City Council
Housing Authority
Parking Authority
Report
City Council Meeting: February 8, 2022
Agenda Item: 8.A
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To: Housing Authority, Parking Authority, Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Budget Subject: Financial Status Update and FY 2021-22 Midyear Budget and Adoption of Resolutions
Recommended Action
Staff recommends that the City Council, Housing Authority and Parking Authority:
1. Appropriate FY 2021-22 midyear revenue and expenditure budget adjustments and approve corresponding adjustments to the FY 2022-23 budget plan (Attachment A);
Staff also recommends that the City Council:
1. Receive the FY 2021-22 through FY 2027-28 Five Year Financial Forecast;
2. Direct staff to set aside $11 million in unprogrammed revenue to Assigned General Fund Reserves;
3. Adopt a Resolution establishing new classifications and adopting salary rates for various positions (Attachment B) and approve the position and classification changes (Attachment C);
4. Adopt a Resolution of the City Council of the City of Santa Monica revising the City’s master fine schedule for certain violations of the Santa Monica Municipal Code, eliminate overdue fines for adult cardholder accounts for the Santa Monica Public Library and to establish new non-standard fines for violations of the Second Shared Mobility Pilot Program Administrative Regulations (Attachment D);
5. Direct staff to proceed with research and analysis on various potential tax revenue measures;
6. Authorize the City Manager to negotiate and execute a second modification to agreement #10929 with Moss Adams LLP, a Washington-based company, for internal auditing services for the City Manager’s Office. The modification would increase the third year amount by $240,000 for a new amended total not to exceed $931,000, with future year funding contingent on Council budget approval, to complete a homeless services delivery audit and the Human Services Grants Program grantee monitoring; and
7. Approve a relocation allowance up to $25,000 for the Police Chief, effective retroactively to October 18, 2021.
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Summary
The Midyear Budget Review is an important touchstone in the City’s monitoring of its economic recovery and its ability to restore services that were scaled back at the beginning of the pandemic. The midyear outlook is positive, but the City remains in a period of uncertainty driven by COVID, inflation and anticipated increases in interest rates, disruptions in tourism, and ongoing trends impacting the retail sector. The City’s audited financial statements as of June 30, 2021, to be published in the Annual Comprehensive Financial Report and posted on the City’s website in early February 2022, confirm staff’s earlier projection that the City’s General Fund realized sufficient revenues in FY 2020-21 to retain the $20 million Shutdown Reserve set aside to be used in the event of further revenue loss. It is important to note that the City’s General Fund reserve level is still significantly lower than it was in pre-COVID years, and that significantly more than $20 million will be necessary to restore reserves at a level that will provide the City with operational stability in the event of another emergency or economic crisis. For context, updated projections estimate General Fund revenue loss to total approximately $188 million from March 2020 through June 30, 2022.
The February 2022 Five Year Forecast for all City funds includes the updated revenue projections and expenditure budget increases that are proposed in this report as Midyear changes for FY 2021-22, as well as updated revenue and expenditure projections going forward. Projections for FY 2021-22 show a potential budget surplus of $11.2 million in the General Fund due to earlier economic recovery than anticipated.
The General Fund Forecast shows a balance of $4.9 million in FY 2022-23, the second year of the biennial operating budget, which increases slightly over the remaining years of the forecast to reach $8.4 million in FY 2027-28. Annual balances beginning in FY 2022-23 present opportunities to continue current services that are budgeted on a onetime basis, to restore or enhance services, or to rebuild the General Fund’s capital project investment or reserves at a faster level than currently projected. Any additional budget increases beyond those supported by the projected balances would require new revenue streams; staff is seeking Council comment and direction on further researching potential revenue ballot measures for the November 2022 General Election.
The Midyear Budget Review is the earliest occasion to adjust the current budget and 3 of 33
address critical service gaps. Adjustments to increase the budget must be made carefully given the uncertainty of the pandemic and the pace of recovery. While some changes can be made to restore service delivery and address community priorities, at this early and still precarious point in the City’s economic recovery, set against recordsetting rates of virus infections, staff is recommending that Council give direction to set aside $11 million of the current year surplus to begin rebuilding General Fund reserves.
In this way, if revenues do not follow the projected trajectory in the short term, the General Fund will not have made an unsustainable commitment to ongoing costs.
Included in the proposed Midyear changes are a combination of service restorations, adjustments reflecting Council actions taken after the adoption of the FY 2021-22 Budget, adjusted revenue-sharing payments as a result of revenue increases, and adjustments based on new information. The complete list of budget adjustments for revenues and expenditures is shown in Attachment A. Proposed budget adjustments total $57.4 million in FY 2021-22 and $10.2 million FY 2022-23, including capital improvement program changes.
The majority of the non-General Funds will remain self-sufficient during the forecast period. The Pier and Beach Funds were impacted by the closures that have occurred as a result of COVID-19 and will require some level of General Fund assistance. The Resource, Recovery and Recycling Fund is projected to remain self-sufficient through FY 2023-24, requiring staff to consider a rate change. Finally, the City’s equipment replacement internal service funds have had to defer replacement schedules as a result of two years of suspended contributions from the General Fund.
While the City is experiencing recovery, its reliance on the strength of the severely impacted hospitality sector means that ultimate revenue recovery and rebuilding from the deep cuts that were made will lag behind the recovery of the overall economy. As recovery continues, staff intends to work with the Council and community to establish priorities to guide the next two-year budget cycle (FY 2023-25) and help to determine priorities going forward.
A number of other items and recommendations are discussed in this report, including amending the City’s Master Fine Resolution, the modification of the City’s Internal Auditor contract to include a Homeless Services Delivery study and Human Services Grants Program grantee monitoring, a description of the park planning workplan with 4 of 33
current resource levels, and a housekeeping item related to the recent recruitment of the City’s Police Chief.
Background
The FY 2021-23 Biennial Budget was adopted by Council on June 22, 2021 (Attachment E). After two years of severe revenue losses requiring the use of reserves and a dramatic restructuring and reduction of operations to balance the General Fund budget, the FY 2021-22 Adopted Budget leveraged one-time American Rescue Plan Act (ARPA) funds and some revenue growth to restore certain priority services, mainly furthering the three Council-adopted community priorities:
• Addressing homelessness;
• Providing clean and safe neighborhoods and open spaces; and • Supporting an equitable and inclusive economic recovery.
The Budget was built upon the assumption that a slow recovery, which started in the latter part of FY 2020-21, would continue throughout the biennial period, but that revenues would not recover to their pre-pandemic levels until FY 2024-25. In the interim, ARPA funds would fill the gap as much as possible. The Citywide FY 2021-22 Revised Budget, reflecting the Adopted Budget and changes approved by Council since the beginning of the fiscal year, is $713.4 million (net of reimbursements and transfers), $355.9 million within the General Fund. The FY 2021-22 Revised Budget to date includes an increase of 26.5 permanent FTE positions and 30.7 FTE as-needed positions (12.5 and 25.5, respectively, in the General Fund) from the prior year, when 298.8 permanent and 122.3 as-needed positions (235.1 and 103.3, respectively, in the General Fund) were eliminated Citywide.
