Santa Monica City Council
May 24, 2022

City Council
Report
City Council Meeting: May 24, 2022
Agenda Item: 4.B
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Budget Subject: Financial Status Update, FY 2022-23 Proposed Budget, and FY 2022-24 Biennial Capital Improvement Program Budget
Recommended Action
Staff recommends that the City Council:

1. Receive the FY 2021-22 through FY 2027-28 May Forecast;

2. Review and provide direction to staff regarding the FY 2022-23 Proposed Operating Budget Adjustments (Attachment A) and FY 2022-24 Proposed Biennial Capital Improvement Program (CIP) Budget (Attachment B);

3. Review and provide direction to staff on establishing a parklet license fee, Fire Department fee study changes and revisions to Cemetery fees (Attachments C, D, E);

4. Direct staff to proceed with setting the FY 2022-23 Operating and FY 2022-24 Biennial Capital Improvement Program (CIP) Budget Adoption hearing on June 28, 2022; and

5. Provide direction on potential revenue measures for the November 2022 ballot and direct staff to prepare ballot measure language.

Summary
The FY 2022-23 Proposed Budget, the second year of the City’s FY 2021-23 Biennial Budget for operating expenditures, is an important milestone in the City’s gradual recovery from the disruption and economic losses that accompanied the COVID-19 pandemic. Despite frequent budget amendments to restore services incrementally as revenues slowly recover, a large portion of the reductions in programs and services, facility maintenance, and capital improvement projects made in the beginning of the pandemic continue. Data indicates that the City continues to recover. At the same time, the City, like the entire country, is projected to experience significant cost increases coming from the highest levels of inflation in forty years, supply chain issues, other 2 of 45
market disruptions occurring as a result of the war in Ukraine, and adjustments to staff compensation increases.

The City is in the middle of labor negotiations with nine employee bargaining units following a two-year period that included the first layoffs in the City’s recent history, concessions, and no cost of living increases. The City is faced with needing to address employee compensation in a very competitive job market and in the face of high inflation and a community and region with a high cost of living in order to retain staff and sustain existing operations with demands to restore or add services.

Given all of this, the FY 2022-23 Proposed Budget is primarily focused on no-cost operational adjustments to improve service delivery, as well as incorporating previous Council direction to continue the Pier Vending Task Force for another year, and some required budget corrections.

Many needs and challenges endure. Council adopted priorities are clear:
• Address homelessness;
• Provide clean and safe neighborhoods and open spaces; and • Support an equitable and inclusive economic recovery.

Over time, as staff continues to assess the pace of economic recovery and has a firmer understanding of available one-time savings from FY 2021-22 and expenditure levels based on the outcome of labor negotiations, staff will continue to bring forward additional service restorations and enhancements that align with City Council’s priorities.

Another opportunity to consider budget changes will be as part of Council’s Midyear Budget Review in the winter. At that time, if Council has agreed to place a potential tax measure on the November 2022 General Election ballot and if it is successful, the City would have the capacity to program anticipated new funds to priority areas as captured in recent polling of Santa Monica voters. This report includes information on the polling 3 of 45
conducted on two potential tax measures, as directed by Council at its February 8,2022 meeting:
1) A 1% increase to the City’s Transient Occupancy Tax (TOT), and 2) A Library Parcel Tax specifically to restore Library operations.

Based on the results of the polling, staff recommends placing only the TOT measure on the November 2022 ballot. If Council directs staff to proceed, final approval of ballot language and a resolution to proceed with the ballot measure will occur at the July 12, 2022 meeting.

The total Citywide Proposed Budget for FY 2022-23, net of reimbursements and transfers, and including both operating and capital expenditures, is $664.7 million, $393.5 million of which is in the General Fund. The Citywide Proposed Budget represents an 8.9% increase over the revised FY 2022-23 Approved Budget Plan (includes ongoing changes approved throughout FY 2021-22) as detailed below. • Operating Budget - $7.7 million increase from revised budget plan:
o General Fund – approximately $1.9 million increase, including 16.6 FTEs (14.7 Permanent and 1.9 As-needed), primarily funding initiatives that address a clean and safe community.
o Other Funds – approximately $5.8 million increase, including 30.7 FTEs (28.5 Permanent and 2.2 As-needed), primarily funding initiatives that ensure the City’s increasing array of in-person services are properly resourced to provide sufficient levels of service and minimize risk to the public and to the City.
• FY 2022-23 is the first year of the FY 2022-24 Proposed Biennial Capital Improvement Program (CIP) Budget, which makes strategic investments in maintaining and enhancing critical City infrastructure and City facilities essential to providing services. Santa Monica is a leader in responsible financial and environmental leadership in municipal capital planning and construction. Funding for critical infrastructure protects the City’s existing capital investment and minimizes future maintenance and replacement costs.
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The FY 2022-23 Proposed CIP Budget is $88.4 million, net of reimbursements and transfers, representing a $46.5 million change from the revised FY 2022-23 Approved Budget Plan, primarily from projects funded by the Other Funds. The FY 2023-24 Proposed CIP Budget Plan is $96.1 million net of reimbursements and transfers. Of these amounts, the General Fund portion for each year is $13.8 million, representing a $1.9 million change from the FY 2022-23 Approved Budget Plan, and $13.1 million, respectively. A detailed discussion on the FY 2022-24 Capital Improvement Program (CIP) Budget is included in the Discussion section of this report.
• Budget and FTE changes to the FY 2022-23 Approved Budget Plan are summarized in the following table:

FY 2022-23
Approved
Budget Plan
FY 2022-23
Proposed
Changes
FY 2022-23
Proposed
Budget
Citywide Budget (in millions)* $610.5 $54.2 $664.7
Citywide FTE Permanent
Positions
1,899.1 43.2 1,942.3
Citywide FTE As-needed Positions 78.4 4.1 82.5
Total FTEs 1,977.5 47.3 2,024.8
*Net of reimbursements and transfers. Approved Budget Plan includes all Council-approved budget changes made throughout FY 2021-22.

The May 2022 General Fund Forecast includes the Proposed FY 2022-23 Budget and assumptions regarding potential expenditure increases over the next five years. At this point, staff anticipates that all revenues as projected are programmed to maintain a balanced budget over the next four years of the forecast period until the City sees some revenue streams increase swiftly in year five.

Looking to the years ahead, staff will continue to plan for the most effective ways to address Council priorities over the next five years, acknowledging the reality of program implementation timelines that are driven by recruitment, training, procurement, contracting and community outreach processes, and continued revenue growth. The 5 of 45
City will continue its economic recovery and grow stronger with partnerships and new opportunities. Among the areas that staff is working on are the introduction of a digital wayfinding system/out of home advertising network that will provide the City a new revenue source, development of the planning process of the Airport, and preparation for the 2028 Olympics. As funding needs or revenue projections from these plans become more clear, staff will consider them in future year budget planning.

The financial status of other funds remains relatively stable. As previously reported, most of the non-General Funds will remain self-sufficient during the forecast period. The Pier and Beach Funds have structural deficits, resulting in unfunded capital needs, and will require some level of General Fund assistance. The Resource, Recovery and Recycling Fund is projected to remain self-sufficient only through FY 2023-24, requiring staff to consider a rate change. Finally, annual contributions toward the City’s equipment replacement internal service funds have resumed after being suspended for two years.

Also presented in this report is a proposed parklet license fee that aligns with existing sidewalk dining fees and revisions to Fire Department and Cemetery fees.

Background
The FY 2021-23 Biennial Budget was adopted by Council on June 22, 2021 (Attachment F). After two years of severe revenue losses requiring the use of reserves and a dramatic restructuring and reduction of operations and resources for facility maintenance, vehicle replacement, technology replacement, and capital improvement projects 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. 6 of 45
The Biennial 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, and therefore the services funded with those revenues, would continue to be lower than pre-pandemic levels. While General Fund revenues are growing, they are far below the levels they would have been had the economy not been disrupted by the pandemic. When comparing updated revenue projections for the General Fund to those staff had projected for the same period in February 2020, current projections for FY 2022-23 are $43 million lower. This gap indicates the minimum amount of additional revenues the City would need annually in order to provide the same level of services provided before the pandemic, without accounting for the significant inflation that has increased costs further over this time.

