Introducing the Proposed FY 2021-23 Biennial Budget – santamonica.gov – santamonica.gov

May 10, 2021 2:24 PM by Lane Dilg

On Monday, May 10, 2021, the City of Santa Monica released its Proposed FY 2021-23 Biennial Budget to the Santa Monica community and City Council. The City Council will weigh in on the Proposed Budget during study sessions on May 25 and 26 and will adopt the Citys final budget on June 22. Here is Interim City Manager Lane Dilg's letter introducing the Proposed FY 2021-23 Biennial Budget. Here's the full budget >

Honorable Mayor, Mayor Pro Tem, and Members of the City Council:

It is my privilege to present the Fiscal Year (FY) 2021-23 Biennial Budget.

For more than three decades, prudent fiscal stewardship has provided the foundation for the Citys first-class municipal services and renowned innovation for the public good. In recent years, structural economic changes accelerated by a modern global pandemic have dramatically reduced City revenues. In response, the City took swift action in the Summer of 2020 to safeguard and preserve the Citys long-term financial health.

Today, the FY 2021-23 Biennial Budget reflects no deficit either now or in the associated five-year forecast. The City retains its rare AAA bond rating from all three national credit ratings agencies; its broad community partnerships; its dedicated and talented municipal workforce; and, of course, its envy-invoking location on the Pacific. Such key assets secure Santa Monicas full recovery and bright future ahead.

The FY 2021-23 Biennial Budget is not the budget of prior abundant years. The FY 2021-22 General Fund budget is $349.5 million; by way of comparison, the pre-pandemic FY 2018-19 General Fund adopted budget was $440.2 million. This decrease reflects not the strength of our local economy but the very nature of it. During the pandemic, we have seen changes to the way we live and work. As people have engaged in less retail shopping, less business travel, and less office work in key entertainment and technology sectors, City revenue streams across tourism occupancy tax, sales tax, and parking have been diminished. Our revenue streams will replenish. Santa Monica remains a highly-coveted location renowned for its quality of life, beloved local businesses, and vibrant public spaces. But, for this two-year budget cycle, we remain in our recovery stage: We exit the COVID-19 public health emergency not into the global economy of 2019 but into a new future we craft together.

Within its reduced footprint, the FY 2021-23 Biennial Budget supports a first-class local government capable of meeting essential community needs and providing a solid foundation for regrowth. During the two-year budget period, a disconnect will remain between City resources -- which have been reduced as a result of the pandemic -- and community expectations -- which have not. This gap between revenues and desired expenditures will require united leadership and communication to avert ongoing frustration.

Over the past year, City operations have been stabilized and streamlined to provide the core services on which our community relies clean and safe drinking water; public safety; accessible public transit; childcare and library services; recreation, arts, and cultural programming; economic development and community planning; and, safe, clean and enjoyable public spaces. Eleven prior operating departments have been consolidated into ten; the City Managers Office has been pared down to support organizational effectiveness and interdepartmental coordination; decades-old internal processes have been redesigned; and digital customer service tools including a new website and 311 system have been brought online to enhance responsiveness and reduce redundancies.

Ambition well beyond these core services remains. In 2020, the City was recognized by the Urban Land Institute for innovation in public spaces, by the International Code Council for National Leadership in Sustainability, and by the Center for Digital Government for digital service delivery. But just as we have been forced to improve our internal operations, we must also change our aspirations for the way we partner and collaborate with others. The federal government is now engaged in stimulus efforts of staggering size and scope. While the American Rescue Plan Act provided relatively minimal funds directly to our City government, funding opportunities to support our community recovery abound. City priorities must become community priorities; and we must work hand-in-hand with federal, state, local, and private partners to envision and achieve shared community results.