The FY 2020-21 Revised Budget reflected a much-reduced budget for the City. It was based on fiscal projections made in May 2020 that reflected the impacts of the COVID19 pandemic on the City’s revenues. For the City, the economic crisis felt around the world was exacerbated by its strong reliance on the hospitality and retail industries. The pandemic halted tourism-related air travel as well as non-essential business travel and 5 of 33
required people to stay largely at home, impacting a wide range of the City’s revenue streams and accelerating trends away from in-person retail and toward online shopping.
The majority of the impact was felt in the City’s General Fund, the fund making up twothirds of the City’s overall budget and supporting police and fire services, libraries, streets, recreation and funding to the School District. Transient Occupancy (Hotel) Taxes, Sales Taxes and parking-related revenues, previously representing almost half of the General Fund revenue stream, were approximately 39% less than pre-COVID levels in FY 2020-21 with overall General Fund revenues for the year down about 22% from pre-COVID numbers. One-time funds, including capital project funds that were deferred, reduced or cancelled, economic uncertainty, contingency, and other reserve funds were either appropriated or set aside to balance the FY 2019-20 and FY 2020-21 General Fund budgets, in addition to a 20% decrease in annual operating expenditures and a 50% decrease in annual capital funding. These measures enabled the City to maintain essential and emergency operations during the pandemic while preserving the City’s financial resilience to the greatest extent possible.
Staff is estimating General Fund actual and projected revenue declines from March 2020 to June 30, 2022 to total approximately $188 million; this is $36 million less than the initial $224 million revenue loss estimate but is still a very impactful amount.
Discussion
The recession induced by the COVID-19 pandemic, while the worst downturn since the Great Depression, was officially the shortest recession on record. The national and State economies began to recover strongly in the first half of (calendar year) 2021.
National economic growth as measured by Gross Domestic Product (GDP) grew over 6% in the first two quarters of the year. However, impacts and disruptions of the pandemic continue to linger. In addition, the surge of the new Omicron variant has added a new layer of uncertainty to the overall economic recovery. GDP did slow in the third quarter of 2021, labor force participation has not recovered to pre-pandemic levels (about 80% of the number of jobs lost during the pandemic have been added back), inflation has risen to the highest level in four decades, and supply chain issues are causing disruption, all of which could delay or even hamper growth. However, most 6 of 33
economists believe the economic disruption caused by the Omicron variant will be transitory and by 2023, U.S. and California economic growth will be healthy, inflation will return to more normal levels, and supply chain issues will be resolved.
As noted in the Background section, due to its heavy reliance on the tourism, hospitality and retail sectors, Santa Monica’s economy was particularly hard hit by the pandemic, with revenues from transient occupancy and sales taxes and parking related revenues, which accounted for nearly one-half of General Fund revenues prior to the pandemic, falling 39% in FY 2020-21 from pre-COVID levels, while total General Fund revenues were down 22% over the same period.
City General Fund revenues began to recover in FY 2021-22 as vaccine availability and other public health measures helped avoid any further large scale economic disruptions, including business shutdowns. Estimated actual revenues in FY 2021-22 are now anticipated to be 18% greater than in FY 2020-21 and nearly 8%, or $30.7 million above the FY 2021-22 budget. Much of the increase results from rebounds in the areas hardest hit by the pandemic - Transient Occupancy Taxes, parking-related revenues, and Sales Taxes. However, even with the strong recovery, General Fund revenues are not projected to exceed pre-COVID levels until FY 2024-25. It should also be pointed out that the future is still uncertain and revenues could be impacted, either positively or negatively, by future events.
More information on the City’s key General Fund revenue sources is provided below:
• Sales Taxes (both sales and use and transaction and use tax) have bounced back significantly from pandemic lows. Sales taxes in FY 2021-22 are now projected to be about $9.2 million (14%) greater than the FY 2021-22 budget and 14% more than in FY 2020-21. Revenues from restaurant/hotel and general consumer goods categories have recovered sharply, and auto sales remained unexpectedly resilient during the pandemic, resulting in total sales taxes reaching pre-COVID levels in FY 2021-22, much faster than most other affected revenues. 7 of 33
Sales tax revenues are projected to grow slower in FY 2022-23 as the economy levels out and then show more typical increases of 3% to 4% annually. • Transient Occupancy Taxes (hotel tax) were the hardest hit revenue source during the pandemic, falling 66% from pre-pandemic levels. Transient Occupancy Tax revenues have recovered faster than expected despite continued weakness in international and business travel. Exclusive of a one-time accounting adjustment in FY 2021-22 regarding the timing of the recording of revenues, revenues are expected to be $13.6 million greater than budget and increase by approximately 157% from FY 2020-21. However, FY 2021-22 estimated actual revenues are still more than $4 million (6.7% less than preCOVID levels. Strong growth is expected to continue, especially as restrictions on international and business travel begin to ease, but revenues are not projected to exceed pre-COVID levels until FY 2023-24. The projections also include the impact of the closing of the Fairmont Miramar for renovations. • Due to the reporting period for Business License Taxes, the full impact of the pandemic was not seen until FY 2021-22, as taxes are based on gross receipts from the prior calendar year. Estimated actual revenues for FY 2021-22 are about $0.3 million less than budget, 13% less than in FY 2020-21, and $4.6 million less than pre-COVID levels. Although revenues are expected to begin a steady but slow increase in FY 2022-23, some of the impacts of the pandemic, in particular the continuance of remote working, may have longer term, if not permanent impacts. Revenues are not projected to exceed pre-pandemic levels until FY 2027-28.
• Parking revenues (including parking citations) fell nearly 45% from pre-COVID levels, but as with many other revenue sources, have begun their recovery in FY 2021-22. Estimated actuals for the year are approximately $3 million more than budget, 36% more than in FY 2020-21, but still $13 million less than pre-COVID levels. Revenues are projected to moderately increase over the next several years and approach pre-COVID levels by FY 2024-25 and then level off. Parking Facility Taxes are expected to show a similar pattern.
• Utility Users Tax revenues were not significantly impacted by the pandemic and 8 of 33
are expected to grow by an average 2-3% annually primarily due to scheduled water and wastewater rate increases, partially offset by decreases in telecommunication taxes.
• Investment income has dropped sharply reflecting the historically low interest rates of the last few years. FY 2021-22 estimated actual revenues are $0.3 million less than budget. While revenues are expected to begin to increase in FY 2022-23 as interest rates rise, the City’s investable fund balance has declined as the City was forced to use reserves during the pandemic, which will limit the increase in investment income.
• Revenues from fees, charges, and certain other revenue sources are essentially tracking to budget, but are still nearly $15 million below pre-COVID peaks, reflecting continued program closures and reductions resulting from the pandemic induced budget cuts. Increases are primarily driven by the proposed expansion of recreation programs and contract class offerings. • The real estate market has performed stronger than expected during the pandemic as property values have continued to rise and the number of property sales has continued on a healthy pace. Revenues from the voter-approved Measure SM have exceeded expectations. Based on this, Documentary Transfer Taxes in FY 2021-22 are expected to exceed budget by $2.7 million.