The restructuring and reduction of operations in the General Fund, the fund responsible for the majority of City general services, resulted in a 20% decrease in operating expenditures and a 50% decrease in capital funding but enabled the City to maintain essential and emergency operations during the pandemic. As noted above, while economic recovery is happening, the disruption that began two years ago is still affecting the global economy and has resulted in continued severe revenue loss for the City. While revenues continue to recover faster than previously projected, coronavirus variants continue to emerge and threaten to slow down economic activity. International and business travel is still lagging, and office-based businesses are still not operating in person at their pre-pandemic levels, which impacts business and parking activity. This economic activity, and the revenues that it produces for the City, has a direct impact on the City’s ability to provide a higher level of service. 7 of 45
This in turn impacts the City’s ability to restore services and programs to meet community needs and address critical gaps in services. The City’s workforce was reduced by over 421 positions. While key investments throughout FY 2020-21 and FY 2021-22 have enabled staff to bring back some services and invest in new areas (i.e.

Pier Vending Task Force), to date, the City has restored only 24% of the eliminated positions.

Most City programs and services, which rely on people to deliver the services, continue to operate at reduced levels, are serving fewer participants or have been closed or suspended. Such programs and services include:
• Library services - only three locations have in-person service and one branch with self-service, overall operating at approximately 33% of previous levels • Youth programs are at 30% or less of previous levels
• Mobility on Demand program (MODE) is operating at 75% of previous levels • Fairview Library, Miles Memorial Playhouse and Camera Obscura Art Lab remain closed
• There is no support from Facilities Maintenance staff for permitted park events • Graffiti removal, alley paving, tree pruning, and sports field maintenance are operating at reduced frequencies
• In-person services at the Permit Services Center public counter are available 8:00 am – 3:00 pm Monday through Thursday by appointment only The General Fund capital program, which was also impacted by the budget reductions, was cut by half its annual allocation, and despite some increases, the program remains severely underfunded. In pre-pandemic years, the City set aside $21 million annually to 8 of 45
fund preventative maintenance of infrastructure, vehicle and equipment replacement, new technology, and park and mobility improvements. Important capital projects that were de-funded continue to wait for funding, including, but not limited to:
• Memorial Park Expansion,
• Phase 2 of City Yards Modernization,
• Lincoln Neighborhood Corridor Streetscape,
• Olympic Blvd/Sidewalk Improvements,
• Parking Structure Upgrades, and
• Street Light Upgrades.

While funding for the replacement of capital equipment vital to City services has resumed after a two-year suspension, the Fleet and Computer Equipment Replacement Funds are forced to replace equipment at a slower pace, a process that is not sustainable in the long term and will need to be addressed in upcoming budget processes. Planning efforts for large projects, including the land at the Airport once it closes, also require project funding, as well as funding to cover the operating costs once these projects have been completed. Furthermore, capital improvements at the Beach and Pier that cannot be supported by the Beach and Pier Fund revenues, compete for limited funds in the General Fund.

The Budget Proposal Process
Leading up to the preparation of the FY 2022-23 Proposed Budget, departments were tasked to evaluate service needs and submit only the most vital funding requests to address the following priorities:
• Addressing homelessness and the impacts of homelessness, • Addressing crime and cleanliness, particularly the impact of sidewalk vending at the Pier and Beach, safety in the Downtown area and in neighborhoods throughout the City,
• Addressing the impacts of COVID-19 and furthering economic recovery, 9 of 45
• Ensuring that the City’s shift back to in-person services is properly resourced to provide sufficient levels of service and minimize risk to the public and to the City, and
• Furthering community legislative mandates.

Staff evaluated all requests submitted in light of limited resources and the uncertainty that continues to remain in the City’s prolonged economic recovery.

Discussion
Overview of Economic Conditions
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 recovered strongly in 2021. National economic growth as measured by Gross Domestic Product (GDP) grew 5.7% for the year after declining 3.4% in 2020.

The labor market has shown a strong recovery as the unemployment rate has returned to pre-pandemic levels. However, impacts and disruptions of the pandemic continue to linger. Tourism is far from pre-pandemic levels and many office workers continue to work from home. In addition, the Russian invasion of Ukraine as well as inflation and the appearance of new COVID-19 variants have added new layers of uncertainty to the overall economic recovery. GDP unexpectedly declined 1.4% in the first quarter of 2022, and a recent Bloomberg survey of economists now projects 3.2% growth for all of 2022 followed by slower growth of around 2% for the following two years. Despite the low unemployment rate, labor force participation has not recovered to pre-pandemic levels and many employers are finding it difficult to attract and/or retain workers.

Inflation has risen to the highest level in four decades, and supply chain issues are causing disruption, all of which could further hamper growth.

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 10 of 45
from pre-COVID levels, while total General Fund revenues were down 22% over the same period.

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. FY 2021-22 revenues are approximating the trend reported at Midyear when staff anticipated $11 million more than in the adopted budget, but final results will not be known until year-end. As noted at Midyear, much of the increase continues to reflect rebounds in the areas hardest hit by the pandemic - Transient Occupancy Taxes, Sales Taxes, and parking-related revenues. However, even with the strong recovery, revenues are projected to be $43 million lower than the level they had been projected to reach by this time in forecasts completed prior to the pandemic. It is also worth noting 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 over the next five years is provided below:
• Sales Taxes (both sales and use and transaction and use tax) have bounced back significantly from pandemic lows. Sales tax revenues from restaurant/hotel and general consumer goods categories for the most part have recovered sharply, and auto sales remained resilient during the pandemic.

Despite the improvement, sales tax revenues are projected to decrease by $1.8 million in FY 2022-23, reflecting the economy leveling out as well as the loss of two major taxpayers, 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, but have recovered faster than expected despite continued weakness in international and business travel. FY 2022-23 revenues are now expected to exceed pre-pandemic levels, growing $5.4 million over FY 2021-22 levels (exclusive of a one-time accounting adjustment made in FY 2021-22) and over 11 of 45
three times greater than the pandemic low year (FY 2020-21). Strong growth is expected to continue especially as restrictions on international and business travel begin to ease, increasing demand. The projections also include the impact of the approximate three-year closure of the Fairmont Miramar for renovations as well as the hotel’s reopening in late FY 2026-27.
• Business License Tax revenues are expected to begin a steady but slow increase in FY 2022-23. However, some of the impacts of the pandemic, in particular the continuance of remote working, may have longer term, if not permanent impacts. This revenue stream did not see the full impact of the pandemic until FY 2021-21 as taxes are based on gross receipts from the prior calendar year. Revenues are not projected to exceed pre-pandemic levels until FY 2027-28.
• Parking revenues (including parking citations) fell nearly 45% from preCOVID levels, but as with many other revenue sources, they began their recovery in FY 2021-22. Revenues are projected to moderately increase over the next several years and approach pre-COVID levels by FY 2024-25 before levelling off. Parking Facility Taxes are expected to show a similar pattern. • Utility Users Tax revenues were not significantly impacted by the pandemic. However, recent spikes in energy costs have led to significant increases in taxes from electricity and natural gas services and are expected to grow by an average 1.5-3.5% 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. However, inflation has hit a 40-year high, leading to significant increases in interest rates through at least the end of 2023, which will result in investment income growth. Some of this growth will be limited due to a lower investable fund balance as the City was forced to use reserves during the pandemic.
• While revenues from fees, charges, and certain other revenue sources have recovered somewhat from pandemic lows, FY 2022-23 revenues are 12 of 45
projected to still be nearly $8 million less than 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. Revenues during the forecast period also include Miramar development agreement payments that will partially offset Transient Occupancy Tax losses during the hotel’s renovation.

These funds will be repaid to the hotel from increased tax revenues after the hotel reopens.
• 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. The property market is expected to continue to be strong throughout the forecast period.

