City Council
Report
City Council Meeting: May 26, 2021
Agenda Item: 4.A
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department Subject: Financial Status Update, FY 2021-23 Proposed Budget, and FY2021-22 Exception-Based CIP Budget
Recommended Action
Staff recommends that the City Council:
1. Receive the FY 2021-22 through FY 2025-26 Financial Status Update;
2. Review and comment on the FY 2021-23 Proposed Biennial Budget and FY 2021-22 Proposed Capital Improvement Program (CIP) Budget (Attachment A); and
3. Review and comment on the recommendations of the Fee Study Report (Attachment B).
Executive Summary
This report presents the City of Santa Monica’s FY 2021-23 Proposed Biennial Budget and Capital Improvement Program Budget for FY 2021-22, as well as the May 2021 Financial Status Update (Update) for the General Fund and other funds for Fiscal Years 2021-22 through FY 2025-26.
The FY 2021-23 Proposed Biennial Budget (Attachment A) is a balanced budget that positions Santa Monica to safely and responsibly emerge from the COVID-19 emergency orders and accompanying restrictions and cultivate a revitalized local economy that reflects and services our diverse community. Leveraging one-time American Rescue Plan Act (ARPA) funds, the budget includes expanded services in areas that address the Council-adopted community priorities of addressing homelessness, providing clean and safe public spaces, and facilitating an equitable and inclusive economic recovery. Underlying the allocation of funds are the Council-adopted values of Accountability, Equity, Inclusion, Innovation, Resilience, Safety, and Stewardship. These values define who we are and who we aspire to be, and guide our efforts to reopen, serve customers, develop policies, and design operations. 2 of 27
The citywide Proposed Biennial Budget is $705.5 million in FY 2021-22 and $597.7 million in FY 2022-23, including recommended programming of the remaining American Rescue Plan funds that were not appropriated by Council at its April 13, 2021 meeting.
The significant decrease in the second year is due to the appropriation of bond-funded capital projects in the Water Fund in the first year to complete proposed projects that advance the adopted Sustainable Water Master Plan and build and improve the infrastructure that delivers water services to Santa Monica households and businesses.
The Proposed FY 2021-23 Biennial Budget was posted on the City’s website at santamonica.gov on May 10, 2021. The document includes:
• The Interim City Manager’s budget message, which provides an overview of how the budget, and changes from the prior year budget, address Council priorities; • An overview of sources and uses of funds, including a description of employee compensation costs;
• Sections describing projected revenue performance in FY 2020-21, FY 2021-22 and FY 2022-23;
• An overview of fund balances for the General Fund and all other funds; • A five-year overview (spanning FY 2018-19 through FY 2022-23) of citywide expenditures by fund and by department;
• Descriptions of each Department and its mission, individual Division functions and special projects, and budget and position allocations by Division, Department and Fund; and
• The City’s financial policies, which are adopted by the Council along with the budget.
Any direction received from Council at the May Budget Study Session regarding changes to the Proposed Budget will, if viable, be presented to Council as final changes for adoption, along with the Proposed Budget, on June 22, 2021. 3 of 27
The May 2021 General Fund Financial Status Update includes the FY 2021-23 Proposed Biennial Budget numbers in its projection of the City’s future budget climate.
As reported in the January 2021 Financial Forecast, our local economy’s strong reliance on tourism means Santa Monica will experience a slight lag in our overall revenue recovery, as business and international travel are anticipated to take until FY 2024-25 to recover. The Update reflects how the immediate use of a portion of ARPA funds on a one-time basis, and a more prolonged use of another portion of these funds over a period of 4 fiscal years, will allow the City to address important priorities in the time that it will take our revenues to recover. Within the assumptions and factors included in the five year forecast are a plan to rebuild our fiscal resiliency as we resume the paydowns and prefunding of our liabilities, restore funding to our capital program, rebuild our reserves, and commit to repay the FY 2020-21 GSH deferred payment to the Affordable Housing Trust Fund.
The financial status of other funds remains relatively stable. However, the Beach and Pier Funds are projected to require subsidies through FY 2022-23 as revenues related to parking and leases take time to recover.
Also presented in this report are the results of a Fee Study (Attachment B) conducted to calculate the City’s cost of providing various services that benefit individual users of the service rather than all members of the community, and to identify changes to the current fee structure to ensure that the City is recovering an appropriate share of these costs through user fees.
Staff will return to Council on June 22, 2021, having integrated Council’s comments from the Budget Study Session into the Proposed Budget, to request adoption of the FY 2021-23 Biennial Budget and approval of Budget and Fee Resolutions.
Background
On June 22, 2020, the City Council adopted the FY 2020-21 Budget for the City. The budget reflected dramatically restructured operations that allowed for the continued provision of essential services during the COVID-19 pandemic and the ensuing swift 4 of 27
and severe economic crisis. For the City, the economic crisis felt around the world was exacerbated by our strong reliance on the hospitality and retail industries. The pandemic halted tourism-related air travel as well as non-essential business travel and 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.
Transient Occupancy (Hotel) Taxes, Sales Taxes and parking-related revenues, previously representing almost half of the General Fund revenue stream, declined by 44% in FY 2020-21. Early projections that the General Fund would experience $224 million in revenue declines during FY 2019-20 through FY 2021-22 have been accurate.