Revenues are projected to decrease in FY 2022-23 from the peak of the previous year and then remain relatively flat during the forecast period.
General Fund Five-Year Financial Forecast
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The Five-Year Financial Forecast has been updated from the Forecast presented in May 2021 that informed the FY 2021-23 Biennial Budget. The figure above shows the balance of General Fund revenues less expenditures on an annual basis for the five fiscal years following the Biennial Budget period. The Forecast has two scenarios - the Probable Scenario and the Worst Case Scenario. Both scenarios incorporate the following assumptions:
• New revenue projections reflecting actual revenues generated in the first half of the year and updated assumptions based on economic trends and projections by hospitality industry, sales tax and property tax experts. Changes to the FY 2021- 23 budgeted revenues are included in Attachment A and noted in the Midyear Budget Adjustments section below.
• Updated expenditures for the FY 2021-23 Biennial budget and updated future year projections. FY 2021-23 changes reflect Council actions take since the adoption of the FY 2021-22 Budget that had not been reflected in budget numbers, updated information received after the adoption of the Budget, updated payments based on some increased revenue estimates, and from proposed Midyear position and program restorations presented in this report. Changes to 10 of 33
the FY 2021-23 budgeted expenditures are detailed in Attachment A and noted in the Midyear Budget Adjustments section below.
• $11 million surplus set aside to build reserves: The Forecast sets aside $11 million of projected unprogrammed revenues in FY 2021-22 to General Fund reserves. In addition to helping stabilize the General Fund in the face of new fiscal challenges, considering the continuing economic uncertainty being caused by new coronavirus variants, if the retail and hospitality projections fall short of the current forecast, these funds will not have been committed to ongoing costs.
The Forecast also sets aside funds each year through FY 2023-24 for ongoing COVID-related costs.
• 15% contingency reserves gradually restored: The Forecast assumes that the City will begin increasing the threshold level for its rainy day fund, or contingency, reserves by .5 percentage points each year beginning in FY 2022-23, reaching 15% in FY 2026-27. This is critical to maintain the City’s AAA bond rating. On May 5, 2020, Council authorized staff to lower the General Fund contingency reserve level from 15% of ongoing expenditures to 12.5% to help balance the budget while revenues experienced severe declines. Strong reserves protect our ability to provide essential services and retain jobs during emergencies and economic fluctuations, and are also a signal of a City’s financial health. • Capital Improvement Program: The FY 2020-21 Adopted Budget lowered the General Fund capital improvement program (CIP) annual budget allocation from $21 million to approximately $7.3 million in FY 2020-21. The FY 2021-22 and FY 22-23 amounts dedicated to the CIP budget are $12.2 million and $12.0 million, respectively, with funding restored to the $21 million level in FY 2025-26. While there are very small increases in the amount dedicated to capital projects each year leading to FY 2025-26, these increases are not enough to address deferred infrastructure and equipment maintenance, price escalation in this area, and a renewed focus on community amenities that were put on hold during the pandemic, such as the Memorial Park Expansion project and planning for the Airport to Park Conversion. Beginning in FY 2026-27, the forecast assumes two years of additional $4 million contributions beyond the $21 million baseline 11 of 33
program.
• Paying deferred GSH Tax Revenue to Affordable Housing: The forecast reflects the payment of the $6.3 million deferred amount to the Affordable Housing Trust Fund over three years beginning in FY 2023-24. In May 2020, seeking one-time funds to support critical General Fund services, Council authorized staff to suspend the FY 2020-21 annual transfer of Measure GSH tax revenues from the General Fund to the Housing Trust Fund (per a November 2016 voter-approved advisory measure). These annual payments, as well as the catch-up deferred payment, will play an important role in the City achieving the targets of its recently adopted Housing Element and its RHNA allocation for 8,895 new housing units, of which 6,168 must be affordable, from 2021-2029. • Unfunded Pension Liability Paydowns: The Forecast assumes that the City will resume making additional discretionary paydowns to CalPERS, the City’s pension fund, in FY 2022-23. This resumes the previously authorized accelerated paydowns of the City’s unfunded pension liability which will decrease the amount of interest that the City pays on its pension debt and result in significant savings over the long-term. In May 2020, Council had authorized staff to suspend additional discretionary paydowns for two years, in FY 2020-21 and FY 2021-22, and to shift from a 13-year to a 15-year payment schedule in order to address the fiscal emergency.
The Worst Case Scenario, which begins with a negative balance of $6.7 million in FY 2021-22, and ends with a deficit of $19.4 million, includes a combination of revenue under-realization and higher than anticipated expenditures. Revenues in this scenario reflect a significantly slower economic recovery in which business license revenue is impacted by a prolonged period of remote work that continues through calendar year 2022, the Omicron surge inhibits current year sales tax and transient occupancy (hotel) tax revenue recovery and adjusts the baseline for future year growth, and where the assessed value of properties, which drives the growth of property taxes, moderates. At the same time, non-salary expenditures would grow slightly to reflect inflation, and slight but persistent underperformance of the CalPERS retirement portfolio would result in higher pension contributions in the later years of the forecast. 12 of 33
Not included in the forecasted expenditures of either scenario are a number of needs competing for limited ongoing resources, including:
• Continuation of activities that are funded on a one-time basis, such as the Clean & Safe initiatives funded using prior year savings, and additional public safety deployments currently funded using $1 million in one-time ARPA funds. • Additional service restorations that are not fully offset by revenues, such as the restoration of service hours across the City’s library facilities, enhanced in-person programming and restoration of programs and capacity for youth and recreation. • Expedited rebuilding of the City’s capital program. Status quo in this area continues the cycle of deferred maintenance that began with the pandemic, and further delays projects requested by the community.
• The impact of labor negotiations. The majority of City employees have not received cost of living increases in two years and also suspended cash-outs of unused leave time, while some employee groups also experienced temporary paycuts lasting up to two years. At the same time, employee workload has increased significantly since the significant reduction in positions in FY 2020-21, and the difficult labor market requires employers to stay competitive in their salaries and benefits.
The projected balance, beginning in FY 2022-23, that is shown in the Probable Scenario balance provides some ability to address these competing needs beginning in FY 2022-
23. Specific decisions related to the programming of this balance will be considered as part of the FY 2022-23 Budget process in May and June 2022.
Other Funds Status
The February 2022 Five-Year Forecast includes other major funds that fall into two categories: 1) funds that bring in sufficient revenues to sustain operating and capital costs; and 2) funds that have structural deficits, in which revenues are not sufficient to cover expenditures. Similar to the General Fund, the projections in the Other Funds reflect the impacts of pandemic-related restrictions.
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Self-Sustaining Enterprise Funds
The following enterprise funds are projected to bring in sufficient revenues to support operations throughout the updated Forecast period:
The Water and Wastewater Funds will maintain a positive balance through the Forecast period. These Funds are making progress on a number of projects that will increase locally sourced water supply and reduce the City’s reliance on imported water.
These projects include the Arcadia Water Treatment Plant Expansion Project (Water Fund) and the Sustainable Water Infrastructure Project (SWIP) (Wastewater Fund).