General Fund Five-Year Financial Forecast
The Five-Year Financial Forecast has been updated from the Forecast presented in February 2022. 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 incorporates the following assumptions:
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• New revenue projections reflecting actual revenues generated in the first nine months of the current fiscal year and updated assumptions for FY 2022-23 and beyond, based on economic trends and projections by hospitality industry, sales tax and property tax experts. Changes to the FY 2022-23 revenues from the revised budget plan amounts are included in Attachment A and noted in the Budget Adjustments section below.
• Updated expenditures for the FY 2022-23 budget plan and beyond. Changes to the FY 2022-23 budget plan included in the Proposed Budget are detailed in Attachment A and noted in the Budget Adjustments section below. Also included as expenditures are potential upcoming compensation adjustments and related expenditures, based on ongoing labor negotiations.
• $11 million surplus set aside to build reserves: As noted in the Midyear report, the Forecast sets aside $11 million of projected unprogrammed revenues in FY 2021-22 to General Fund reserves. These funds help stabilize the General Fund in the face of new fiscal challenges, including the continuing economic uncertainty being caused by new coronavirus variants and changes in the way that businesses operate, as well as other economic shocks to the City. • 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 point 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 2022-23 amount dedicated to the CIP budget is $12.4 million, with funding restored to the $21 million level in FY 2025-26. While there are very small increases in the amount 14 of 45
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 program.
• Paying deferred GSH Transaction and Use Tax (TUT) 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.
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Not included in the forecast are:

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.
• Potential additional revenue from a Transient Occupancy Tax measure is not included as the outcome of the measure will not be known until the results of the November 2022 General Election.

Other Funds Five-Year Financial Forecasts
The May 2022 Forecast includes other major funds that fall into two categories: 1) funds that realize 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.

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 throughout the forecast period, inclusive of all proposed budget changes for the FY 2022-23 Proposed Budget. In the proposed operating budget, staff is proposing an increase for operating and maintenance costs associated with the recently completed Sustainable Water Infrastructure Project (SWIP). In the proposed CIP budget, several future projects are programmed to rehabilitate aging infrastructure, continue to enhance water supply resiliency, increase safety for operations personnel, and develop master plans as the City’s reliance on imported water declines. The Water Resources Division was able to accelerate future planned CIPs (e.g., rehabilitation of the City’s water storage reservoirs 16 of 45
and replacing aging electrical equipment at the City’s water treatment plants) after the division successfully obtained water revenue bonds in August 2021 to fully fund water self-sufficiency projects. The proposed revenue changes reduce capital facilities fees revenue to reflect slower development activity, which is expected to recover in FY 2023-

24. Water and wastewater rate adjustments approved by Council on January 28, 2020, as well as a revenue bond issued in August 2021, a Clean Water State Revolving Fund Loan, and three recent grant awards (California Department of Water Resources Proposition 1 Water Desalination grant, Los Angeles County Flood Control District Measure W grant, 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. It is important to note that the Water Fund broke ground in January 2022 on the last project identified in the Sustainable Water Master Plan to significantly reduce the City’s reliance on imported water by 2023, which is an upgrade and expansion of the Arcadia Water Treatment Plant.

The Department of Transportation (DOT) Big Blue Bus (BBB) Fund will make strategic investments which will enhance community engagement and outreach efforts, increase customer service to the community, strengthen financial operations, and safeguard the reliability of transit service, while ensuring equitable and safe access to transportation for all. Incorporating these strategic investments in the FY 2022-23 exception-based budget, the BBB Fund will continue to 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 provide financial support to transit agencies in response to the adverse impact of the pandemic on transit operations and ridership. While there is a corresponding reduction in capital revenues due to changes in capital projects, the BBB Fund remains balanced.

Current ridership trends reflect a gradual but promising recovery; however, the Department continues to monitor and track ridership.
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Despite the challenges associated with the pandemic, DOT staff remains committed to ensuring the health and safety of its staff while continuing to identify operational efficiencies and funding opportunities to ensure fiscal sustainability. DOT will continue to provide service levels that support the community and customers, many of whom are essential workers who rely on BBB to conduct essential trips, such as traveling to work, medical appointments, the pharmacy, and shopping.

The Airport Fund is projected to remain self-sustaining throughout the forecast period.

Included in the forecast are several capital improvement projects planned for FY 2022- 23 and FY 2023-24, including Parking and Airfield pavement maintenance and Building and Facility improvements to enhance lease revenue opportunities.

The Cemetery Fund will maintain a positive fund balance throughout the forecast period inclusive of all proposed budget changes for the FY 2022-23 Proposed Budget.

In the proposed CIP budget, the Cemetery is proposing to convert a vacated road to additional plot sites. 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 the Cemetery area in order to extend inventory and maintain fiscal sustainability.

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, if customers are returning to the office, changes to customer service accounts, and competition within the telecommunications industry to ensure 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 18 of 45
Section 8 administrative funding. This additional funding is creating a surplus that will be used to offset future year administrative deficits if they arise.

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 the 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 immediately address areas that cannot withstand the replacement timing lag and to gradually resume the previous schedules for replacement and maintenance.

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 & 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. The forecast includes the FY 2022- 23 proposed budget change to add 6.0 FTE maintenance assistants required to assist with the collection of refuse and increase the safety of field operations. To remain solvent and address operational and capital needs, staff is currently evaluating solid waste rates and will present rate recommendations to Council in the winter of 2022/2023, with the new rates anticipated to be effective in 2023. 19 of 45
Funds Requiring Subsidies
The Pier Fund forecast typically reflects sufficient revenues to fund operating costs and partially fund capital costs. The COVID-19 pandemic has had a significant impact on Pier operations and the Pier Fund, resulting in structural deficit. The fund is reliant on General Fund subsidies and ARPA funds to offset some of the impacts of COVID-19 and maintain a positive fund balance. However, over $25 million in capital projects are unfunded. The primary revenue sources for the Pier Fund are lease payments and parking income. The updated forecast includes an increase in lease rental revenue for FY 2022-23, reflecting the anticipated recovery to pre-pandemic levels. The Pier Deck parking lot has been closed to vehicles since the spring of 2020 and is anticipated to reopen in September 2022. It is projected that parking revenues will not return to previous levels until FY 2023-24. However, the City is in the planning stages of the Pier Bridge Replacement (funded through the Caltrans Highway Bridge Program), which may impact parking revenues once construction begins in FY 2026-27, as access to the Pier Deck parking lot will be impacted. Grant funding from the Economic Development Administration (through the American Rescue Plan Act Travel, Tourism and Outdoor Recreation Notice of Funding Opportunity) was sought to support some unfunded capital projects and a Beach and Pier Master Plan; however, the City did not receive the grant award. Staff continues to seek efficiencies and revenue generating opportunities to support unfunded capital expenditures and address the structural deficit.

The Beach Fund forecast typically reflects sufficient revenues to fund operating costs and partially fund capital costs. The COVID-19 pandemic has had a significant impact on Beach and Beach House operations and the Beach Fund, resulting in a structural deficit. The fund is reliant on prior year advances from the General Fund, a loan from the Special Revenue Source Fund and ARPA funds to offset some of the impacts of COVID-19. However, over $5 million in identified capital projects remain unfunded.

The primary revenue source for the Beach Fund is parking revenues. The FY 2022-23 Proposed Budget includes a reduction in parking revenues as result of the anticipated delay in implementing a rate increase (previously anticipated in July 2022 now in January 2023), which is dependent on a process that includes Council and California Coastal Commission approvals be completed by late 2022. It is projected that parking 20 of 45
revenues will not return to previous levels until FY 2023-24. Other revenue changes in the Beach Fund, include increases to special events, classes, pool operations and Beach House day use revenues, which continue to experience gradual recovery. Grant funding from the Economic Development Administration (through the American Rescue Plan Act Travel, Tourism and Outdoor Recreation Notice of Funding Opportunity) was sought to support some unfunded capital projects and a Beach and Pier Master Plan however, the City did not receive the grant award. Staff continues to seek efficiencies and revenue generating opportunities to support unfunded capital expenditures and address the structural deficit.