In light of the projected impacts of COVID-19 and the assumed absence of meaningful stabilization funds from the federal government, the FY 2020-21 Adopted Budget for the General Fund reflected a 20% decrease in operating expenditures and a 50% decrease in capital funding. Also required in FY 2019-20 and FY 2020-21 was the use of $117 million in one-time funds, including capital project funds that were deferred, reduced or cancelled, economic uncertainty, contingency and other reserve funds. Council also authorized staff to retain $5.3 million in FY 2020-21 Measure GSH transaction and use tax revenue in the General Fund that would have otherwise been transferred to the Housing Trust Fund for affordable housing uses per a November 2016 voter-approved advisory measure, and a two-year suspension of discretionary paydowns of unfunded pension liabilities. 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.
On January 26, 2021 Council reviewed the Five-Year General Fund Financial Forecast for the period FY 2020-21 through FY 2025-26 (Attachment C). The forecast highlighted that, to balance its budget in FY 2020-21, the City would require the use of a $20 million shutdown reserve, set aside as part of the $117 million in one-time funds, to make up for the declines suffered as a result of the protracted second surge shutdown.
The January forecast did not anticipate the receipt of federal stimulus funds and highlighted the potential need to suspend the Measure GSH transfer for another year in 5 of 27
order to continue certain programs whose funding would expire in FY 2021-22 and to provide a small amount of expanded services to a reopening community.
On March 11, 2021, President Joe Biden signed the American Rescue Plan Act (ARPA) of 2021, a $1.9 trillion federal relief measure that provided $350 billion in direct aid to every state and local government through the Coronavirus Local Fiscal Recovery Fund (CLFRF). The City of Santa Monica was projected to receive $29.3 million in ARPA CLFRF funds. On May 10. 2021, the U.S. Treasury issued its long-awaited guidance on the CLFRF fund as well as the final amount for the City, which is $28.57 million; $14.285 million will be received in May 2021 and the remaining $14.285 million will be received in May 2022. The funds must be obligated by December 2024 and may be used to respond to the coronavirus health impacts or economic impacts including assistance to households, small businesses, nonprofits, and impacted industries including hospitality, travel, and tourism and to cover for lost revenue in providing services. The amount of lost revenue is based on the last full fiscal year before the COVID-19 pandemic, which is FY 2018-19. With projected revenue loss of over $224 million in the General Fund, the City is eligible to use its $28.57 million allocation to cover for lost revenue that would have been used to provide services. Funds may not be used to cover lost revenues due to a tax cut, to make additional discretionary payments, beyond regular contributions, to pension funds in order to pay down unfunded liability, or for legal settlements.
On March 23, 2021 and again on April 13, 2021, Council directed that 20% of ARPA funds be used towards economic recovery efforts. These efforts span rent relief for the City’s small business tenants, assistance for the broader small business community, and assistance for our most vulnerable community members. Council approved the appropriation of $6.3 in ARPA funds in FY 2020-21 for immediate economic recovery uses, and to cover COVID-related revenues losses in the Beach and Pier Funds and COVID-related unfunded State and federal mandates in the General Fund. Looking ahead, Council directed staff to apply $6.3 million in additional ARPA funds to General Fund programs in FY 2021-22 to enable Measure GSH revenues to resume being transferred into the Affordable Housing Trust Fund in 6 of 27
FY 2021-22. Finally, Council directed staff to program ARPA funds into the FY 2021- 23 Proposed Biennial Budget.
Discussion
Economic Update
National
The national economy is expected to rebound from the COVID-19 recession that severely hampered economic activity through much of 2020. Economic growth, as measured by GDP, is expected to be 6.2% in 2021 and 4% in 2022 after a contraction of 3.5% in 2020, and economic output is expected to reach pre-pandemic levels by early 2022, helped in part by Federal stimulus spending. The labor market has also significantly improved, while the housing market remained strong throughout the pandemic. However, some uncertainty remains, particularly if there is a resurgence of the virus. Additionally, recovery in some areas of the economy, including those related to hospitality and retail, will lag the rest of the economy as certain travel and other COVID-related restrictions remain in place.
State
The California economy was also severely impacted by the pandemic. Hundreds of thousands of jobs were lost, with the leisure and hospitality sector among the hardest hit sectors. The economy began to recover in the fourth quarter of 2020, and the recovery should continue through 2021 as more people become vaccinated and COVID restrictions are lifted. Although California’s economic recovery did begin later than the overall national recovery due to the State’s heavy reliance on tourism, ultimately the State recovery will be faster as demand for new technology results in a faster recovery in the technical, information systems, scientific, and professional sectors. State unemployment has fallen approximately 50% from the April 2020 peak of 16% and is expected to continue to decline through at least 2023. The State housing market has continued to be strong throughout the pandemic, and is expected to continue to be so, although growth may moderate.
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Despite the pandemic, however, State coffers saw a significant increase in personal income tax revenues. The Governor’s May 14, 2021 Revision to the FY 2021-22 Budget highlights the State’s projected $75.7 million surplus which, combined with the $25 billion the State will receive from federal stimulus funds, supports a $100 billion California Comeback Plan. The State’s strong revenue projections exceed the State Appropriations Limit (Gann Limit), by $16.2 billion, requiring these funds to be allocated back to taxpayers and to schools. These funds are allocated in the May Revision to expand the existing Golden State Stimulus established during the pandemic, providing additional stimulus payments to income-qualifying Californians, including undocumented residents. K-14 schools will also receive additional funding in FY 2022-23. Funds are also added to the State’s small business stimulus program and to help Californians catch up on deferred utility payments. Also included in the May Revision is expanded funding to address homelessness and housing affordability, water sustainability, zero emission transportation, and transportation infrastructure to support connectivity in advance of the 2028 Los Angeles Olympics.
