Santa Monica’s upcoming budget picture moves from barely in the black to slightly in the red over the next five years, call it an ash grey to watermelon transition by fiscal year 2027/28.
The Citywide proposed Biennial Budget is $740.9 million in FY 2023-24 and $746.4 million in FY 2024-25 and council will hear an update on its fiscal projections at Tuesday’s meeting.
Santa Monica’s budget is relatively stable over the next five years with estimates showing a revenue surplus of up to $200,000 over the next three years and shortfall of about $600,000 in year four followed by a $1.5M shortfall in year five. Staff said those losses represent about 0.1 and 0.3 percent of the total budget and are manageable over the three years of surpluses.
Revenues have seen explosive growth in recent years, spiking by 30 percent immediately following the pandemic and that rate of growth is expected to slow significantly to about 3 percent a year. Steady growth will allow the city to rebuild its reserve fund to 15 percent of expenses by 2026/27 but it will take until 2027/28 to recover to prepandemic levels. Officials estimate the city will have lost about $250 million by that time in lost revenue growth.
"The Proposed Budgets for FY 2023-24 and FY 2024-25 represent year-over-year growth of
3.8% and 0.8%, respectively," said the staff report. "The budget spans 30 funds and 15 departments. The General Fund, supported predominantly with tax revenues, provides the majority of municipal services, while enterprise funds such as Water, RRR, BBB and the Airport conduct their operations using rate- or fee-based revenues, and still "Other Funds" receive contributions from all funds to service items such as vehicle and technology needs or insurance needs, or conduct activities covered with grant or other nondiscretionary revenues."
The slower growth in the second year is due to planned capital expenditures related to BBB.
Staff said the proposed budget includes the most substantial restoration of ongoing services and introduction of enhanced services to date since the 2020 budget restructuring. The budget calls for an additional 58 permanent and 11.5 temporary positions.
"This is due to a combination of a new voter-approved revenue source, continuing revenue growth, a reallocation of existing funds, new revenues from public and private partnerships, and staff’s ability to expand capacity for cost-covering programs," said the staff report.
Staff said the increases are mostly targeted at the council’s previously identified priorities but caution is warranted going forward as the city is entering a period of slower growth and increasing costs.
Part of the service restoration has been funded by a change to fiscal priorities.
"On April 11, 2023, Council authorized a suspension of the accelerated paydown of the City’s unfunded pension liability from FY 2022-23 until FY 2027-28, or later, to restore an array of community services and programs such as expanded hours at the Main Library, restoring Youth Program capacity, and restoring positions in Planning and Economic Development to further economic recovery activities, among other restorations," said the report.
Tuesday’s meeting is to inform Council of the current situation and begin the discussion process leading up to adoption in Juney.
Council will convene a public hearing on June 27 to consider, receive public comment, make revisions to, and adopt the first year and approve the second year of the Biennial Budget, as well as to adopt the second year of the Capital Improvement Program Biennial Budget. Members of the public may provide comments on the Proposed Budget by sending an email to councilmtgitems@smgov.net or by giving public testimony at the May 23, 2023 Council meeting. Public testimony is also welcome at the Budget Adoption hearing on June 27, 2023.
Council will meet on Tuesday, May 23 in City Hall. Closed session begins at 5:30 p.m.