Proposed Adjustments to the FY 2022-23 Revised Budget Plan While the Council approves the Biennial Budget every two years, per the City’s Charter, the Council must adopt a budget annually. In year 2 of the Biennial Budget term, Council adopts the second year of the budget, including in the adoption of any adjustments made to the original budget plan. The budget plan has already been revised to incorporate changes made by Council throughout the first year as part of the Year End and Midyear budget reviews. The items noted below are new proposed adjustments.

Revenue Adjustments - General Fund
Projected revenues for the FY 2022-23 Proposed Budget total approximately $403.2 million. This results in approximately $5.7 million or 1.4% increase from the FY 2022-23 Approved Budget Plan (as adjusted during FY 2021-22 Midyear). The change reflects year-to-date activity and projections of changes in economic conditions and community behaviors through the remainder of FY 2021-22 and throughout FY 2022-23. A summary of the significant FY 2022-23 budget changes is below. Attachment A details all revenue budget changes.

FY 2022-23 Revenue Changes
Type of Revenue Amount
Sales Tax (including TUT) -$4.2 million
Utility Users Tax $1.1 million
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Transient Occupancy (Hotel) Tax $6.0 million
Property Tax $0.1 million
Business License Tax -$0.2 million
Documentary Transfer Tax $0.7 million
Parking-Related Revenue
(including parking facility tax)
$0.1 million
Fees/Charges/Other $2.1 million
Total $5.7 million
Revenue Adjustments - Other Funds
FY 2022-23 revenue changes in the Other Funds result in an increase of approximately $0.4 million. Significant revenue adjustments include:
• Airport Fund – Increase of approximately $1.2 million, primarily due to increases in revenue related to new leases.
• Beach Fund - Decrease of approximately $1.3 million in parking revenues from an anticipated delay of a parking rate increase, which was projected to go into effect in July 2022 and is now anticipated to take effect in January 2023. The revised implementation date is dependent on a process that includes Council and California Coastal Commission approvals anticipated to be completed by late 2022.
• Big Blue Bus Fund - Decrease of approximately $823,000 due to a reduction in drawdowns/reimbursements from a projected decrease in capital expenditures. • Gas Tax Fund – Increase of approximately $608,000 from greater than anticipated State Gas Tax apportionment revenues from the Highway Users Tax Account (HUTA) and the Road Maintenance and Rehabilitation Account (RMRA), based on estimates released in January 2022.
• Miscellaneous Grants Fund - Increase of approximately $2.3 million from new grant awards and earlier than projected grant reimbursement revenues. • Pier Fund – Increase of approximately $583,000 from increased lease revenue due to stronger recovery for percentage rents.
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• Wastewater Fund - Decrease of approximately $880,000 related to decreases in pass-through revenues for Capital Facilities Fees and Amalgamated System Sewerage Facilities Charges from slow development activity. • Water Fund - Decrease of $1.4 million reflecting a reduction in Capital Facilities Fees and Water Meter Installation Fees due to slow development activity.

Expenditure Adjustments and Personnel Changes - General Fund As noted above, it is difficult to program available ongoing balances in the General Fund until the ultimate impact of labor negotiations is known. Additionally, while this report includes a recommendation to move forward with preparing a tax measure for the November 2022 ballot, its outcome is also unknown and therefore the potential revenue that would be generated is not included in the City’s financial projections. Working within these constraints, staff proposes General Fund operating expenditure adjustments that result in a $1.9 million net increase to the General Fund budget. The budget adjustments focus on:

1. Urgent Needs previously directed by Council;

2. Initiatives that can move forward with no additional costs; and

3. Required budget corrections.

Urgent Needs
Staff has identified approximately $2.5 million in one-time funds for Council-directed initiatives focusing on a clean and safe community. The items included in the $2.5 million are delivered by contracted service that could be terminated, temporary use of overtime, or require one-time funding only. As a result, the addition or continuation of these services does not impose a significant permanent burden on the budget and the City could have the flexibility to adjust its operations as necessary. The items are described below.
• Approximately $2.4 million for the continuation for another year of the Pier Vending Task Force, which includes Police overtime, a Fire Code Enforcement Officer, and private security presence, in addition to ongoing budgeted work by 23 of 45
the Code Enforcement Division and the Police Department. The continuation of this initiative was directed by Council at its February 22, 2022 meeting. • Approximately $115,000 for the restoration of a Volunteer Coordinator, first approved by Council as part of the FY 2019-20 Midyear Budget, and its responsibilities later affirmed by resolution on February 25, 2020, to monitor all aspects of recruitment, background checks, and compliance of volunteers in City programs, per the recommendations of the City’s Child Protection Officer, Praesidium. While this position is ongoing, this is a one-time funding need, as a separate limited term position expires in FY 2023-24 and funding will be transferred to cover this position in the future.

No Cost Items
Facing high workload and fewer resources in addition to higher levels of staff turnover and a labor shortage, staff continues to look for opportunities to improve and expand services. The most efficient approach is to make small, no-cost adjustments that provide high value results. Such items include:
• Organizational changes that place staff in the most effective positions and organizational structures, such as:
o Centralizing customer service staff, including transferring two positions currently in the Resource Recovery and Recycling Division under the 311 umbrella to enhance customer service and operational efficiency. o Converting limited term positions to permanent in order to provide stability to areas showing a continued level of need, including permitting, park planning that includes the community legislative mandate to develop park space at the Airport upon its closure in 2029, civil engineering, and human resources support.
o Realigning vacant positions to enable the addition of a Community Partnerships Manager who will preside over key initiatives including the implementation of digital kiosks and the associated revenue, the We Are Santa Monica Fund, and preparing for the 2028 Olympics. 24 of 45
• Reallocation of budgeted funds to expand the level of responsibility of budgeted positions in Aquatics and the City Attorney’s Office.
• Reallocation of budgeted funds:
o Adding a 1.0 FTE Information Security Analyst position to further support ongoing efforts to enhance the City's cybersecurity systems. o Adding 2.0 Maintenance Workers, 1.0 Facilities Supervisor, and 1.0 Administrative Analyst in Public Works to support reopened facilities. • Reallocation of budgeted funds to adjust the Fire Department’s budget to reflect the end of temporary pay cuts for sworn members of the Fire Department, per MOU terms negotiated in 2020 and providing full funding for positions that were previously kept vacant to provide savings to the General Fund in FY 2020-21 and FY 2021-22. This adjustment ensures that the Department has adequate funding for two Fire Inspectors and one Fire Captain – Prevention. Also in the Fire Department, one Assistant Fire Marshall position is retained and funded by cost recovery fee revenues.
• Items totaling approximately $301,000 funded from revenues generated by the programs and/or funded by Enterprise Funds, include positions such as:
o Adding a GIS Analyst in the Information Services Department that will support Public Works and be funded by the Clean Beaches and Ocean Parcel Tax, Water, and Wastewater Funds.
o Adding a Business License Inspector position in the Finance Department, funded by additional Business License Tax revenues recovered from noncompliant businesses, who will also approach and educate vendors on regulatory requirements, assist them in establishing cooperative relationships with the City, and provide a pathway to permitted operations. o Upgrading a Public Services Officer Lead to a Supervisor in the Police Department, funded by reimbursements from the Airport Fund, to establish a more effective level of oversight.
o Adding a Civil Engineer, funded entirely by Transportation Impact Fee revenue, to oversee construction of mobility projects that build out the City’s multimodal network.
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o Adding as-needed positions in the Community Services Department to support community use of the new Santa Monica High School pool, to be covered by fee revenues.
• Items that are directly correlated to revenues and must be adjusted when revenues are adjusted:
o Reduction of approximately $952,000 related to the revenue-sharing payment from Measure GSH to the Santa Monica Malibu Unified School District, reflecting decreased Transaction and Use Tax (TUT) revenue. o Reduction of approximately $476,000 related to the revenue-sharing payment from Measure GSH to the Affordable Housing Trust Fund, reflecting decreased TUT revenue.
o Adjustment of approximately $318,000 (which is recorded as a credit to the General Fund), reflecting an increased transfer from the Gas Tax Fund for greater than anticipated Gas Tax, based estimates released by the State in January 2022. Funds are primarily used for regular road maintenance.