Local
Santa Monica has historically benefited from a more diversified tax base with less reliance on Sales and Property Taxes than most other cities. However, the Santa Monica economy is also highly dependent on tourism and the hospitality industry, which has been devastated by the pandemic. Transient Occupancy Taxes (TOT), Sales Taxes, and parking-related revenues (including Parking Facility Taxes), which together accounted for nearly 50% of General Fund revenues pre-COVID-19, have declined 44% from pre-COVID levels including a 70% decrease for TOT and nearly 50% for parking related revenues. The drop in Sales Taxes was approximately 20% from pre-pandemic peaks. On the positive side, property taxes have remained healthy as strong assessed value increases have continued over the last five years. Documentary Transfer Tax revenues have not been significantly impacted during the pandemic as declines in the number of property transfers have flattened and the average transfer value has remained high. Measure SM, approved by Santa Monica voters in November, is expected to add $3 to $5 million in transfer taxes annually to General Fund revenues.
Business License impacts will primarily be seen in FY 2021-22 since those taxes are 8 of 27
based on businesses’ gross receipts for calendar year 2020, when the worst of the pandemic impact occurred. ARPA funds will help the City offset a small portion of the revenues lost during the pandemic.
The economy is expected to rebound in FY 2021-22 and FY 2022-23 as the COVID-19 restrictions are lifted and vaccinations are available to the broad population. However, despite the relaxing of COVID-related travel restrictions in FY 2021-22, a recovery in tourism is anticipated to take somewhat longer than the general economic recovery.
Santa Monica is heavily dependent on international tourism, which still faces significant COVID-19 related challenges, and group travel related to business or special events, which requires significant lead times to plan. Each of these sectors are expected to begin strong recovery starting mid to late 2022, with an additional 1 – 2 years before reaching pre-COVID 2019 volume levels. Additionally, the length and severity of California pandemic restrictions has also put Santa Monica behind other domestic locations that reopened earlier. Therefore, although TOT revenues are projected to more than double in FY 2021-22 to $43.1 million and increase an additional $8.9 million in FY 2022-23, revenues are still anticipated to be well below pre-pandemic levels.
A similar pattern is projected for parking revenues, which are expected to begin to recover in FY 2021-22 as COVID-19 restrictions ease and visitation increases, resulting in a $6.9 million (30.8%) increase, followed by an additional $4.6 million (15.7%) increase in FY 2022-23. However, the pandemic accelerated many trends, including online shopping and teleworking, that will likely impact visitor behavior and decrease parking demand. Staff anticipates that demand for parking will continue to flatten or decline as consumers adopt alternative transportation methods, including Uber and Lyft, Metro Light Rail, Bicycles and Scooters.
Neither TOT nor parking revenues are currently anticipated to approach pre-COVID-19 levels until FY 2024-25.
Sales Taxes are also expected to rebound, increasing approximately 10% in FY 2021- 22 and another 6% in FY 2022-23. However, revenues will likely be negatively 9 of 27
impacted by a change in tax allocations by Amazon, which will now begin allocating much of its sales taxes to specific warehouse locations rather than to State and County pools (from which the City receives an allocation). Business License Taxes for FY 2021- 22 (which are based on 2020 calendar year gross receipts) are projected to decrease 12% in FY 2021-22 reflecting pandemic effects before recovering slightly the next year.
FY 2021-22 Utility Users Taxes (UUT) are projected to be $3.3 million more than in FY 2021-22 primarily due to a one-time accounting change in the timing of revenue realization. Exclusive of the accounting change, revenues are projected to increase by
3.8% in FY 2021-22 and
an additional
4.3% in FY 2022-23
primarily due to
increases from
Council- approved
water and wastewater
rate increases as
well as a modest
increase from electrical services. These increases are partially offset by the continuing decrease in revenues from telecommunication services as consumers shift to more internet-based services. Parking Facility Tax revenues will show a similar pattern as other parking revenues.
Total General Fund revenues will most likely not reach pre-COVID-19 levels until FY 2024-25.
General Fund Financial Status Update
The May 2021 General Fund Financial Status Update reflects revised revenue projections as well as proposed operating and capital budget recommendations included in the Proposed Budget.
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The Update shows a balanced General Fund budget in the current year (FY 2020-21) and throughout the following five years. The projection for FY 2020-21 and FY 2021-22 shows an ending appropriable fund balance of $0. In the following years, there is a surplus of revenues over expenditures that begins at $2.1 million and reaches $2.6 million in FY 2025-26, the last year of the Update. This modest ongoing surplus gives the General Fund budget stability and allows for some flexibility as we continue along an uncertain future.
The use of ARPA funds is included in FY 2020-21 through FY 2024-25 to expand key priority services from their current restructured levels. ARPA funds lend an additional level of complexity to the forecast:
• First is the impact that the receipt of these funds will have on year over year budgets. The City is receiving the $28.57 million in ARPA funds in FY 2020-21 and FY 2021-22. Funds will be received as revenue in the Miscellaneous Grants Fund, and will then be transferred to the General Fund. The transfers of $14.285 million each year in FY 2020-21 and FT 2021-22 show as credits to the General Fund budget, thereby lowering the overall budget. In FY 2022-23, when the City stops receiving ARPA funds, the General Fund will no longer show a significant credit and expenditure increases will be overstated by approximately 4.2%. In other words, while expenditures will increase, only a portion of the increase will be due to true cost increases.
