SR-CC/RA/PA/HA-2
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CM:JJ:LCB:dm:br:memocpfc Santa Monica, California
January 28, 1992
TO: Mayor and city council
FROM: City Staff
SUBJECT: BACKGROUND INFORMATION FOR PUBLIC HEARING ON COMMUNITY
PRIORITIES FOR THE FISCAL YEAR 1992-93 CITY BUDGET
Introduct.ion
This is to provide background information for the city Council
and public concerning the City's budget structure, and current
and projected financial condition which staff believe should be
considered during preparation of the FY1992-93 budget. This
background information also provides a context for receiving and
evaluating public comment about budget priorities, and for budget
preparation direction which Council may wish to provide staff for
next year.
Executive Summary
Although the city of Santa Monica ended FY1990-9l in a relatively
strong financial position compared to many other jurisdictions,
the current recession has been substantially deeper and is
projected to be much longer lasting than was expected when budget
decisions were made in June 1991. As a result, city revenues for
FY's 1991-92 and 1992-93 will he less than previously projected.
While expenditures will also be somewhat less primarily due to
lower Consumer Price Index changes, in the short-term revenue
decreases will be substantially more than expenditure decreases.
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Jl)~. .; '" 1991
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This short-term "dipll in revenue flows also means that when
economic recovery begins and normal economic growth returns, the
rate of revenue growth will begin from a lower base and,
therefore, on-going revenues will not be sufficient to meet
current services expenditure requirements and to maintain a
positive General Fund balance. "Current services" expenditure
requirements consist of on-going operating expenditures to
support existing staff and the programs they carry out, and an
appropriate level of capital improvements (such as street and
building repairs) needed to maintain the City's infrastructure.
The adopted FY1991-92 city budget increased the General Fund
balance to provide somewhat of a buffer for just such a
contingency. However, this buffer must be augmented wi th other
cost-reducing mitigation strategies to manage the current and
projected revenue shortfall. Successful implementation of cost
reductions will require careful consideration of priorities among
all existing service programs. As a result, responding to new
expenditure demands for the next year or two will be very
difficult.
Background
During January 1991, the Council held the first public hearing on
community budget priorities. staff believes such a hearing is
useful and should become a permanent part of the City's budget
process since it provides an opportunity for public input earlier
in the budget preparation process, allows time for more thorough
staff and Council consideration and evaluation of suggestions,
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and allows more time for public education on budget parameters
and constraints.
As was the case last year, this hearing is being held prior to
submittal of departmental budget requests to the City Manager.
It is important to note, however, that this early hearing does
not preclude or supplant the public review opportunity and
hearing process normally scheduled for May and June.
Budget structure
The adopted City revenue budget for FY1991-92 totals $192.5
million. The budget is organized into twenty-three separate
funds. The largest fund is the General Fund which constitutes
about 57% of total City revenues.
For ease of discussion, these funds can be grouped into three
major categories:
- Enterprise and Internal service Funds which operate
much like private businesses where the services
provided are financed primarily from fees. Examples
are the Water Fund, Solid Waste Management Fund, and
the city self-insurance funds.
- Special Revenue Funds which are used to keep track of
expenditures that can legally only be made for specific
uses and where the revenues come from specialized
sources. Examples are the Community Development Block
Grant Fund and the Beach Fund.
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- The General Fund in which revenues and expenditures
associated with providing basic City services such as
Police, Fire, and Library are tracked. Almost
two-thirds of the General Fund is financed from tax
revenues such as the Utility Users Tax, the Sales Tax,
the Property Taxes, the Business License Tax, the
Transient Occupancy (or bed) Tax from hotels and motels
and the Real Property Transfer Tax. Remaining revenues
primarily come from other governmental agencies, various
fines and cost-offsetting fees.
Attached are a series of pie charts showing the largest funds as
well as the major revenue and expenditure components of the
General Fund.
current and Projected Financial Condition
At this early stage of the annual budget process, staff has
focused its attention on projecting the financial condition of
the General Fund because it comprises a little over half of the
total city budget, incorporates all of the primary services which
are most easily controlled by the City council, and which is most
directly impacted by changes in Federal and state budget policies
and the economy.
Consistent with a consensus of National and State economic
forecasts, the adopted City Budget for FY1991-92 cautiously
assumed that the current recession would bottom out in the Summer
of 1991, that recovery would begin in the Fall and that normal
revenue growth patterns would resume by the Spring of 1992. This
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