Historically, imported water has cost as much as 30% more than local water. By continuing to invest in local water supply, the City diversifies and enhances its drought resiliency and provides long-term cost savings and cost certainty for the community.
Water and wastewater rate adjustments approved by Council on January 28, 2020, as well as revenue bonds issued in August 2021, a Clean Water State Revolving Fund Loan, and three recent grant awards (including: a California Department of Water Resources Proposition 1 Water Desalination grant; a Los Angeles County Flood Control District Measure W grant; and a Metropolitan Water District of Southern California Local Resources Program grant) continue to ensure that the Water and Wastewater Funds maintain healthy fund balances over the forecast period, allowing the Funds to maintain current operations while also completing capital projects to increase local water supply.
The Big Blue Bus (BBB) Fund will maintain a positive fund balance over the Forecast period through the use of Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) funds, which are one-time federal funds allocated to transit agencies in response to COVID-19. This federal funding provides financial support to transit agencies in response to the adverse impact of the pandemic on transit operations and ridership. Despite ongoing challenges due to the pandemic, FY 2021-22 marks the transitionary period of recovery for the Department of Transportation as the FY 2021-22 midyear budget reflects an increase to BBB’s operating subsidies by $6.5 million, or 11%, over the prior year’s allocation based on final funding marks provided by Metro in June 2021. This increase in funding brings the Department’s funding levels closer to pre-pandemic levels, with the exception of State Transit Assistance (STA) and 14 of 33
Senate Bill 1 (SB1) funding, which are based on an estimate of prior year sales tax on fuel and diesel fuel, and were estimated to decline year-over-year due to price fluctuations and decreases in consumption. While recent ridership trends reflect a gradual recovery, the impact of Omicron has had an adverse impact on the use of public transportation. The Department continues to monitor and track ridership.
The Airport Fund is projected to remain self-sustaining throughout the forecast period.
Due to the COVID-19 pandemic, there are currently $1 million in rent deferments that are due for repayment this fiscal year, with some of the outstanding amounts abated via the General Fund's abatement program.
The Community Broadband Fund will maintain a positive fund balance throughout the Forecast period. However, like other City operations, Community Broadband has been impacted by the COVID-19 pandemic by non-renewal of service for customers that have vacated business offices to work remotely. Long-term fiscal stability of the Fund has been established with the execution of service agreements with Verizon Wireless and TMobile for their 5G deployments. Staff will continue to monitor market conditions, changes to customer service accounts, and competition within the telecommunications industry to ensure fiscal sustainability.
The Cemetery Fund will maintain a positive fund balance throughout the Forecast period. Although the inventory for plots will be depleted by FY 2029-30, staff continues to assess overall Cemetery operations, projected plot sales, and reconfiguration and development of Cemetery area in order to extend inventory and maintain fiscal sustainability.
The Housing Authority Fund is stable and will maintain a positive fund balance throughout the Forecast period. The CARES Act approved additional administrative funding for the Santa Monica Housing Authority which will supplement traditional Section 8 administrative funding this year. This additional funding will create a surplus that will be used to offset future year administrative deficits. 15 of 33
The Vehicle Management Fund and Information Technology Replacement & Services Fund will maintain positive balances through the Forecast period. However, to maintain a positive balance, the Funds have had to defer scheduled replacement and maintenance of equipment, primarily due to a one-time, two-year suspension/reduction in FY 2020-21 and FY 2021-22 in General Fund funding associated with revenue shortfalls from the pandemic. In the Vehicle Management Fund, the suspension totaled $8.8 million and resulted in the majority of the 227 vehicles scheduled for replacement to be deferred to FY 2022-23 and beyond. In the Information Technology Replacement & Services Fund, the suspension totaled $3.4 million and resulted in the deferment of all computer equipment replacements for two years beyond their scheduled replacement.
This is not sustainable and funding needs to be restored. As General Fund revenues continue to gradually improve, funds will need to be earmarked to initiate repayment of the suspended contributions, which will enable the replacement and maintenance of equipment that was deferred and to ensure that the Funds remain self-sustaining.
The Stormwater Management Fund and Special Revenue Fund will generate adequate revenues to remain sustainable throughout the Forecast period.
Funds Requiring Attention
The Resource Recovery and Recycling (RRR) Fund will remain self-sufficient through FY 2023-24, partially attributed to the infusion of one-time funds from the closeout of old construction and demolition projects in FY 2021-22. To remain solvent and address operational and capital needs, staff will evaluate solid waste rates. Staff will initiate a rate study and consider presenting a rate adjustment to Council, with the new rates anticipated to be effective in 2023.
Funds Requiring Subsidies
The Pier Fund Forecast typically reflects sufficient revenues to fund operating costs and to partially fund capital costs. The COVID-19 pandemic has, however, had a significant impact on Pier operations and the Pier Fund, resulting in projected deficits that required General Fund subsidies. The primary revenue sources for the Pier Fund are lease payments and parking income, which have been severely impacted due to 16 of 33
COVID-19. The Pier was closed to the public at various points in the pandemic, with reopenings happening over time as restrictions on dining, amusement parks, arcades, etc. being lifted at different times. Lease revenues have seen increases in percentage rent.
Although parking revenues have not yet returned to pre-pandemic levels, due to the Pier parking lot re-opening date pushed from September 2021 to potentially Spring 2022, it is projected that revenues will return to previous levels in FY 2023-24. However, the City is in the planning stages of the Pier Bridge Replacement (funded through the Caltrans Highway Bridge Program), which will impact parking revenues once construction begins in FY 2025-26, as access to the Pier Deck parking lot may be impacted. As such, the fund is projected to require subsidies ranging from $1.5 million to $2.5 million to maintain a positive fund balance through the forecast period and to fund critical capital projects which can no longer be deferred. Staff continues to seek efficiencies to ensure fiscal sustainability, including seeking grant funding from the Economic Development Administration (EDA) to support capital expenditures.
The Beach Fund has been significantly impacted by the COVID-19 pandemic. Parking revenues are recovering but are not expected to return to pre-pandemic levels until FY 2022-23. Indoor and outdoor dining, special events, classes, pool operations and Beach House day use continue to experience gradual recovery. The Beach Fund is anticipated to maintain a positive fund balance throughout the forecast period, primarily due to prior year advances from the General Fund, receipt of ARPA funds, a loan from the Special Revenue Source Fund, and a planned parking rate increase in FY 2022-23. Staff continues to seek efficiencies to ensure fiscal sustainability, including seeking grant funding from the EDA to support capital expenditures, which have been previously deferred.
FY 2021-22 Midyear Budget Adjustments
Revenue Adjustments - General Fund
Staff now projects actual revenues for FY 2021-22 of $384.1 million. This projection is based on actual data from July to November 2021 as well as anticipated changes in economic conditions and community behaviors over the remainder of the fiscal year.
These projections require adjustments to increase FY 2021-22 Revised Budget revenue 17 of 33
targets in the General Fund by $30.7 million. A summary of the significant budget changes is below. Attachment A details all revenue budget changes.