• Second, funds that are not appropriated in the year they are received are set aside in the General Fund reserves for use in future years and therefore do not appear as appropriable surplus funds in the bottom line of the forecast. 11 of 27
The forecast and budget reflects the use of ARPA funds in FY 2021-22 to enable the annual transfer of Measure GSH funds to the Housing Trust Fund, for economic recovery efforts, and to support $3 million in ongoing expanded services. The ongoing services budgeted using ARPA funds will continue to require ARPA funding through December 2024.
Revenue projections follow the assumptions laid out in the Economic Update section above. Overall, revenues rebound by 15.5% in FY 2021-22 and continue to increase at levels of 5.3-7.6% over the next three years until they reach pre-pandemic levels in FY 2024-25, after which point their growth moderates to 3.5%.
While revenues rebound in FY 2021-22, this is the first year in which the General Fund is no longer relying on the use of reserves to cover expenditures. Additionally, revenues are anticipated to be approximately $3 million lower than the January 2021 Financial Forecast projections for FY 2021-22, mostly due to updated parking revenue estimates. The result is that the fund balance does not begin to grow until revenues begin to approach pre-pandemic levels.
After an initial decrease of 2.7% in FY 2021-22 due to the discontinuation of one-time expenditures budgeted in FY 2020-21 (see General Fund Proposed Budget section below for more detail), FY 2022-23 budgeted expenditures increase by 7.4%. Adjusting for the variance caused by the ARPA credit, the FY 2022-23 budget reflects a more modest 3.2% increase in costs. In the following years of the forecast, the expenditures included in the FY 2021-23 Proposed Budget, along with a gradual rebuilding of capital program funding until it ultimately reaches pre-pandemic levels, result in year over year expenditure increases of 1.8% to 5.3%.
Expenditures include the resumption of paying down unfunded liabilities, including the accelerated paydown of the unfunded pension liability. The forecast also includes payments, over three years, of the deferred FY 2020-21 Measure GSH Housing Trust Fund allocation beginning in FY 2023-24.
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Also included in the forecast is the gradual rebuilding of the City’s reserve balance which has been severely impacted as a result of the economic losses due to the pandemic. Council authorized the reduction of the contingency reserve from 15% of annual ongoing expenditures to 12.5% in May 2020 in order to allow General Fund services to continue in the face of severe revenue decline. Beginning in FY 2023-24, the forecast includes an increase to the reserve rate of 0.5% a year. With this pace, the General Fund rainy day reserve will reach the best practice 15% level by FY 2026-27.
The forecast includes a set aside of additional funding in the General Fund reserves to be used to mitigate the impact of liabilities on the City’s services. In 2020, Council authorized legal settlements totaling $52.425 million to 45 plaintiffs who sued the City and the Santa Monica Police Activities League alleging sexual abuse by former City employee Eric Uller. 61 additional claims alleging abuse by Uller are pending. It is important to consider these pending liabilities as the City plans future year spending.
FY 2021-23 Proposed Biennial Budget
The Proposed Biennial Budget for the City of Santa Monica is balanced and totals $705.5 million in FY 2021-22 and $597.7 million in FY 2022-23.
General Fund Budget
The largest part of the Citywide budget is the General Fund, which funds most municipal services. The proposed General Fund budget is $349.5 million in FY 2021-22 and $375.3 million in FY 2022-23. FY 2021-22 General Fund expenditures decrease $9.6 million or 2.7% from the FY 2020-21 Revised Budget. The decrease is primarily due to: one-time costs related to unemployment benefits, legal settlements, the Economic Recovery Fund, and the use of CARES Act reimbursement funds; and the completion of Successor Agency loan repayments that were transferred (shown as an expenditure in the General Fund in prior years) to the Housing Trust Fund. These decreases are offset by the appropriation of ARPA funds to enable the annual transfer of Measure GSH funds to the Housing Trust Fund in FY 2021-22, for economic recovery efforts, and to support $3 million in ongoing expanded services. 13 of 27
As noted above, while the FY 2022-23 expenditures increase $25.8 million, or 7.4%, over the FY 2021-22 Proposed Budget, the increase is primarily due to the discontinuation of the receipt of ARPA funds in FY 2022-23. The FY 2022-23 budget also reflects a $2.8 million increase in capital project funding as revenues begin to grow, allowing for a gradual resumption of equipment replacement and infrastructure maintenance. The remaining increases are due to inflation-related increases.
Non-General Fund Budget
The FY 2021-22 non-General Fund budget shows an increase of $61.5 million, or 21%, from the FY 2020-21 Revised Budget. Over $50 million of the net increase is due to capital project funding in the Water Fund using bond proceeds to complete a number of projects included in the Sustainable Water Master Plan (see CIP section below). There are also additional increases in the Water Fund to support increased costs associated with purchasing water to meet residential and business demand while repair to local groundwater wells is completed. The remaining increase is primarily in the Low and Moderate Income Housing Asset Fund, due to the completion of a Redevelopment Successor Agency loan repayment from the General Fund, which appeared as a credit to the Low and Moderate Income Housing Asset Fund and the Special Revenue Source Fund in past years (in FY 2020-21, the credit was $7.5 million) and therefore had the effect of lowering prior year budgets.