The FY 2021-23 budget reflects new revenue sources and partnership opportunities. Santa Monica voters recently adopted Measure SM a revenue measure that protects essential services by increasing the one-time real estate transfer tax on sales of property (other than in connection with affordable housing projects) of $5 million or more. The City has also established the SaMo Small Business Recovery Grant Program to support our smallest local businesses, and the Citys new We Are Santa Monica Fund offers a way for neighbors to support neighbors through efforts ranging from the newly established Virginia Avenue Park food pantry to racial equity initiatives across the community. We have only begun to realize the value that public-private partnerships can hold, if always carefully designed to maximize not financial value but public good. Projects currently underway include exploration of revenue-producing digital wayfinding kiosks and a partnership with the Los Angeles Cleantech Incubator to pilot the nations first Zero-Emissions Delivery Zone to support our local restaurants.

Finally, the FY 2021-23 budget recognizes our interconnectedness as a community. As one of the most desirable residential communities in the nation, we have long sought to model new ways to live sustainably and care for one another. As we recover from the pandemic, we seek rebirth as a more equitable, more inclusive community, with an economic recovery that lives up to our values by keeping our most vulnerable residents in their homes, supporting development of affordable housing to invite others to join us, celebrating our local artists, preserving our small businesses, and bolstering commercial districts that speak with authenticity from and of the passions of our neighborhoods. These goals, while ambitious, remain achievable in Santa Monica.

Fiscal Context

The overall budget for the City of Santa Monica is $705.5 million in FY 2021-22 and $597.7 million in FY 2022-23. This budget reflects the operating and capital activities of 31 funds across 14 departments and approximately 1,923 permanent and temporary full-time equivalent positions.

The largest component of the budget is the General Fund. The General Fund budget is $349.5 million in FY 2021-22 and $375.3 million in FY 2022-23.

The Citywide budget also includes a number of enterprise and special revenue funds that operate with sufficient revenues to sustain necessary operating and capital needs, and others that have a structural deficit where ongoing revenues are not sufficient to cover ongoing expenditures. Among the larger funds contributing to operations, the Resource Recovery and Recycling (RRR), Water, Wastewater, Big Blue Bus (BBB), Airport and Cemetery funds have sufficient revenue to cover operational and capital needs during the biennial budget period.

The Pier and Beach Recreation Funds are projected to require subsidies and advances during the biennial budget period, totaling approximately $6.0 million.

The Citys two-year budget approach means that FY 2021-22 represents the exception-based year for our capital improvement program (CIP) biennial budget. The CIP budget for FY 2021-22 is $163.7 million, with $9.1 million representing the General Fund portion. In the face of the pandemics impact on capital project and construction programs, available capital funds were maximized to protect the Citys existing capital investments and minimize future maintenance and replacement cost. As a result, only a limited number of projects were approved in the FY 2020-22 Biennial CIP Budget cycle. These include projects to address critical infrastructure needs; projects that could not be deferred without compromising essential operations or public health and safety; and revenue-generating projects. From repaving streets to renewing alleys and sidewalks to maintaining parking structures and lots to purchasing necessary equipment to modernizing streetlights and replacing aging water and sewer mains, these capital projects prioritize a clean and safe Santa Monica. In addition, the Citys Water Fund will use bond financing to advance capital improvement projects to provide long-term cost benefits for ratepayers by achieving water self-sufficiency and a more sustainable, drought-resilient water supply.

Fiscal Sustainability

To understand the Citys current fiscal status, it is important to recall the path by which we arrived. In its FY 2017-2019 Biennial Budget, the City began fiscal planning for a transition on the horizon. As described at the time:

The economic, demographic and political landscape is changing in our region, in our state, in our nation and in the world. As Moodys also noted, our long-term pension liability stands at $387 million and growing. We cannot afford to be complacent. Our reliable economic engine needs an overhaul and rising costs (beyond our direct control) force us to re-evaluate how we work, how we deliver services and what matters most to our citizens. Santa Monicas exceptionally strong economy and tax base is nearing a point of diminishing returns. Despite our diverse tax revenue base, all our major sources of revenue are seeing either slowing growth or (in the case of utility taxes) an actual decline. This comes at a time when pressure on expenditures is accelerating. Workers compensation and medical benefits costs continue to outpace our revenue growth, and pension costs are scheduled to begin a dramatic rise in the second year of our two-year budget cycle.