Type of Revenue Amount of Change
Sales Tax (including TUT) $9.2 million
Utility Users Tax $1.5 million
Transient Occupancy (Hotel) Tax $13.6 million
Property Tax $0.3 million
Business License Tax -$0.3 million
Documentary Transfer Tax $2.7 million
Parking-Related Revenue $3 million
Fees/Charges/Other $0.9 million
Investment Income -$0.3 million
Revenue Adjustments - Other Funds
FY 2021-22 revenue changes in the Other Funds result in an increase of approximately $81.0 million. Significant revenue adjustments in other funds include:
• Beach Fund - Decrease of approximately $454,000, primarily reflecting the impacts of COVID-19 on parking revenues and a correction to encroachment fee revenue, partially offset by revenue increases in event rentals from private events and day use fees at the Beach House.
• Big Blue Bus Fund - Increase of approximately $28.3 million, primarily from receipt of one-time Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) funding, revised funding marks from LA Metro and increased passenger revenue from an increase in ridership. The increases are partially offset by a one-time reduction in capital expense reimbursement revenues due to project delays.
• Cemetery Fund - Increase of $250,000 to reflect the receipt of the second half of a private donation to support Cemetery maintenance.
• Housing Authority Fund - Increase of approximately $971,000 from increased utilization of Section 8 Vouchers, inclusion of new revenue from the Emergency Housing Voucher program, and grant reimbursement revenues. 18 of 33
• Pier Fund - Decrease of approximately $660,000, primarily from decreases in parking revenue due to continued lot closure through early Spring, partially offset by increases related to common area maintenance fee revenue from new tenant agreements and greater than projected pier rentals income. • Resource Recovery and Recycling Fund - Decrease of $1.2 million to correct the budget for forfeited construction & demolition deposit revenues that were recognized in a prior year in accordance with accounting practices. • Self-Insurance, General Liability and Auto Fund - Increase of $54.9 million, reflecting a one-time payment from the General Fund for settlement of claims brought against the City.
• Vehicle Management Fund - Increase of approximately $919,000, reflecting the implementation of increased vehicle maintenance rates charged to other City funds to account for full cost recovery and a one-time contribution from the Wastewater Fund for vehicle replacements.
• Wastewater Fund - Decrease of approximately $829,000 related to one-time decreases in Industrial Waste revenue from business closures associated with the pandemic and pass-through revenues for Capital Facilities Fees and Amalgamated System Sewerage System Charges from slow development activity.
• Water Fund - Decrease of $1.2 million reflecting a reduction in Capital Facilities Fees due to slow development activity.
Expenditure Adjustments and Personnel Changes - General Fund Staff proposes General Fund operating expenditure adjustments that result in a $63.6 million net increase to the General Fund budget. It is important to note that $54.9 million of this amount represents the payment of funds set aside in General Fund reserves to the Liability Self Insurance Fund to pay for settlement of claims brought against the City.
This action was approved by Council on August 24, 2021. The remaining $8.7 million in budget adjustments reflect items Council has directed or approved since the FY 2021- 22 budget was adopted but whose specific financial impact had not yet been approved and reflected in the revised budget, items that reflect new information on fixed costs, 19 of 33
and items that have a substantive impact on the overall budget and operations, as well as accounting-related changes. While Attachment A includes details of all expenditure adjustments, highlights are noted below.
Budget adjustments reflecting Council direction or actions taken since the FY 2021-22 Budget adoption:
• Appropriation of $1 million in prior year capital improvement program savings for Clean and Safe measures, including increased safety deployment using a combination of equipment and contracted services, outreach services for the City’s unhoused individuals, additional activation and safety elements at parks and open areas, and enhanced maintenance in heavily impacted areas and facilities, as directed by Council on October 26, 2021. • Appropriation of approximately $2.0 million to reflect the final debt service payment schedule for the City Yards Modernization lease revenue bonds approved by Council on July 13, 2021and issued in August 2021.
Budget adjustments for revenue-sharing payments, reflecting increased revenues:
• Appropriation of approximately $2.2 million to increase the Measure GSH payment to the Santa Monica Malibu Unified School District from the General Fund, reflecting increased Transaction and Use Tax (TUT) revenues. • Appropriation of approximately $1.1 million to increase the Measure GSH payment to the Affordable Housing Trust Fund from the General Fund, reflecting increased TUT revenues.
• Appropriation of approximately $289,000 to increase the payment for parking management services related to the parking revenue sharing agreement for Parking Structures 7 & 8, reflecting increased parking revenues.
Adjustments based on new information
• Adjustments to the FY 2022-23 Budget Plan to cover pension contribution increases not known at the time of the FY 2021-23 Biennial Budget adoption.
The increases are due to CalPERS falling short of its investment target in FY 20 of 33
2019-20 (there is a lag of two years when determining CalPERS contributions on actual performance or other benefit changes) and adjustments to the City’s pension costing assumptions due to the changing mix of employees and their benefit levels.
Adjustments to Restore and Enhance Services
During the restructuring that occurred as part of the FY 2020-21 Budget, a large number of positions ultimately eliminated were administrative positions. These positions support the direct services that departments provide, either by completing financial or procurement functions, addressing customer inquiries or public records requests, or tracking various work efforts. While positions clearly addressing direct services have been restored at some level, administrative restorations have lagged even as facilities and programs have reopened and work levels have increased. Not addressing these administrative gaps leads to declines in customer service and ultimate service delivery, in addition to an increased level of legal and financial risk. Staff recommends that Council consider the following position changes that will restore or enhance services:
• City Council Office: Increase of 1.0 permanent FTE position - A new Staff Assistant III position will provide dedicated administrative support to Councilmembers and the Mayor, allowing the Council Office and Legislative Affairs Liaison to focus on Council legislative and policy advocacy, identifying funding opportunities, supporting inter-governmental engagement, and supporting Councilmember communications and events.
• City Manager’s Office: Increase of 2.0 permanent FTE positions - A new Customer Service Assistant position will expand the full time 311 team in order to staff the reception desk at City Hall and City Hall East while continuing to respond to community member information requests, and a new Equity and Inclusion Manager that will lead implementation of department-specific programs and ensure all City programs and services are designed to promote equity and inclusion at all levels.
• City Attorney’s Office: Increase of 1.0 permanent FTE position - A new Legal Assistant position will assume responsibility for the administrative and paralegal 21 of 33
work that fell to the City Attorney and Deputy City Attorneys following staff reductions, allowing attorneys to focus on legal matters. • Community Development: Increase of 2.0 permanent FTE positions - A new Staff Assistant III and a Senior Administrative Analyst will take on administrative, customer service, financial and budget analysis, workload currently done by Planners and Division Managers, thereby allowing them to focus on planning and policy work. Additionally, the restoration of an Administrative Analyst position to a Senior Administrative Analyst position will provide the Building and Safety Division with the position appropriate to overseeing the Division’s budget and managing the Seismic Retrofit Program, including providing customer support for this priority program that is vital to the life safety of residents and visitors. • Community Services: Increase of 2.0 permanent FTE positions and 0.7 asneeded FTE positions - The addition of one Community Services Program Supervisor and .7 FTE as-needed Community Services Leader positions will allow the City to offer more tennis reservations, basketball, volleyball, field, and indoor soccer permits, skate park classes and drop-in hours, and weekly introductory pickleball classes. Fees paid by participants in the various programs would cover the staffing costs, so the proposal would be cost-neutral to the City.