The FY 2022-23 non-General Fund budget shows a decrease of $133.5 million from the prior year, with $120 million representing less capital spending, mostly in the BBB Fund, the Water Fund and the Miscellaneous Grants fund, and the completion of the transfers of ARPA Funds received in the Miscellaneous Grants Fund to the General Fund, which has the effect of lowering expenditures.
Other program and service-related changes included in the budget numbers noted here are described below.
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Changes included in the FY 2021-23 Proposed Biennial Budget As fiscal challenges continue, it is imperative for the City to be purposeful and strategic about how funds are spent. Budget and position changes which serve to maintain or expand services from their current levels are, for the most part, addressing the community priorities adopted by Council on March 13, 2021. There are a small number of additional changes that respond to internal audit recommendations and improve efficiency and internal controls.
Key ongoing and one-time investments addressing community priorities, also noted in the Interim City Manager’s Budget Message, are listed below:
Community Priority: Addressing Homelessness
Notable annual expenditures in the Fiscal Year 2021-23 Biennial Budget that support direct services to address homelessness include but are not limited to:
• $1.4 million to maintain the Homeless Multidisciplinary Street Team (HMST) and C3 (City + County + Community) homeless engagement teams at their current levels;
• $394,000 for two positions in the Community Services Department added since the restructuring to support local and regional strategies to address homelessness;
• $2.76 million in Human Services Grant Program funding to community partners addressing homelessness;
• $2.04 million for ongoing Santa Monica Police Department Homeless Liaison Program Team services;
• $480,000 for a second two-year pilot of a Santa Monica Fire Department Community Response Unit program staffed by a Firefighter – EMT and a Firefighter – Paramedic; and
• $210,000 to maintain and expand services provided by West Coast Cares through the Santa Monica Fire Department.
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In addition, staff proposes to allocate $6.3 million to the General Fund budget on a onetime basis to enable the annual allocation of Measure GSH funds in FY 2021-22 to support affordable housing, and add one position in the Community Services Department, funded by the Housing Trust Fund, to support the Affordable Housing Production Program.
Community Priority: Clean and Safe Open Spaces and Neighborhoods • $146,246 to restore a limited term two-year Senior Park Planner position to provide ongoing planning to maintain current parks and envision and implement plans for our parks of the future;
• $726,059 from the Resource, Recycling, & Recovery Fund to increase street sweeping frequency;
• $90,300 from the Stormwater Fund to support protected bikeway sweeping services;
• $205,824 to support continuation of City-wide weekend and holiday park trash removal;
• $264,548 to restore two Code Enforcement Officers to enhance clean and safe operations at the Pier, as well as $11,725 to provide new safety equipment for Code Enforcement Officers, in addition to prior onetime allocations of $237,300 for Pier Ambassadors and enhanced cleaning and disinfection at the Pier; • $520,734 to maintain the Reed Park Ambassador program through Downtown Santa Monica, Inc.; $121,000 to provide continued tree maintenance services following prevailing wage increases; and
• Funds for staffing and supplies to support the reopening of the Annenberg Community Beach House for community recreation use, private events and commercial film and photography use, offset by increased revenues. 16 of 27
Community Priority: Equitable and Inclusive Economic Recovery • $2.6 million in one-time funds, including $580,000 appropriated in FY 20-21, to support outdoor dining license waivers and a rent abatement program for nonprofit tenants, Pier tenants, and other for-profit tenants; • $589,087 to upgrade the City’s permitting system and restore, on a two-year limited term basis, key permitting positions needed to address backlogs and advance streamlining and process improvements;
• $75,000 to facilitate improvements to the City’s leasing processes; • $25,000 to support business improvement district formation or an alternative means of re-envisioning and improving coordination, collaboration, and governance on the Santa Monica Pier;
• $500,000 a year for two years for emergency assistance and economic recovery for vulnerable Santa Monicans in order to maintain economic diversity in our community;
• $387,932 annually to enhance Santa Monica Public Library services, including increasing in-person access to the Main Library, as well as the Montana, Ocean Park, and Pico Branches, and hiring a Library Program Specialist – Youth and Family Services to address education equity concerns associated with the pandemic;
• $290,000 to support grants to nonprofits for events to support arts and culture in Santa Monica;
• $100,000 in each fiscal year to support the participation of low-income students as the Santa Monica Malibu Unified School District initiates a youth sports program for younger students;
• $100,000 annually to support language justice programs to promote inclusivity and accessibility across City services; and
• $50,000 in racial equity funds to support the work of Equity & Inclusion Officers appointed in each and every City Department, the Special Assistant to the City Manager on Equity & Community Recovery, and an Equity & Communications 17 of 27
Coordinator who will move into the City Manager’s Office to support inclusive community engagement and communications across City projects. These funds support coordinated, collaborative work across multiple City departments and with our community partners to set a path toward economic recovery for all.
Finally, as our community moves into its recovery period, the Fiscal Year 2021-23 Biennial Budget restores a matching grant funding program for neighborhood organizations as they partner with the City to enhance community participation and support shared outcomes.