Corrections
Approximately $674,000 are required to maintain current operations in the City Manager’s Office (Approved by Council on 9/17/21), the Library Department, Public Works and the Community Services Department. While these items are funded this year, ongoing funding must be included in the FY 2022-23 Proposed Budget for certainty.

Attachment G details all staffing adjustments, including items that result in no additional costs.

Looking Forward – FY 2021-22 Year-end and Beyond
The uncertainty of COVID and the slow recovery of local revenues, ongoing labor negotiations, and the unknown outcome of a proposed revenue ballot measure, require a longer-term approach to service restoration and enhancement. Staff will continue to revisit needs as additional funding becomes available and will continue to use each 26 of 45
Council budget review checkpoint, including Year-End in the fall and Midyear in the winter, to determine whether updated financial data allows for the restoration or expansion of services.

To address the recovery of an economy that has been severely disrupted by the pandemic, the City must seek a combination of new ongoing and one-time revenue infusions to jump-start a higher level of economic recovery for the entire community. As previously mentioned, the City’s General Fund revenues are falling far short of the levels they would have been had the pandemic not occurred. If the TOT tax measure is successful, staff anticipates that revenues could be used to address the top concerns noted in the recent poll: addressing crime and cleanliness and addressing homelessness. Among the program expansions that respond to these needs are:
• Expansion of the City’s homeless multidisciplinary outreach teams’ work beyond the Downtown and Beach area;
• Redesign of the SAMOSHEL interim housing program to accommodate 24/7 intakes, giving additional options for after-hours intake and facilitating SMPD transports for people experiencing homelessness and non-urgent behavioral health issues. These initiatives were discussed by Council during the May 11, 2022 Special Meeting on Homelessness;
• Expansion of the Police Department’s Homeless Liaison Program (HLP); • Expansion of the Police Department’s Downtown Services Unit (DSU) and the Public Services Officer (PSO) program. These expanded teams, together, would provide the needed coverage levels for the Downtown, Pier and Beach, would further increase resources responding to people experiencing homelessness, and would allow public safety resources that have been shifted to deal with increased activity in these areas to be redistributed to neighborhoods and patrols throughout the City.

Staff is actively leveraging other funding sources. The City is participating in federal and state grant funding opportunities, including federal earmark funding and American Rescue Plan Economic Development Administration grants. These grant requests have 27 of 45
already provided $2 million to support the City’s initiative to build mixed-use affordable housing at 1318-20 4th Street, and if successful, may provide funding to renew Promenade infrastructure. As noted above, the Proposed Budget includes, as a no cost item that will provide significant financial benefit, the addition of a dedicated Community Partnerships Manager position that will work to responsibly leverage private sector resources.

New funds, currently unavailable, are needed to enable the restoration of programs that continue to be severely cut back and that can help further the City’s economic recovery:
• The City’s libraries. The Library is operating at 33% of its pre-pandemic level and a significant, $4 million infusion of revenue is needed to restore services to their optimal levels. As noted in this report, polling for a Library Parcel Tax that would have raised this revenue was weak.
• Youth programs are currently available to 30% of prior participants. When available, additional funding should be considered to restore programs for underserved youth at the Virginia Avenue Park (VAP) Teen Center and at PAL facilities at Memorial Park and VAP. Gap funding is also needed to enable the School District to partner with a local non-profit organization to provide supervised, after-school play time at public elementary schoolyards. • Events funding through the Art of Recovery initiative which provides grant funds to local organizations seeking to partner with the City to produce community events will operate at a lower level next year as one-time funds are discontinued.

Expenditure Adjustments and Personnel Changes - Other Funds As part of the FY 2022-23 Proposed Budget, staff proposes operating expenditure adjustments that result in a $5.8 million net increase in the non-General Fund Funds.

Attachment A details all expenditure adjustments and Attachment G details the staffing adjustments.
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A summary of the significant budget changes is below.
• A net $3.6 million change from transactions related to Sustainable Water Infrastructure Project (SWIP), including:
o Increase of approximately $4.0 million in the Wastewater Fund due to increased operating and maintenance costs for the completed Sustainable Water Infrastructure Project (SWIP),
o Adjustment of approximately $1.0 million (recorded as a reduction) in the Wastewater Fund, reflecting a transfer-in (credit) from the Clean Beaches & Ocean Parcel Tax Fund to support operating and maintenance costs for the Sustainable Water Infrastructure Project (SWIP),
o Increase of approximately $1.0 million in the Clean Beaches & Ocean Parcel Tax Fund, reflecting a transfer to the Wastewater Fund to support operating and maintenance costs for the Sustainable Water Infrastructure Project (SWIP), and
o Reduction of $450,000 in the Water Fund, reflecting a decrease in outside water purchase costs due to the completion of the Sustainable Water Infrastructure Project (SWIP)
• Reduction of approximately $476,000 in Special Revenue Source Fund (SRSF) related to the revenue-sharing payment from Measure GSH to the Affordable Housing Trust Fund, reflecting decreased TUT revenue
• Increase of approximately $318,000 in the Gas Tax Fund, reflecting an increased transfer to the General Fund due to greater than anticipated Gas Tax HUTA estimates released from the State in January 2022
Additionally, staff recommends that Council consider the following position changes in other Funds, which will restore or enhance services.
• Community Services: Increase of approximately 1.3 as-needed FTE positions in the Beach Fund. Addition of the as-needed positions will enable the Beach House to expand hours of operation, programming, and events during the summer, the cost of which will be partially offset by additional fee-based programming revenues.
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• Department of Transportation: Increase of a total 19.5 permanent FTEs and

0.9 FTE as-needed FTEs. The changes include:
o 14.0 FTE Motor Coach Operators (MCOs) positions. Increasing the number of positions will allow for a more timely transition of part-time MCOs to full-time status. This will help to improve retention and address the critical shortage of MCOs; reduce overtime expenses; enhance safety; and enable Big Blue Bus (BBB) to provide the service levels that the community expects and deserves. Currently, BBB operates with 17 FTE MCO over-hires, which enables BBB to sustain service delivery and to assist in the reduction of MCO unscheduled overtime. Without the overhires, BBB is operationally impacted in its ability to fulfill daily service demands due to the high number of long-term unplanned absences (FMLA, Workers Compensation, long term disability, etc.), daily unscheduled absences, and other attendance issues. Additionally, BBB MCO requirements call for 15 weekly vacation spots that are bid upon based on seniority, consistent with MOU terms. This issue has been exacerbated due to impacts of the pandemic. The addition of these MCO positions will not have a financial impact due to vacancy savings, which would be budgeted for accordingly, associated with the absences. Staff will be completing the work of Operators who are out due to long-term unplanned absences. After performing an analysis of MCOs absences, staff believes hiring 14 additional MCOs will ensure service delivery without impact to operations;
o Addition of 1.0 FTE Lead Customer Services Assistant permanent position, upgrade of two part-time permanent Customer Services Assistant positions (increase of 0.5 FTE), and addition of approximately 0.5 FTE asneeded position, to expand operating hours, outreach and one-on-one assistance with free or subsidized transit programs to enhance customer service and maintain equitable access to transportation; o Addition of approximately 0.5 FTE as-needed Staff Assistant III position to support administrative functions in the Transit Safety and Training Division to better support front-line staff;
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o Addition of a 1.0 FTE Staff Assistant III permanent position and 1.0 FTE Assistant Administrative Analyst permanent position in the Transit Finance and Administrative Services Division to support the financial operations for the department, particularly timekeeping, procurement, and budget/financial reporting; addition of 1.0 FTE Transit Marketing Coordinator permanent position to perform outreach regarding free and subsidized transit pass programs, promote health and safety measures for BBB customers and staff, and coordinate pedestrian safety and open street programs; and, addition of 1.0 FTE Transit Mechanic II permanent position to maintain buses, City vehicles and various heavy duty equipment.
• Public Works: Increase of 1.0 FTE Staff Assistant III limited term position (expiring December 31, 2028) and the deletion of a permanent 1.0 FTE Staff Assistant II in the Airport Fund to enhance economic recovery efforts through enhanced property management services; a decrease of 2.0 FTEs in the Resource Recovery and Recycling Fund, reflecting the transfer of 1.0 FTE Customer Services Assistant and 1.0 FTE Lead Customer Services Assistant from Resource Recovery and Recycling (RRR) to the 311 Team to enhance customer service and operational efficiency; and the addition of 6.0 FTE Maintenance Assistants, also in the RRR Fund, to assist with the collection of refuse, recycling, and organics materials, and increase the safety of division field operations.