A new Staff Assistant III position will provide consistent and streamlined support to the Department’s remaining nine Commissions and Advisory Bodies, upon resumption of in-person meetings. In alignment with Council’s direction to consolidate and minimize costs, CSD will shift from the pre-pandemic model of providing two positions to support each commission (one Staff Assistant and one more costly Staff Liaison) to one dedicated Staff Assistant. The change in staffing is not only cost effective - as Staff Liaisons traditionally range from Senior Analysts, to Managers, to Department Heads, including positions eliminated during restructuring - but provides the added benefit of dedicating a single staff position responsible for uniformity in agenda preparation, meeting minutes, accommodations for accessibility needs including managing accessibility vendors, and communications with commission members. An additional change, not impacting budgeted positions, is an adjustment to the Community Classes 22 of 33
and Camps program to add 180 camps with availability for 3,900 participants.
Revenues from camps and classes would cover the cost of programming. • Department of Transportation: Increase of 2.0 permanent FTE positions - 2.0 FTE Parking Permits Assistants will allow the Parking Division to respond to the need for improved front-line customer services provided to Santa Monica residents, visitors, and the business community and enable staff to increase Go SAMO Center public counter hours of operation, alleviate delays in processing permits and parking citations, and expedite service improvements. Additionally, the change from a Senior Transportation Planner position to a Principal Transportation Planner will establish a supervisory position for the Capital Projects Team. This team is responsible for implementing critical road safety projects in furtherance of the City’s Vision Zero goal of eliminating all fatal and severe injury crashes. The change addresses an internal audit study observation regarding program management.
• Finance: Increase of 1.0 permanent FTE positions - The addition of a Principal Buyer and escalation of the Senior Procurement Analyst position to a Principal Procurement Analyst will expedite solicitations, introduce greater automation and create efficiencies for staff as the City restores services. These positions will also allow the Department to develop and implement a procurement program that will provide access to local, small and underprivileged businesses in order to promote equitable economic recovery. The change from an Administrative Analyst to a Business License Supervisor will allow the Business License Administrator to focus on strategic initiatives such as Business License Tax modernization, technology improvements, and economic recovery efforts as well as revenue enhancement initiatives such as potential ballot measures and audit and discovery programs. These changes also address succession planning. • Fire: Increase of 1.0 permanent FTE position, offset by deletion of 0.9 FTE asneeded position - The addition of one permanent Staff Assistant III position, offset by the deletion of as-needed budgeted hours, will provide the necessary administrative support to ensure that the Fire Department meets state/federal standards regarding maintenance of mandated training records for all firefighters; 23 of 33
will assist with documenting the mutual aid strike team deployments to provide full reimbursement to the City for wildfire responses; and, will aid the Training Division and upcoming firefighter recruit academy to support newly hired SMFD recruits and the current workforce to ensure employees are trained appropriately for all-hazards emergency response which align with SMFD policies and national best practices.
• Human Resources: Increase of 3.0 permanent FTE positions - The addition of two Senior Human Resources Analysts and one Human Resources Analyst will build operational capacity to support City departments responsible for delivering critical community services and programs. This support enhances our ability to attract and retain employees and fill critical vacant positions, support and implement legally mandated programs, and respond to employee, organizational and workplace needs. HR has experienced a sizable increase in workload, including upcoming 6 contract negotiations, meet and confer for classification changes, accommodations process, mandatory leave programs and mandatory vaccination program.
• Information Services: Increase of 2.0 permanent FTE positions - The addition of an Administrative Analyst and a Project Support Assistant will provide administrative support of critical Citywide technology, systems, infrastructure, and services, including those technologies that provide direct support to the City’s constituents, such as the 311 system, City website, permitting systems, and GIS systems that underly public facing City maps, public safety’s CAD/RMS system, cellular and radio communications, and camera systems, as well as new technology implementations such as contract management and information security systems that protect the City's digital assets that the public connects to for services.
• Library: Increase of 1.0 permanent FTE position and 0.4 FTE as-needed positions - Staffing changes will increase two part-time positions to full time, resulting in a Librarian I and a Library Literacy Program Assistant, to address gaps in adult programming and literacy services as the Library prepares to expand operations in the coming year. This aligns specifically with the City’s 24 of 33
commitment to providing equitable and inclusive resources and ensures that our most vulnerable community members are supported through literacy and learning, dynamic programs, and knowledgeable staff. The addition of as-needed Library Services Officer staffing will allow for the activation of the Fairview Branch Library via self-service, a first step in restoring library service and ensuring residents have a clean and safe “third space” in their neighborhood to access a wide variety of materials, technology, programs, and connect with others. • Police: Increase of 4.6 as-needed FTE positions - The addition of as-needed Traffic Service Officers will restore the Police Department’s ability to positively address the issue of limited parking spaces by enforcing timely parking space turnover. These positions will help to ensure the Police Department can attend to traffic control, vehicle accidents and special occurrences. The duties performed by the Traffic Service Officers contribute to vehicular safety and improved traffic circulation.
• Public Works: Increase of 2.0 permanent FTE positions - The addition of an Administrative Staff Assistant will restore administrative support to various divisions and reinforce the department’s effort in actively monitoring and ensuring timely response to community needs through the 311 system, such as graffiti removal, human waste cleanup, street litter, and more. The addition of a Project Support Assistant (PSA) will enable project managers to focus their time on quality assurance and expeditious delivery of projects that promote a clean and safe community such as the Park Safety Enhancements, and Marine Park Safety Upgrades, as well as projects that support community recovery such as the Virginia Avenue Park Kitchen. Additionally, the PSA will enable senior staff to properly support and administer the new grants and outside funding sources being pursued for improved community spaces (e.g. Gandara Park Improvements) as well as ensure compliance with industry best management practices.
Expenditure Adjustments and Personnel Changes - Other Funds Staff proposes operating expenditure adjustments that result in a $6.1 million net 25 of 33
decrease in the non-General Fund Funds. Attachment A details all expenditure adjustments.
A summary of the significant budget changes is below.
• Reduction of approximately $800,000 to correct the affordable housing-related fund transfers in the Special Revenue Source Fund, based on staffing expansions approved by City Council on November 23, 2021, and policy decisions on the contribution amounts required from the Low/Moderate Housing Asset Fund, TORCA Fund and General Fund. The transfers help support the costs of the Housing unit staff that operate affordable housing programs. • Approximately $1.1 million reduction from the transfers to the Special Revenue Source Fund related to Measure GSH, as result of increases in Transaction and Use Tax revenues.
• Approximately $6.3 million reduction to correct the budget for the GSH transfer to the Special Revenue Source Fund (SRSF), which was not included in the adopted budget. The General Fund portion of the transfer was included in the budget; however, the SRSF portion was inadvertently omitted.