Between 2017 and 2020, the City began designing and implementing a multi-year plan to address this reality.

In early 2020, the COVID-19 pandemic arrived. Amidst global economic disruption associated with the pandemic, local governments across the United States suffered revenue losses, but cities with strong tourism and hospitality sectors, like Santa Monica, experienced the most dramatic revenue decreases. The pandemic halted global tourism as well as non-essential air travel; it required people around the world to stay largely at home. This impacted virtually all of the Citys revenue streams and drastically accelerated projected trends away from in-person retail and toward online shopping. As a result of the pandemic, the City anticipated revenue shortfalls totaling $224 million over three fiscal years. The City further correctly predicted that, given its low residential population, the federal government would not provide meaningful aid in 2020 to cover this loss.

In the Summer of 2020, the City confronted this crisis by accessing $117 million in one-time funds and adopting a FY 2020-21 budget that reflected a 50% decrease in capital program funding and a 20% decrease in annual operating expenditures, as well as 299 fewer full-time equivalent (FTE) permanent positions and 122 fewer FTE as-needed positions than the FY 2019-20 budget.

Strong reserves allowed the use of contingency and economic uncertainty funds while the City retained a stable reserve level of 12.5% of ongoing expenditures in the event of a new emergency. Three long-term strategies for fiscal health were maintained but temporarily suspended or deferred to allow for continued provision of essential services. These included the one-year (FY 2020-21) suspension of one quarter of the Citys Transaction and Use Tax revenue to the Affordable Housing Trust Fund; the extension, in accordance with emergency provisions, of the Citys accelerated paydown of its unfunded pension liability from thirteen years to fifteen years; and the suspension of prefunding of the Citys Other Post Employment Benefits for two years.

These fiscal measures enabled the City to maintain essential and emergency operations during the pandemic while preserving the Citys financial resilience to the greatest extent possible. On March 11, 2021, the American Rescue Plan Act (ARP) was signed into law. This federal aid package provides $1.9 trillion to households, businesses, artists and nonprofits, schools, and government entities across the country. While local government stabilization funds were expressly included to remedy [the] mismatch between rising costs and falling revenues experienced during COVID, the allocation formula used means that Santa Monica receives $29.3 million in stabilization aid welcome funds, but in an amount that represents less than 15% of our estimated revenues lost and approximately 4% of our annual budget.

As the Citys recovery continues, care will need to be taken to continue to replenish reserves in order to ensure continued ability to withstand a future serious economic or physical disaster.

Community Priorities

On March 13, 2021, the City Council held a special retreat session to set community priorities for the Fiscal Year 2021-23 Biennial Budget process. The priorities set forth below reflect a desire of the majority of the Council to focus community attention and discretionary City resources in three specific areas.

Addressing Homelessness

Prevent housed Santa Monicans from becoming homeless; address the behavioral health needs of vulnerable individuals; and advocate for regional capacity to address homelessness.

Addressing homelessness in California today is both a moral imperative and a necessary aspect of the States overall economic recovery. Homelessness in Los Angeles County is widely recognized as a crisis demanding immediate attention, and the Santa Monica City community has continually expressed addressing homelessness as among its most urgent concerns. The Citys efforts to address homelessness span not only virtually every City Department but also our community partners ranging from service providers, grant recipients, affordable housing providers, local business leaders, and regional agencies at every level of government.

Notable annual expenditures in the Fiscal Year 2021-23 Biennial Budget that support direct services to address homelessness include but are not limited to:

These efforts supplement a previously-funded partnership with the Los Angeles County Department of Mental Health to pilot mobile mental health van services to offer direct, immediate, professional mental health intervention to those experiencing mental health crisis on our streets, as well as previously allocated one-time funds to advance non-congregate shelter and behavioral health priorities articulated by Council.