Attachment G details all staffing adjustments, including items that result in no additional costs.

FY 2022-24 Proposed Capital Improvement Program (CIP) Biennial Budget The City of Santa Monica biennially develops a five-year Capital Improvement Program (CIP) budget (Attachment B). Funds for the first year (FY 2022-23) are approved and appropriated as part of the budget process, and funds for the second year (FY 2023-24) are approved now and will be appropriated prior to the start of the second fiscal year.

Budget plan numbers for FY 2024-25 through FY 2026-27 are included as a planning 31 of 45
tool to demonstrate total anticipated capital funding needs. Project needs will be reevaluated during each biennial budget cycle to ensure that budgets fall within available funding limits and best reflect current City and Council priorities.

CIP Budget Process
The Capital Improvement Program (CIP) budget process is facilitated by a CIP Team comprised of the CIP Budget Manager, Director of Public Works, Director of Finance, the City Manager, and the Assistant City Manager. Departments prepare project application submittals for funding consideration with a priority ranking, and the CIP Team reviews and evaluates applications against the criteria outlined below. Project applications are also evaluated within the context of available funding limits to ensure that extremely limited resources fund priority projects while maintaining the City’s existing infrastructure and minimize future replacement costs.

Project application budget requests, particularly for unrestricted General Fund dollars, have significantly exceeded available funding. This requires creative strategies to leverage enterprise funds, grant funds, developer impact fees, and other funding sources to fund priority capital projects. The CIP Team evaluates projects that are competing for limited funds according to three broad criteria, defined as follows:

Mandated Activities
• Projects necessary for health and safety reasons that cannot be deferred • Projects mandated by the Federal or State government
• Projects necessary to adequately maintain existing facilities, infrastructure, or equipment
• Projects underway that have unavoidable budget shortfalls and that cannot be modified
Council / Community Priorities
• Projects that address a Council/Community Priority
• Projects that respond to a Council action or directive 32 of 45
• Projects identified in an adopted City planning document Fiscal Responsibility
• Projects that will improve operational efficiencies and achieve ongoing cost savings
• Projects that generate revenue
• Projects where significant outside funding has been obtained to leverage City funding
Based on evaluation against these criteria, capital budget recommendations are being presented to the City Council for consideration. The Citywide FY 2022-24 Proposed CIP Biennial Budget funds 100 capital projects across 20 Funds. The total Proposed Budget is $88.4 million in FY 2022-23, and $96.1 million in FY 2023-24. The FY 2022- 23 Proposed CIP Budget represents a decrease of $75.3 million or 46 percent compared to the FY 2021-22 Adopted CIP Budget of $163.7 million. The prior year budget included significantly more one-time projects utilizing $78 million from Water Bond resources for water infrastructure projects that advanced the Sustainable Water Master Plan.

General Fund - Capital Budget
The General Fund represents thirteen percent of the total CIP Budget over the biennial period. The FY 2022-23 proposed General Fund budget is $13.8 million, which continues to reflect a net reduction of $7.2 million to the annual $21 million General Fund CIP allocation. In FY 2023-24, the proposed General Fund budget is $13.1 million, which reflects an additional $7.9 million net decrease during the biennial period.

Resources for the biennial cycle continue to be lower than prior years due to the implemented budget measures that enabled the City to maintain essential and emergency operations throughout the recovery while preserving the City’s financial resilience to the greatest extent possible. Considering the decrease in General Fund baseline funding, the limited number of projects recommended in the proposed budget continue to largely represent critical infrastructure needs and projects that cannot be 33 of 45
deferred without compromising essential operations or public health and safety. More than ever, the General Fund allocation prioritizes ongoing infrastructure maintenance projects that keep neighborhoods and open spaces clean and safe. As a result, alternative funding sources and capital financing solutions will need to be employed to provide additional resources for any future large projects.

Non-General Funds - Capital Budget
The non-General Fund portion of the CIP represent eighty seven percent of the total CIP Budget over the biennial period. The total non-General Fund Proposed Budget is $86.7 million in FY 2022-23, and $95.6 million in FY 2023-24, including internal service transfers (Reimbursements and Transfers). The non-General Funds included in the CIP budget can support their respective capital improvement budgets. These resources are mostly restricted and must fund projects within their fund. However, there are several infrastructure projects for the Pier and Beach outlined in the Unfunded Projects list (Attachment B) that have been put on hold until additional resources are available to proceed with the projects.

The Capital Improvement Program Areas of Focus
The FY 2022-24 Proposed CIP Biennial Budget and the five-year Capital Plan continue to advance Council’s adopted priorities by recommending critical ongoing infrastructure maintenance activities and initiatives that provide clean and safe neighborhoods and open spaces. In addition, the five-year capital plan strategizes to advance work in several key focus areas related to parks, water and stormwater projects, and the upgrade of critical City infrastructure.

Maintaining Clean and Safe Public Spaces
The FY 2022-24 Proposed CIP budget strategically recommends funding key investments to protect the City’s existing capital investments and minimize future maintenance and replacement costs. These investments include:
• Facility improvements,
• Repaving streets,
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• Renewing sidewalks,
• Maintaining parking structures and lots,
• Urban forest renewal,
• Modernizing streetlights,
• Maintaining bus stop amenities,
• Replacing aging water and sewer mains, and
• Purchasing necessary trash collection equipment which are key to the foundation of supporting a clean and safe Santa Monica.

In addition, the Biennial CIP Budget addresses safety through projects such as the procurement of new fire and police vehicles, a drone responder program, a CCTV security camera program, safety improvements for pedestrians and cyclists, upgraded barriers for the Farmers’ Market and the installation of fire sprinklers and deck upgrades on the Pier.

Park Improvements and Planning
The proposed CIP Biennial Budget focuses largely on two important park-related areas:
repairing existing park infrastructure and planning for the future. Funding for existing playground replacements, pathway and parking lot repairs, and swim facility maintenance were prioritized to ensure the City’s current park assets remain operational and safe. Leveraging a mix of sources including development impact fees, Los Angeles County Measure A allocation, and Community Development Block Grant (CDBG) funds maximizes the impact of the limited General Fund resources to allow significant improvements to the existing park system.

While previously planned projects like the Airport to Park Conversion or Memorial Park Improvements await funding opportunities that would allow them to move forward, it is crucial that initial planning efforts begin for the future airport conversion. The proposed funding sets in motion a long-term program of engagement and exploration to reimagine the Santa Monica Airport into a sustainable network of community serving uses, such as a series of verdant parks and landscaping, diverse and inviting public open spaces, 35 of 45
state-of-the-art recreational facilities, and reuse of existing buildings; all of which would be complimented by a coherent circulation system.

Water & Stormwater Projects
The FY 2022-24 Biennial CIP Budget advances the City’s efforts to achieve Council’s goal of becoming water self-sufficient and includes a focus on protecting the infrastructure. Proposed capital projects are programmed to rehabilitate aging infrastructure, continue to enhance water supply resiliency, improve the efficiency of our water treatment systems, increase safety for operations personnel, and develop master plans after water self-sufficiency is achieved. Several planned projects also address areas in the right-of-way that have insufficient drainage.