Additionally, staff recommends that Council consider the following position changes in the Other Funds, which will restore or enhance services. • Community Services: Increase of 2.3 as-needed FTE positions in the Beach Fund - Addition of the as-needed positions will enable Beach House's Event Services team to be responsive to the people, businesses, and organizations who wish to plan revenue-generating conferences, meetings, retreats, and various social gatherings and celebrations at the Beach House. Additionally, the positions will enable the restoration of programs at the Beach House, including year-round recreation programs, Spring and Fall aquatics programming, Summer pool access, and weekend staffing to support public use of the Beach House and visits to the Santa Monica State Beach.
• Department of Transportation: Increase of 1.0 permanent limited term FTE position in the Big Blue Bus Fund- The new Transit Training Coordinator position 26 of 33
will assist the department to train new and current Motor Coach Operators (MCO’s) given a severe shortage of MCO’s. The position is essential in helping the department to meet service levels. The position will also assist the training division in updating training modules for the transition to the electric bus fleet as BBB places more e-buses into service to meet the department’s Zero Emissions Program. While the need is immediate and dire, the position being requested is for a limited duration to execute an aggressive, recruitment campaign through FY 2022-23. Additionally, a 1.0 FTE Lead Transit Training Coordinator position is being deleted, offset by the addition of 1.0 FTE Safety and Training Supervisor to support the department's effort to hire, train and retain Motor Coach Operators and ensure the department’s compliance with safety-related federal and state regulations, certifications, training of Big Blue Bus’s safety-sensitive positions, oversight of drug and alcohol testing compliance and oversight of safety and training for the overall department. This position is essential to restoring and maintaining service levels and keeping our system safe. • Finance: Increase of 1.0 permanent FTE position in the Workers’ Compensation Fund- The new Senior Risk Management Analyst position, supporting the Workers’ Compensation program, will help reduce absences for injured employees, particularly public safety employees, which will advance the community priority of a Clean and Safe Santa Monica, while a position change from a Risk Management Analyst to a Senior Risk Management Analyst in the Self Insurance Risk Management Administration Fund supporting all other programs (Liability, Insurance Requirements & Safety) will resolve staffing challenges and focus on cost containment and payment recovery programs. • Information Services: Increase of 1.0 permanent FTE position in the Community Broadband Fund - The new Administrative Analyst position will provide the resources required to maintain customer contracts, accounts receivables, and assist with closing new broadband sales to promptly respond to new Santa Monica businesses requesting broadband service in the City.
Additionally, the addition of the Principal Network Engineer and deletion of the Broadband Services Engineer in the same fund will provide the appropriate 27 of 33
resource required to support the complexity of technical work required to meet the City's service level agreements with major U.S. wireless carriers providing 4G and 5G cellular services to the community.
• Public Works: Increase of 1.0 permanent FTE position in the Resource Recovery and Recycling (RRR) Fund and 1.0 permanent FTE position in the Airport Fund - The addition of a Zero Waste Assistant in the RRR Fund will enhance the City’s ability to provide zero waste and recycling education and outreach, offer on-site technical assistance and training to residents and businesses, and support various regulatory compliance requirements of Senate Bill 1383 under the statewide mandatory organics recycling law. The addition of a Property Management Specialist in the Airport Fund will decrease the City’s dependency on the outside property management firm and ensure maximum leasing and efficient property management for City-owned facilities at the Airport.
The Property Management Specialist will process lease documents, resolve tenant disputes, ensure lease compliance, collect rent and issue default notices.
Finally, the Department proposes to upgrade a Custodian I to a Maintenance Worker position in the Beach Fund to provide greater flexibility in deploying staff to better respond to issues that arise and further the community priority of a Clean and Safe Santa Monica. A Maintenance Worker will be able to perform equipment repairs, remove graffiti, perform minor plumbing, painting and carpentry work, operate power and heavy equipment in addition to cleaning, restocking and trash removal duties that are performed by a Custodian I.
The combined midyear staffing adjustments in all funds result in a net increase of 25 permanent FTE positions (20.0 in the General Fund) and 7.1 as-needed FTE positions (4.8 in the General Fund). With these staffing adjustments, the City will have added back approximately 21% of full-time equivalent positions cut in FY 2020-21, and 19% of General Fund positions cut. Attachment A describes each budget change in detail.
Attachment B is a Salary Resolution detailing new classifications and salary rates, and Attachment C details the staffing adjustments.
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Capital Improvement Program (CIP) Budget Adjustments
Recommended changes to the FY 2021-22 CIP budget include a net budget increase of approximately $0.7 million to three non-General Fund project budgets. The budget changes are detailed in Attachment A and summarized below.
General Fund- Capital Budget
No changes proposed.
Non-General Funds- Capital Budget
Special Revenue Fund
The Park and Recreation Impact Fee is collected from new residential and commercial development for eligible park-related projects. Staff recommends allocating $150,000 in currently available impact fee resources to the Park Condition Assessment project. This project will provide the baseline information on the condition of park infrastructure and timing of replacement costs to inform critical needs and community discussions. In addition, the project will support moving forward with adoption and implementation of the Parks & Recreation Master Plan.
Clean Beaches and Ocean Parcel Tax Fund
The Clean Beaches and Ocean Parcel Tax collects revenue to be used solely for the purpose of implementing the City’s Watershed Management Plan projects. Staff recommends allocating $66,528 in currently available Measure V resources to the Pier Storm Drain Repair project. This project will fund repairs to the 60-inch storm pipe located under the Pier and install concrete anchors.
Vehicle Management Fund
Staff recommends appropriating $0.5 million of Vehicle Management Funds collected from conventional fuel fleet user groups for depreciation of equipment for the Diesel Fueling Station project. The project will implement required soil remediation needed at City Yards as a result of the removal of the previous unleaded and diesel fueling station.
In addition, a new temporary above-ground diesel fueling station will be installed at the 29 of 33
Colorado Yards. As the City transitions fully away from liquid fossil fuels, there are still a small number of industrial vehicles that will require diesel fuel until the industry can catch up.
Adjustment to City Fines and Adoption of Penalty Fine Schedule Staff is also presenting adjustments to the Master Fine Schedule Resolution (Attachment D) as follow:
• Library Fines: Staff recommends eliminating overdue fines at the Library for all adult cardholder accounts to remove barriers to access and promote social equity in our community. Eliminating overdue fines for adult cardholders aligns with the Council’s prior 2018 action to eliminate overdue fines for children and teens. The existing fees for lost or damaged items will remain unchanged. • Second Shared Mobility Progressive Penalty Fine Schedule: In March 2021, Council directed staff to implement the Second Shared Mobility Pilot Program that was delayed due to COVID-19. On April 8, 2021, the City published administrative regulations relating to the Second Shared Mobility Pilot Program (Administrative Regulations). Currently, violations of the Administrative Regulations are subject to the City’s standard fine amounts. The Administrative Regulations, however, recommend a progressive non-standard penalty schedule that defines different classes of penalty types and amounts, and enforcement escalations for both Public Right of Way (PROW) violations such as ADA blockages, improper deployments, and complaint response time, and administrative non-compliance such as geo-fencing and data issues. The penalty schedule will deter noncompliance and incentivize operators to quickly resolve important PROW safety and administrative issues.