As the Council has repeatedly recognized, the homelessness crisis in our region requires urgent efforts to preserve and produce affordable housing. The FY 2021-23 Biennial Budget reflects Santa Monicas ongoing commitment to keep economically vulnerable Santa Monicans in their homes through allocations including ongoing staffing in the City Attorneys Office dedicated to ensuring that landlords and owners comply with the City's tenant protection, tenant harassment, and affordable housing ordinances, as well as the terms of development agreements and affordable housing deed restrictions; $240,000 over two years to support a right-to-counsel program to even the playing field for tenants who face eviction proceedings brought by landlords who are almost always represented by experienced counsel; $2 million in Housing Trust Fund funds to continue the Citys Preserving Our Diversity basic income program for low-income seniors in rent-controlled apartments; and one-time economic recovery funds to provide emergency assistance to economically vulnerable Santa Monicans.

The FY 2021-23 Biennial Budget also supports the ambitious direction articulated by the Council on March 30, 2021, that the City should meet its State-imposed obligation to plan for 6,168 new affordable housing units during the 2021-2029 Housing Element cycle by prioritizing 100% affordable housing projects on City-owned land while also pursuing 100% affordable housing overlay zoning throughout the City, with the exception of environmental justice and previously redlined areas. Of the Citys $29.3 million in American Rescue Plan stabilization funding, $6.3 million has been allocated in accordance with Council direction to enable the General Fund to transfer the annual allocation of Measure GSH funds in Fiscal Years 2021-23 to support affordable housing. These funds supplement affordable housing grants successfully received of over $5.5 million and an increase in the Citys federal lobbying contract to $45,000 per year to support continued pursuit of federal funds in this and other priority areas.

Clean and Safe Santa Monica

Create an atmosphere marked by clean and safe public spaces and neighborhoods.

As City resources, personnel, and services have been reduced to safeguard fiscal stability, maintaining our premier public spaces is a priority. In addressing this priority, we recognize Santa Monicas unique status as both a seaside town of 90,000 residents and a municipal government in Los Angeles County serving hundreds of thousands of visitors and with daily responsibility for maintaining globally recognized public spaces such as the Santa Monica Beach and Santa Monica Pier.

The FY 2021-23 Biennial Budget maintains prior support across core City departments that serve the Councils clean and safe priority (though departmental budgets reflect adjustments based on enhanced accuracy of the Citys personnel-related budget calculations). In addition to these foundational services, the Fiscal Year 2021-23 Biennial Budget provides targeted enhancements to achieve a clean and safe Santa Monica enjoyable for all. These include annual expenditures of:

Through these strategic allocations, the City will continue to care for and safeguard its prized public spaces for residents and visitors alike.

Equitable and Inclusive Economic Recovery

Cultivate equitable and inclusive economic opportunity and recovery, including access for all community members to educational, employment, and economic resources and opportunities, and create a community where differences in life outcomes cannot be predicted by race, class, gender, disability or other identities.

The Fiscal Year 2021-23 Biennial Budget period will be marked by civic and economic recovery from the pandemic. In this recovery, it is more important than ever that we support a thriving, more equitable and inclusive future. The Fiscal Year 2021-23 Biennial Budget includes the building blocks of our economic recovery for all. These include but are not limited to:

These funds support coordinated, collaborative work across multiple City departments and with our community partners to set a path toward economic recovery for all.

Finally, as our community moves into its recovery period, the Fiscal Year 2021-23 Biennial Budget restores a matching grant funding program for neighborhood organizations as they partner with the City to enhance community participation and support shared outcomes.

Looking Forward

As a community, we continually shape and reshape our collective future. The Fiscal Year 2021-23 Biennial Budget provides a solid fiscal foundation for a world-class local government. Our full recovery relies, however, not only on prudent financial planning but also on a culture of civic engagement that weaves together the efforts of all those who comprise our City government, who act as devoted community stakeholders, and who live and work in Santa Monica, so that we may together achieve shared community outcomes. With gratitude and respect for those who brought us through the most challenging days of the pandemic, we are today ready to step forward into our community recovery.

Respectfully submitted,

Lane DilgInterim City Manager

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Introducing the Proposed FY 2021-23 Biennial Budget - santamonica.gov - santamonica.gov