Human Service Grants Program (HSGP) and Organizational Support Program (OSP) for Santa Monica’s Arts and Culture Non-Profits
On January 26, 2021, Council approved staff’s recommendation to extend the HSGP and OSP for two years, through June 30, 2023, contingent upon available funding. The FY 2021-22 Proposed HSGP Budget includes continued funding to grantees at current award levels and adds 1) a 1.5% cost of living adjustment for all programs; and 2) a partial restoration of funding (totaling $517,770) for grantees that received reduced funding in the Adopted FY 2020-21 Budget. Attachment D lists individual FY 2021-22 HSGP funding amounts for all agencies and programs.
The proposed Organizational Support Program (OSP) Grants for Arts and Culture Nonprofits for FY 2021-22 includes funds to grantee organizations at the FY 2019-21 funding levels, with no cost of living adjustment. The total recommended funding level for FY 2021-22 is $401,887 for twenty organizations. Attachment E identifies each cultural nonprofit proposed for continued funding.
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Once approved, funding will be available beginning July 1, 2021, continuing through June 30, 2022. Contracts will be executed with each organization approved for funding.
City staff will work closely with organizations to promote quality services, monitor contract compliance, and provide technical assistance and advice to each agency on program, administrative, and fiscal matters.
Budgeted Positions
Included in the service and project changes are the addition of 10.5 new permanent positions and 22.6 full-time equivalent as-needed positions, on a Citywide level. In total, the FY 2021-22 Proposed Budget includes 9 net new permanent full-time equivalent positions in the General Fund and 1.5 net new positions in other funds. The changes are in the following areas and are offset by the expiration of limited term positions and transfer of positions between departments and funds.
General Fund Additions (Items followed by an asterisk (*) are also noted in community priority-focused changes above)
• 3 limited term positions (2 years) in the Community Development Department to support the permitting function, to address the City’s Internal Auditor’s recommendations*;
• 1 limited term position (2 years) in the Community Development Department to further park planning*;
• 2 Code Enforcement Officer positions in the Community Development Department*;
• 1 position in the Community Services Department to support regional homelessness services coordination*;
• 1 position, in the Community Services Department, reimbursed by the Housing Trust Fund, to support the Affordable Housing Production Program*; • 1 position in the Finance Department to support increased vendor outreach and procurement process streamlining and automation;
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• 1 position in the Library to support Youth and Family services*; • 1 position in the Department of Transportation to enhance parking revenue compliance functions and support strategic planning for this major, and changing, revenue source; and
• 2 positions for a second two-year pilot of a Santa Monica Fire Department Community Response Unit program*.
General Fund Limited Term Extensions
A number of limited term positions are proposed to be extended, primarily due to the impact of the COVID-19 pandemic, which required a shift in projects that are now being resumed:
• 2 positions in the Human Resources Department, extended for an additional 2 years to address the City’s Internal Auditor’s efficiency and internal controls recommendations;
• 2 positions in the Community Services Department, reimbursed by the Housing Trust Fund, extended for an additional 2 years to support the Preserving Our Diversity (POD) program; and
• 1 position in the Public Works Department, reimbursed by the Airport Fund, extended until 2028, when Airport closure is permitted, to manage capital projects at Airport facilities.
Net zero FTE Impact Position Transfers
• 1 position transfer in the General Fund from the Public Works Department to the City Manager’s Office to support inclusive community engagement and communications across City projects; and
• 1 position transfer within Public Works from the Water Fund to the General Fund to align with operations.
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Other Funds Additions (Asterisked items are also shown in the community priorityrelated changes listed above) • 1 position in the RRR Fund to assist with enhanced street sweeping*; • 1 position in the BBB Fund to assist with transit facility maintenance; and • 0.5 position at the Annenberg Community Beach House (Beach Fund) to support the return of events*.
All Funds As-Needed Position Additions
A total of 22.6 full time equivalent as-needed, or temporary positions are added citywide to support operational changes as restrictions are lifted. These include positions to:
• support the Library (6.1 FTE)*;
• the Swim Center and other citywide community programs (12.3 FTE); • enhance street sweeping frequency (2.9 FTE)*;
• firefighter recruitment and training (0.9 FTE); and
• community engagement (0.4 FTE).
Other Funds Status
Other major funds that are included in the Financial Status Update fall into two categories: 1) funds that operate with sufficient revenues to sustain necessary operating and capital needs, and 2) funds that have a structural deficit where ongoing revenues are not sufficient to cover ongoing expenditures.
Self-Sustaining Enterprise Funds
The Water and Wastewater Funds will maintain positive balances through the five-year forecast period. With outside financing including bonds, loans and grant funds, 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. The Resource Recovery and Recycling (RRR) Fund will remain self-sufficient throughout the Forecast period.
While the Fund suffered revenue loss due to COVID-19’s impact on the local economy, 21 of 27
fiscal restraint and a one-time cash infusion from the closeout of old construction and demolition projects have deferred the need to increase solid waste rates in 2021. Staff will propose a solid waste rate adjustment to Council in the summer of 2022, with the new rates anticipated to be effective in January 2023.
