only for helping restore services, but also for refilling several other City coffers that were drained by pandemic induced revenue losses. In addition to the City’s depleted reserves, attention is needed to replenish capital improvements funds, which are essential for maintaining infrastructure and building new projects. During pandemic budget adjustments, the City cut its allocation to the capital fund by over half.

“The capital program remains severely underfunded. For two years we’ve had to suspend our computer replacement at a time when computers are vital to our operations and our vehicle replacements have also lagged,” said Decavalles. “As we weigh how to restore services and rebuild reserves, we also have to consider that these infrastructure needs are being deferred.”

The City estimates that it needs over $300 million to finance all of its de-funded and unfunded capital plans. Some of these projects include the City Yards modernization, Memorial Park expansion, Airport Park expansion, Fire Station 7 construction and Parking Structure 1 seismic retrofitting.

These are long-term funding needs the City will have to balance with the demand for rehiring staff and restoring services. At the same time, City staff are bearing in mind the potential for future economic disruptions as while the immediate future of economic recovery appears rosy, there are several factors that could threaten this. These include high inflation rates, upcoming interest rate increases, the ongoing labor shortage, the potential impact of a new COVID surge and continued international travel restrictions.

clara@smdp.com