The Code Enforcement and Mobility Divisions developed the penalty schedule based on other Santa Monica Municipal Code fine amounts. The penalty schedule is structured to increase penalty amounts on violations concerning safety and lower amounts or have no escalation for administrative violations. The 30 of 33
penalty schedule will be enforced by the Code Enforcement officers assigned to enforcing the Administrative Regulations for the Second Shared Mobility Pilot Program. Staff recommends Council adopt the penalty schedule as presented in the Administrative Regulations.
Potential Revenue Measures
As discussed above, while the recovery in General Fund revenues has been stronger than anticipated, FY 2021-22 estimated revenues are still approximately $30 million below the pre-COVID peak in FY 2018-19 and $50 million less than would have been anticipated had the pandemic and resulting recession not occurred. A strategic option to help restore and enhance City services, especially services addressing the community priorities of Addressing Homelessness, Clean and Safe Santa Monica, and Equitable and Inclusive Economic Recovery, to desired levels is to consider revisions to existing tax rates as well as options for new tax measures. As an example, Measure SM, which increased the real estate transfer tax on properties selling for $5 million or more, was approved by the voters in November 2020 and has contributed approximately $3.3 million to revenues in the first nine months of implementation. The City has reached its statutory limit on increasing Transaction and Use Tax rates, but other measures, listed below, are still feasible. It should be noted that the viability of each measure must be considered separately and carefully, and not every measure may be appropriate for this time. With Council’s direction, staff will begin its review of the feasibility, timing and structure of the potential tax measures outlined below. Tax measures generally are put on the ballot during a regularly-scheduled General Election in even-numbered years. Staff will focus on what measures are feasible for the November 2022 election. Some of the items below may not be best suited for the current year.
Measure Description Annual Revenue
Forecast
Library Parcel Tax A special tax (requires 2/3 of voter approval) dedicated to restoring
library services
~$2 million to $4 million
(depends on structure of
tax)
Transient Occupancy Tax Tax on lodging room rentals,
currently 14%, potential higher rate
for homeshares. Majority voter
approval required.
~$4 million for each 1%
increase; $0.1 million for
homeshare for each 1%
increase
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Parking Facility Tax Tax on parking fees, currently 10%.
Majority voter approval required.
~$1 million for each 1%
increase
Business License Tax Modernizing Business License Tax.
Majority voter approval required.
Unknown - further
analysis needed
The final decision as to which tax measures to pursue, the structure of each tax, and the timing for placement on the ballot will be recommended after research and polling are completed. Staff will return to Council with further information in the coming months.
The first significant revenue impact from any successful November 2022 ballot measure would be realized until FY 2023-24.
Park Planning Update
As part of the FY 2021-23 Biennial Budget, Council approved the restoration of a Limited Term Senior Park Planner. The demand for park planning and construction is great, despite very limited resources available for this work. The attached workplan for the park planning program (Attachment F) based on current staffing and capital improvement budget resources, will help to clarify what work is feasible during the position’s two-year term.
Modification of Internal Auditor Contract
At its November 16, 2021 quarterly meeting, the Audit Subcommittee of the Santa Monica City Council voted to amend the Internal Audit Plan for the year to include a review of Homeless Services Delivery. At a January 20, 2022 Special Meeting, the Audit Subcommittee approved a comprehensive evaluation which includes a review of the City’s homeless services planning and strategy, as well as its communications related to homelessness efforts, and compares them to best practices; reviews the roles of the City and the local, regional and State agencies that work in this area in addition to the service offerings in each of these areas; and evaluates the various City resources and organization structure dedicated to this area. Additionally, a portion of the services for persons experiencing homelessness in Santa Monica are provided in partnership with non-profit organizations that receive grant funding through the City’s Human Services Grants Program (HSGP). The Housing and Human Services Division had issued an RFP for periodic monitoring of HSGP grantees. It became clear that having Moss Adams complete monitoring engagements for the full portfolio of HSGP grantees would provide a greater understanding of the safety net of services for Santa Monica’s 32 of 33
most vulnerable populations, better inform the review, and provide economies of scale.
Including the grantee monitoring work in the Internal Audit Plan will also provide greater transparency to the public as the results of the audit will be presented to the Audit Subcommittee and posted online on the Subcommittee’s webpage. The comprehensive evaluation of homeless services and the grantee monitoring work requires a second modification to the existing five-year contract with Moss Adams, LLP, the City’s contracted Internal Auditor, to add $240,000 ($150,000 for the homeless services audit and $90,000 for the grantee monitoring work). On August 25, 2020, Council approved the first modification to the Moss Adams contract (Attachment I) that was initially executed on October 9, 2019 (Attachment H) to reflect changes to the annual amounts of the contract due to the City’s restructuring, including lowering the amounts for the second and third years from $150,000 to $75,000. The proposed modification will result in a total contract amount of $931,000 over five years.
Relocation reimbursement for the Police Chief
During a challenging year in law enforcement and after almost a year during which the City operated with an interim Police Chief, the City began a recruitment for its Police Chief on June 28, 2021. The Police Chief’s salary and benefits are governed under the Executive Pay Plan (EPP). The City Council has adopted a resolution authorizing the City Manager to execute the EPP and establish the terms and conditions of employment including salary and benefits. On September 1, 2021, the City completed a nationwide recruitment effort, and the City Manager extended an offer of employment to the best candidate, Ramon Batista. After negotiations between the City and the candidate, the City Manager agreed to relocation expenses not to exceed $25,000 as part of the employment package. Staff requests that Council approve this benefit retroactively to align with the Police Chief’s start date of October 18, 2021.
Past Council Actions
Meeting Date Description
06/22/21
(Attachment E)
Adoption of the First Year and Approval of the Second Year of the FY 2021-23 Biennial Budget, Adoption of the Second Year of the FY 2021-22 Biennial Capital Improvement
Program Budget
08/25/20 Approval of First Modification to Moss Adams LLP 33 of 33
(Attachment I) Contractual Agreement
Financial Impacts and Budget Actions
Recommended FY 2021-22 midyear budget adjustments result in:
• Revenues: $30.7 million increase in the General Fund and $81.0 million increases in all Other Funds, for a combined $111.7 million net increase over the citywide revenue budget.
• Expenditures: $63.6 million increase in the General Fund and $6.1 million decrease in all Other Funds, for a net combined $57.4 million increase throughout the citywide expenditure budget.
• FTEs: Increase of 20.0 FTEs permanent positions and 4.8 as-needed FTE positions in the General Fund. Increase of 5.0 FTE permanent positions and 2.3 as-needed FTE positions in All Other Funds.
Details of FY 2021-22 midyear adjustments are in Attachment A.
Prepared By: Oscar Santiago, Budget Manager
Approved Forwarded to Council
Attachments:
A. Attachment A - Budget Adjustments FY 2021-23
B. Attachment B - Salary Resolution
C. Attachment C - Position and Classification Changes
D. Attachment D - Fines Resolution with exhibits
E. Attachment E - Adoption of the First Year and Approval of the Second Year of the FY2021-23 Biennial Budget - web link
F. Attachment F - Update on Park Planning Priorities
G. Attachment G - Public Participation at Meetings
H. Attachment H - Moss Adams Original Agreement
I. Attachment I - Moss Adams First Modification
J. Written Comment
K. PowerPoint Presentation