Modernization of Critical City Infrastructure
During the FY 2022-24 biennial period, work will continue on critical City infrastructure projects that received funding for their planning phase in previous CIP budget cycles - the Pier Bridge Replacement and the Propulsion Electric Vehicle Infrastructure for electric buses. The Pier Bridge Replacement Project would replace the existing, outdated structure with a wider structure providing one vehicular traffic lane in each direction with wider shoulders and wider sidewalks with clearances required by Americans with Disabilities Act (ADA). The Propulsion Electric Vehicle Infrastructure project funds the construction of the structure required to accommodate electric buses, as the Department of Transportation procures battery electric transit buses. Both priority projects are being funded with restricted grant funds.

Unfunded Capital Projects
Projects that were eliminated or reduced to help close the City’s funding gap resulting from the global COVID-19 crisis or did not receive funding are listed in the Unfunded Projects table (Attachment B) and are tracked for consideration in future funding cycles.

In many cases, these are still high priority projects, but they were deferred given the limited resources. City staff will need to explore opportunities to leverage City funds with external funding. Future project proposals will also need to acknowledge workload considerations where existing staffing capacity is fully committed to other urgent 36 of 45
projects or limited because of the City’s restructuring. In some cases, staff can continue preliminary or related work until it is possible to fully fund a broader effort.

While there are incremental increases in the amount dedicated to capital projects each year leading to FY 2025-26, these increases will not be sufficient to address deferred infrastructure and equipment maintenance, price escalation, 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. While this biennial budget will fund the framework and planning of the Airport to Park Conversion project, a funding source for this project’s construction budget has not been identified but alternative funding options will continue to be explored.

In addition, the proposed budget also includes other unfunded projects that have been categorized in several key areas including infrastructure maintenance, new infrastructure, parks, pier and beach, planning, and streetscape and lighting. These projects are not currently funded and total almost $300 million. A few of the largest projects include:
• A complete remodel of Parking Structure 1 and other parking structure upgrades, • Gandara Park restoration,
• City Yards Modernization improvements along Michigan Ave., • City Hall North building system upgrades,
• Fire station facilities,
• Pier deck and railing upgrades, and
• The Lincoln Corridor Streetscape improvements.

In addition, several of these projects would create ongoing maintenance budget needs that would need to be accounted for when recommended for funding.

Council Discretionary Funds
Each year, Council allocates discretionary funds to assist the community in special projects or support important but otherwise unfunded priorities. Traditionally, Council 37 of 45
has supported community partners like the Business Improvement Districts, Santa Monica traditions like the Fourth of July Parade, one-time programs, and local students through science or music grants that allow Santa Monica youth to participate in special events. Projects and programs supported by Council discretionary funds for the past three years are detailed in Attachment H.

Allocation of the funds may occur along with Budget Adoption or throughout the year.

Including unprogrammed FY 2021-22 discretionary funds ($82,959) and FY 2022-23 discretionary funds ($122,696), the Council has access to $205,655 in discretionary funds in FY 2022-23.

City Fees, Fines and Rates
As part of the annual budget adoption process, staff presents master fee, fine, and parking resolutions to Council for approval. Highlights of proposed changes are discussed below. The actual final proposed resolutions will be presented for adoption with the Proposed Budget on June 28, 2022. The revenue adjustments associated with the changes described below have been incorporated into the FY 2022-23 Proposed Budget.

Parklet Program Fee Structure
As a response to the COVID-19 pandemic, the City established a temporary outdoor use permit program allowing businesses to obtain a permit for use of a parklet in the street, use of outdoor space on private property, and/or the use of the sidewalk for outdoor business operations, with all permit fees and, for use of public space, monthly license fees being waived. During this time, the City also waived the monthly license fees for those businesses that, prior to the pandemic, had entered into outdoor dining license agreements in the Santa Monica Sidewalk Dining program pursuant to Santa Monica Municipal Code (“SMMC”) Section 9.31.200.

The temporary use of outdoor space was initially established through emergency orders, and, on June 8, 2021, City Council adopted an ordinance establishing the Santa Monica Outdoors Pilot Program (“Pilot Program”) as SMMC Chapter 6.40. The term of 38 of 45
the Pilot Program and the fee waivers for both the Pilot Program and the monthly outdoor dining licenses as well as the fee waivers or reductions for the Fitness Trainer Program are due to expire on June 30, 2022. At the May 10, 2022, Council approved extending the Pilot Program and the fee waivers to September 30, 2022, to give City staff enough time to establish a formal program, develop policy, establish a workflow, conduct research, engage stakeholders, and develop a design guide for future parklet operators.

Staff recommends establishing a parklet license fee for use of the public right-of-way (PROW) that aligns with existing sidewalk dining fees, which range from $2.12-$2.66 per square foot per month and increases annually by Consumer Price Index (CPI) each year thereafter. As such, staff recommends charging $2.12 per square foot per month for parklets.

Staff is not proposing to charge an additional fee to recoup lost revenue resulting from the loss of on-street metered parking spaces. The monthly license fee is similarly aligned to the average parking meter revenue that each space generates so there is no overall net loss in revenue to the City’s General Fund. However, additional permit fees will be charged to parklet operators to recoup the cost to the City for departmental review and administration of proposed parklets, annual safety inspections, wastewater capital facilities fees, and, if applicable, a propane cylinder permit. The year one start-up cost for a parklet (two parking spaces – 320 SF in total area) is approximately $9,686 (this includes the initial permit fees and the monthly license fee for a 320 SF area), not including the cost of parklet materials, a refundable security deposit and wastewater capital facility fee if there are net new restaurant seats being added. The estimated annual cost to operate a parklet (two parking spaces), after year one fees are paid, is approximately $8,752. Table 1 in Attachment C shows an estimated breakdown of the fees for year one and Table 2 shows the estimated costs for annual renewal. A parklet of 320 SF would result in increased dining capacity of approximately 24 additional customers at any given time.
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Fire Department Fees
In FY 2020-21, the City conducted a comprehensive citywide fees study that was presented to Council at the May 25, 2021 Budget Study Session. The study presented at that time excluded the Fire Department fees due to pending staff changes. Staff was to complete the Fire Department fee study during fiscal year 2021-22 and return to Council with the proposed fee changes as part of the FY 2022-23 Proposed Budget.

The Fire Department has completed the fee study and proposes to increase 25 fees, decrease 76 fees, and create 14 new fees, setting the fees at the appropriate cost recovery level (in most cases 100% of the costs to provide the service). The fee adjustments are a result of a thorough analysis that reflects efficient processes, changed workflows resulting from department restructuring, and updated calculations of the full costs to provide services. The proposed new fees are primarily for services the City has been providing without recovering costs, as well as fees to meet legal requirements. Additionally, two fees for services no longer provided or redundant with other fees are proposed for deletion.

Attachment D (Fire Department User Fee Study) provides a summary of the fee study, as well as the consultant’s report.

Cemetery Fees
Staff recommends establishing new fees to recover the costs for new services being provided at the Cemetery, including marker installation and removal, extended refrigeration, and use of Cemetery chapels. Staff also recommends adjusting fees that were inadvertently omitted from prior resolutions, to align with the rest of the cemetery property and recover increasing costs, as well as removing one fee. A detailed listing of the proposed new fees and fee adjustments is shown in Attachment E.

Potential Revenue Ballot Measures
The potential ballot measures contemplated at the February 8, 2022 Council meeting included a Library Parcel Tax (a special tax requiring 2/3 voter approval), and increases to the Transient Occupancy, Parking Facility, and Business License Taxes. Staff focused on the measures that would be most feasible for the November 2022 election. 40 of 45
Staff determined that a Parking Facility tax increase would not result in a substantial amount of revenue and as noted in previous discussions of this measure with Council, could prove an uncertain funding source as many businesses transition employees to telework. While staff has identified potential changes to the Business License tax, due to the complexity of changes and the ongoing uncertainty around economic recovery, staff determined that the November 2022 election is not the most appropriate time to put forward these changes.

