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JJ:LB:CMD:kf:br.gfb29394 Santa Monica, California
Council Meeting: April 27, 1993
TO Mayor and City Council
FROM: City Staff
SUBJECT: Report Regarding status of 1993 - 94 Budget Preparation
and Request for Council Direction on Additional Budget
Reductions and/or Revenue Replacement options.
INTRODUCTION
Due to the difficult budget situation the City has been
experiencing for the past two years, Council directed staff to
make a preliminary report on the status of next year's General
Fund budget.
As this marks the third time within this two year period that the
City has needed to address significant revenue shortfalls -- both
locally and state-based -- achieving a balanced budget through
cost reductions alone would not be without significant service
level impacts throughout the City. It is important to note that
the city has responded to these problems since mid-year 1991
solely through expenditure reductions -- totalling $9.7 million
to date.
In the current budget preparation process, while staff is
intending to make additional reductions, a budget gap of $5.1
million remains as we seek to finalize the proposed budget in the
next month.
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This report, therefore, outlines for Council consideration and
direction to staff, additional actions which may be implemented
to complete the budget balancing process.
FINANCIAL PROBLEM AND CITY RESPONSES
A. Impact of External Factors
For the period of FY 1991-92 through 1993-94, the city will have
been severely impacted by the national recession and subsequent
regional economic difficulties, as well as state reductions of
City revenues.
- Recession
Economic activity has been declining or essentially
stagnant since 1990. Resumption of economic growth
nationally is underway but is only in the 2% to 3%/year
range. This rate of national recovery will not be
sufficient to stimulate a rapid recovery in California
due primarily to the magnitude of the number of job
losses. Therefore, for the state of California as a
whole, economic growth is not expected to begin until the
start of 1994. In southern California, which has been
even more severely impacted by aerospace and defense
cutbacks, financial institution downsizing, and a glut of
commercial office space, economic growth is not expected
to resume until sometime in FY1994/95. This means that
the city's economy-linked revenues will remain
essentially flat in FY1993-94.
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As a result, the net total of recession-related tax
revenue lost to the City over three fiscal years will
exceed $13.5 million.
- state Reduction of city Revenues
Last Fall, the state reduced the City's General Fund
Property and Cigarette tax revenues by about $1.6
million. The State shifted these funds to itself as part
of an overall strategy to help balance a massive state
budget deficit for the current fiscal year. The city was
able to cope this fiscal year with this revenue loss
through the use of reserve funds which had been increased
in anticipation of this type of budget action by the
state.
In January 1993, the Governor proposed an ongoing
reduction of $5.8 million in city revenues as a means to
balance yet another massive state budget deficit
projected for FY1993-94.
Therefore, the combined FY1992-93 and 1993-94 city
revenue loss due to state revenue shifts is approximately
$7.4 million.
B. City Responses to External Factors
The City has taken aggressive action to adjust to a cumulative
loss of $9.7 million in financial resources during FY's 1991-92
and 1992-93: hiring controls have been maintained since December
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1991; operational efficiencies have been identified and
implemented; and the organization has been streamlined.
During the FY1991-92 mid-year budget review process, expenditures
were reduced below budget levels by $4.3 million. with the
adoption of the FY1992-93 budget, departments absorbed
cost-of-living and supply cost increases of approximately $3.0
million, and budgeted expenditures were further reduced by $5.1
million, or about 5%, below FY1991-92 budget levels, with
approximately 60 positions City-wide being eliminated. One of
the most significant actions taken was to reduce the capital
improvements program to a minimal level -- clearly, a one-time
action which should not be considered a viable long term budget
strategy.
Hence, for FY's 1991-92 and 1992-93, the city reduced costs by a
cumulative $9.4 million.
For FY1993-94, the city is facing a further General Fund revenue
loss of $11.2 million due both to the recession ($5.4 million)
and state revenue shifts ($5.8) :
Although the departmental budget analyses have not been
completed, staff feels that approximately $4 million of this
shortfall can be accommodated through various cost saving and
cost-covering measures. These will include further position
reductions (estimated at 40); some service level changes which
will be outlined in the proposed budget~ and some fee increases
to insure that the costs of providing specialized services are
being recovered.
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In addition, the recently approved increase in parking citation
fines will provide an estimated $2.2 million.
However, despite these significant staff and Council efforts,
continuing General Fund expenditures next fiscal year will still
exceed continuing General Fund revenues by about $5.1 million.
To correct this structural imbalance between continuing General
Fund revenues and expenditures will require either further
reduction of expenditures, approval of new replacement revenues,
or some combination of these approaches.
OPTIONS FOR CLOSING THE GENERAL FUND BUDGET GAP
One of the sources of greatest pride to the citizens of Santa
Monica is the range, quality, and, in many cases, uniqueness of
services provided by the city. Even the most seemingly minor
reductions in operational budgets do result in impacts on
constituents. Examples we have seen in the last year include the
effects of changes in after-school recreation programs and
reduction of evening swimming pool hours.
After having made a series of across the board type reductions in
the current year, staff feels that priorities can be and should
be set in the 1993-94 resource allocation discussions. The task
becomes more difficult due to the value placed in our community
not only on health and safety issues but also social and
environmental quality of life issues. It is staff's judgment
that to make further reductions beyond the preliminary $4Z
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million mentioned above would have a significant and obvious
impact on services in many areas of the city.
Nevertheless, one option for closing the remaining budget gap of
$5.1 million is to reduce expenditures even further. During the
Council meeting, staff will present examples of what additional
reductions would mean in terms of reduced pUblic services. For
example, closing the Ocean Park Branch Library, reducing
operations at the other two branches to 3 days a week, and
closing the main library on Sundays would achieve a mere $.2
million savings.
Another option is to approve replacement revenues. Staff has
provided the attached list of possible replacement revenues for
council review and consideration.
RECOMMENDATION
It is recommended that the Council examine the budget balancing
options presented in this staff report and by staff during the
Council meeting, and give direction to staff on how to proceed
for FY 1993-94; and as appropriate, direct the city Attorney to
draft necessary revenue replacement implementing ordinances for
consideration by the Council.
Prepared By: John Jalili, City Manager
Lynne Barrette, Assistant City Manager
Mike Dennis, Director of Finance
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