The Big Blue Bus Fund will maintain a positive fund balance over the five-year forecast through the use of one-time federal relief funds (CARES Act) allocated in response to COVID-19 and Municipal Operator Service Improvement Program funds (MOSIP). The fund balance reflects the adverse impact that the pandemic has had on State and local sales taxes upon which BBB relies to subsidize transportation services. It also reflects the reduction in revenue due to the temporary suspension of fare collection systemwide, and the institution of rear-door boarding as a safety measure to protect Motor Coach Operators and customers, and to mitigate the spread of the virus. On February 14, 2021, the department reinstituted front door boarding and resumed fare collection. Staff projects that by the end of the five-year forecast, state and local subsidies will achieve pre-COVID levels and expects to receive additional federal funds to support transit operations in an effort to mitigate impacts that COVID-19 has had on ridership. The FY 2021-22 County funding allocation will be finalized in June 2021, and the final Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), federal stimulus funding allocation will be determined.
The Airport Fund, Community Broadband Fund and Cemetery Fund are projected to generate adequate revenues to sustain their operations throughout the five-year forecast period. Pursuant to the Settlement Agreement and Consent Decree with the Federal Aviation Administration, the City is permitted to close the Airport to all aircraft operations, by a vote of the City Council, after December 31, 2028.
The Housing Authority Fund is projected to remain stable over the five-year forecast period, and no subsidy will be required during this time. The CARES Act approved additional administrative funding for the Housing Authority which supplemented traditional Section 8 administrative funding in FY 2020-21. This will create a surplus that will be used to offset administrative deficits in future years. The Housing Authority will 22 of 27
continue to monitor congressional funding and manage its expenditures to minimize the need for an operating fund subsidy in the future.
Funds Requiring General Fund Subsidies
The Beach and Pier Funds have been significantly impacted by the COVID-19 pandemic. In the Beach Fund, Beach lot parking revenues, Annenberg Community Beach House rentals, and concessions revenue have been the most affected. The Beach Fund is anticipated to end Fiscal Years 2020-21 and 2021-22 with negative fund balances and will require advances from the General Fund, a portion of them made possible with the receipt of ARPA funds. The Fund is anticipated to reach selfsufficiency in FY 2022-23, and revenues are anticipated to reach pre-pandemic levels in 2024 along with tourism-based revenues.
The Pier Fund is anticipated to end Fiscal Years 2020-21 through 2022-23 with negative fund balances and require subsidies from the General Fund, a portion of which are made possible using ARPA funds. The primary revenue sources for the Pier Fund are lease payments and parking income, all of which have been severely impacted due to COVID-19. The Pier has been closed to the public at various points in the pandemic (mid-March 2020 to late-June 2020, weekend and holiday periods including December 31, 2020 through the end of January 2021). When the Pier has been open, many restrictions have been in place, including reduction of the Pier’s operating hours, limitations on indoor and outdoor dining, closures of the amusement rides and games, as well as the Pier parking lot. Filming and events have also been subject to significant restrictions throughout the pandemic. Staff continues to seek efficiencies (including postponing non-essential capital projects) to ensure fiscal sustainability.
Capital Improvement Program (CIP) Budget
On June 23, 2020 Council adopted the first year and approved the second year of the FY 2020-22 Biennial Capital Improvement Program Budget. As a result of COVID-19, staff proposed reducing the FY2020-21 and FY2021-22 annual $21 million General Fund CIP allocations to $6.8 million and $8.9 million respectively, releasing additional one-time General Fund resources to address reduced revenues. More than ever, the 23 of 27
General Fund allocation can only fund critical ongoing infrastructure maintenance projects. As a result, alternative funding sources and capital financing solutions will need to be employed to provide additional resources for any large projects.
The changes outlined in the CIP Addendum portion of the Proposed Budget are revisions to the second year of the approved Biennial CIP Budget, FY 2021-22. These changes are limited to needs that have arisen during the first year of the Biennial CIP Budget and cannot be deferred until the next biennial CIP budget process. However, absent new funding, departments also identified alternative funding options such as grant resources, special revenue and a revenue water bond to fund priority CIP projects and ongoing maintenance. Budget plan numbers for FY 2022-23 through FY 2024-24 are included as a planning tool to demonstrate anticipated capital funding needs.
The revised FY 2021-22 CIP Budget totals $163.7 million. This represents an increase of $92.3 million from the originally proposed FY 2021-22 CIP Budget and an increase of $69.4 million compared to the FY 2020-21 Adopted Budget of $94.3 million. The FY 2021-22 CIP Budget represents major project support to water projects that advance the City’s efforts to achieve water self-sufficiency by 2023 and ongoing maintenance projects that protect and maintain City-owned infrastructure.
General Fund CIP Budget Changes
FY 2021-22 General Fund capital projects total $9.1 million or 5% of the total proposed CIP Budget and reflect an overall 57% decrease in capital program funding from FY 2019-20 levels. Approximately $0.2 million of this amount represents an increase in the General Fund for the Information Security Measures project outlined in detail in the CIP Addendum section of the FY 2021-23 Proposed Biennial Budget (Attachment A). In light of the impacts of COVID-19, additional funding for new General Fund projects is not available.