The measures that warranted further exploration were the Transient Occupancy Tax, currently assessed at a comparable rate to the City of Los Angeles and below other California cities that are major tourist destinations, and a Parcel Tax for Library services.

Transient Occupancy Tax
The City’s current transient occupancy tax (TOT) rate is 14%, last increased in 2004.

Santa Monica visitors also pay a tourism marketing district or TMD assessment - which goes to Santa Monica Travel and Tourism to fund hotel marketing - currently set at fixed rates of $1.90-$6.25 / room night, depending on the average nightly room rate of each hotel from the prior year, that approximates 1-2% of the room rate, for an effective total tax and assessment rate of approximately 15-16%. This rate is comparable to the City of Los Angeles and below that of some neighboring or other destination cities.

The table below shows Santa Monica compared to other major California tourist destinations.

City TOT
Rate
Additional Assessment Total Equivalent
Inglewood 15.5% 15.5%
Palo Alto 15.5% 15.5%
Malibu 15% 15%
Anaheim 15% TMD 2% 17%
Ojai 15% 15%
Garden Grove 14.5% TMD 2.5% 17%
Los Angeles 14% TMD 1.5% 16.5%
Santa Monica 14% TMD $1.90-$6.25/ room night
(approx. 1-2%)
15-16%
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San Francisco 14% TMD 2.75% (highest tier) 16.75%
Oakland 14% TBID $1.50/ room (>50 rooms) Over 14%
Long Beach 12% TMD 3% 15%
Staff proposes a 1% increase for hotels and 3% increase for vacation rentals that will raise approximately $4.1 million annually once fully implemented. The proposed greater increase applied to vacation rentals considers the greater regulatory oversight that vacation rental properties require, and the greater impacts these vacation rental properties have on residential neighborhoods and areas not typically subject to the impacts of commercial endeavors.

This tax would be paid for entirely by visitors to Santa Monica. With the proposed increase, Santa Monica’s effective rate for hotel visitors - including the TMD assessment - would be approximately 16%-17%, still comparable to the cities shown here above.

If the City moves forward with this measure, staff recommends an associated Advisory Board made up of stakeholders and community members to advise staff and Council on the uses of some portions of TOT revenues.

Library Parcel Tax
The parcel tax would raise approximately $4 million annually and provide the funding to restore Library services to an optimal level. The budget cuts made as a result of pandemic-related revenue losses included reducing the Library’s budget by 38% and staffing by 58%. The $4 million revenue infusion would allow the Library to provide afterschool, evening and Saturday hours at all Library locations. Programs and special events, such as story times and early literacy programs, technology programs for students and seniors, workforce development workshops, and literary programs for all ages, would once again be offered at all library locations.

Type Rate
Single-family residential $0.07/ square foot
All other
(Multi-unit, Commercial, Industrial, etc.)
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<10,000 square feet $172/ parcel
between 10,000 and 50,000 square feet $500/ parcel
>50,000 square feet $3,000/ parcel
This rate structure equitably charges residents of single-family homes and considers the extent to which residents use and benefit from Library services. To assess the feasibility of the proposed rate structure, staff tested a higher rate ($0.09/ square foot) and a lower rate ($0.05/ square foot) in the survey to potential voters.

The proposed rate for single-family homes is below that of similar Library Parcel taxes recently passed by voters for the Altadena Library District (at $0.10/ square foot) and the City of Berkeley ($0.1047/ square foot), both in November 2020.

Polling Results
To assess the feasibility of these options, the City commissioned Goodwin Simon Strategic Research to conduct a statistically reliable survey of Santa Monica voters. The survey demonstrated strong support for the proposed Transient Occupancy Tax increase (approximately 70%), well above the 50% majority required for passage. The poll revealed lower support for the proposed Library Parcel Tax at both the $0.09/ square foot (41% support) and $0.05/ square foot (48%) rates. This level falls clearly short of the two-thirds voter support required for passage.

Voters identified Crime and Homelessness as highly urgent issues for the community (with 73% and 93% placing each issue on the top end of a scale from least to most urgent, respectively); and identified “enhancing public safety” and “restoring services lost during the pandemic” as the most important goals to consider as the City seeks to rebuild from the pandemic. From among a list of proposed uses for the potential tax revenues, respondents indicated the strongest support for reducing crime and enhancing safety, making public areas safer and cleaner, addressing homelessness, and improving 911 response times (all at over 80% favor or strongly favor). While respondents indicated lower support for the proposed Library Parcel Tax, responses also indicated support of and value for Library services, including restoring Library 43 of 45
funding lost during the pandemic, restoring library staff, and reopening neighborhood branch libraries (all showing over 70% favor or strongly in favor).

Recommendation
Based on these findings, staff recommends that the City move forward with the proposed Transient Occupancy tax for the November 2022 ballot. Staff recommends that the City not move forward with a Library Parcel tax at this time. Staff requests Council direction to continue communications with the community about the need for additional funds and the potential use of such funds, and continue planning to place the Transient Occupancy Tax measure on the November ballot before a final Council vote at the July 12, 2022 meeting. Staff seeks direction regarding recommended ballot language, which is as follows:

Santa Monica Transient Occupancy Tax draft ballot language:

To address homelessness, improve 911 emergency response times and neighborhood police protection, make public areas safer and cleaner, including streets, sidewalks, parks, and the beach, and provide other vital City services, shall the City of Santa Monica increase the transient occupancy tax – which is paid entirely by overnight visitors – by 1% for hotels and motels, and by 3% for vacation rental properties, providing approximately $4.1 million annually, until ended by voters, with all funds benefiting Santa Monica.

Past Council Actions
Meeting Date Description
06/22/21
(Attachment F)
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
02/08/22
(Attachment I)
Adoption of the FY 2021-22 midyear revenue and
expenditure budget adjustments and approval of the
corresponding adjustments to the FY 2022-23 budget plan 44 of 45
Financial Impacts and Budget Actions
Recommended FY 2022-23 proposed budget adjustments result in:
• FY 2022-23 Proposed Operating Budget
o Revenues: Approximately $5.7 million increase in the General Fund and $0.4 million increases in all Other Funds, for a combined $6.1 million net increase over the revised FY 2022-23 Budget Plan.
o Operating Expenditures: Approximately $1.9 million increase in the General Fund and approximately $5.8 million increase in all Other Funds, for a net combined $7.7 million increase throughout the citywide operating expenditure budget.
o FTEs: Increase of 14.7 FTEs permanent positions and 1.9 as-needed FTE positions in the General Fund. Increase of 28.5 FTE permanent positions and 2.2 as-needed FTE positions in All Other Funds.
• FY 2022-24 Proposed Capital Improvement Program (CIP) Budget:
o The FY 2022-24 Proposed Capital Improvement Program (CIP) Budget is approximately $88.4 million in FY 2022-23 ($13.8 million in the General Fund) and $96.1 million in FY 2023-24 ($13.1 million in the General Fund), net of reimbursements and transfers.

Details of FY 2022-23 Proposed Budget adjustments are in Attachment A. The FY 2022-24 Capital Improvement Program (CIP) Budget is included in Attachment B.

Prepared By: Oscar Santiago, Budget Manager
Approved Forwarded to Council
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Attachments:

A. Attachment A - Budget Adjustments FY 2022-23
B. Attachment B - Proposed FY 2022-24 Biennial CIP Budget C. Attachment C - Estimated Parklet Fees
D. Attachment D - Fire Fee Study
E. Attachment E - Proposed Cemetery Fee Changes
F. Attachment F - June 22, 2021 Staff Report (Adoption of the 1st Year and Approval of the 2nd Year of the FY 2021-2023 Biennial Budget....) G. Attachment G - Position and Classification Changes
H. Attachment H - Council Discretionary Funds
I. Attachment I - February 8, 2022 Staff Report (Financial Status Update and FY 2021-22 Midyear Budget and Adoption of Resolutions)
J. Written Comments
K. PowerPoint Presentation