Non-General Fund CIP Budget Changes
FY 2021-22 non-General Fund capital projects total $162.4 million or 95% of the total proposed CIP Budget. The total net increase from the previously approved CIP budget 24 of 27
for Non-General Fund projects is approximately $92 million. All of the proposed budget increases can be fully supported by existing enterprise fund balance, grants, alternative funding or a special revenue source. Changes include $78 million in net increased budget using bond proceeds for water projects necessary to implement the Sustainable Water Master Plan including the Arcadia Water Treatment Plant Expansion, Advanced Metering Infrastructure Smart Water Meters, Groundwater Resiliency Well Improvements at Charnock Well Field, Olympic Wellfield Restoration, Olympic Wells Equipping, and the Sustainable Water Infrastructure Project Injection Well. These projects will build or improve the infrastructure that delivers water services to Santa Monica households and businesses. The remaining significant Non-General Fund increases are from an appropriation of $9.2 million in Local Return and Gas Tax revenues for the Annual Paving and Sidewalk Repair Program, Streetlight Modernization Program and Pier Bridge Replacement project; $6.1 million in Grants for the Broadway Protected Bikeway, Olympic Blvd & 26th St Improvements, Stewart & Pennsylvania Safety Enhancement and Wilshire Active Transportation Project and $0.8 million in CDBG Funds for the Virginia Avenue Park Commercial Kitchen and Park Improvements project. These major budget increases as well as smaller changes are outlined below in the Project Details section and the CIP Budget Matrix. (Attachment A).
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 22, 2021.
Citywide Fee Study
Since 1988, Council has directed staff to periodically conduct studies to calculate the City’s cost of providing various services that benefit individual users of the service rather than members of the community, and to determine if the City is recovering an appropriate share of these costs through user fees. It is City policy to achieve full cost recovery for these services, with some exceptions. The Community Services Department (CSD) fees, which average approximately 30% cost recovery, are based on 25 of 27
a pricing policy that reflects Council priorities for community recreation and social services benefits.
A recent study prepared by MGT of America analyzed the cost of services in the City Manager’s Office, Community Development, Public Works, Police, Community Services, and Records and Election Services Departments as well as the Library. Fire Department fees were not part of the report pending upcoming staffing changes in the Department and will be presented to Council as part of the FY 2022-23 Proposed Budget. Based on the study, which included the analysis of approximately 800 fees, staff recommends increases in 336 fees and decreases in 242 fees to set the fees at appropriate cost recovery levels. Approximately 225 fees will remain at current levels.
Staff also recommends creation of 49 new user fees, of which 44 are in the General Fund (three of which are proposed to be waived at this time), and deletion of 53 fees due to redundancy with other fees or for services no longer provided. Staff anticipates that implementation of the fee study recommendations, along with the rebound of economic activity, will result in approximately $0.9 million in additional annual revenue, $0.7 million of which is in the General Fund.
Attachment B (Fee Study Report) provides a summary of the results of the fee study, as well as the consultant’s report. Staff will return to Council with any necessary implementing ordinances and resolutions at the time of budget adoption.
Additional Fee, Fine and Rate Adjustments in Other Areas Carousel fares - Staff is proposing changes to the carousel rates at the Santa Monica Pier to align with comparable carousel rates charged by other agencies (ranging from $3 to $5 per ride). The per rider rate would be adjusted to $3 per rider. Children three years old and under will continue to ride free with a ticketed adult. This fare would still preserve the carousel as an affordable amusement option while supporting the continued upkeep and operation of this historic amenity.
Cemetery fees - Based on client interest, cremation green burial graves and outdoor cremation niches have been developed for sale, and their proposed fees will be 26 of 27
incorporated into the City’s fee schedule. Cremation niches in the Faith and Hope columbariums that have returned to Cemetery inventory from the Abandoned Graves process require pricing and will also be included in the fee schedule.
Farmers Market - Staff is proposing amendments to the Farmers Markets Rules, Regulations and Policy Guide, which is an essential guiding document for all vendor participants and activities occurring at the City’s four weekly farmers markets. Included in the amendments is a fee increase on Farmers Market fees from the current 5% to 6% of Certified Producers sales.
Fines – Staff from various departments are still reviewing current fine schedules and any proposed revisions will be presented with the Proposed Budget on June 22, 2021 Parking rates - While no changes to the transient and permit parking lots/structure rates are being proposed at this time, staff will return on June 22, 2021 to propose some changes, which include preferential (residential) parking permit rates based on the final fee study; update of the State of California courthouse parking program rates (monthly permits for employees and daily validations for jurors); request for Council to extend the current discount validation program to 6/30/23 to support the City’s economic recovery efforts (program currently set to expire 6/30/21); and, administrative language clean-up items.
Next Steps
Council will convene a public hearing on June 22, 2021 to consider, receive public comment, make revisions to, and adopt the first year and approve the second year of the Biennial Budget, as well as to adopt the second year of the Capital Improvement Program Biennial Budget.
Members of the public may provide comments on the Proposed Budget by sending an email to [email protected] or by giving public testimony at the May 25, 2021 Council meeting. Public testimony is also welcome at the Budget Adoption hearing on June 22, 2021.
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Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended actions. Staff will integrate comments from the Study Session in the preparation of the budget that will come before the Council for adoption on June 22, 2021. At this meeting, staff will recommend adoption of the first year and approval of the second year of the FY 2021-23 Proposed Biennial Budget, as well as the adoption of the second year of the Capital Improvement Program Biennial Budget.
Prepared By: Esterlina Lugo, Deputy City Clerk
Approved Forwarded to Council
Attachments:
A. FY 2021-23 Proposed Budget book - Web Link
B. Fee Study Summary and Report
C. Financial Status Update and FY 2020-21 Midyear Budget - January, 26, 2021 Staff Report Item 8B - Web Link
D. FY 2021-22 HSGP Grantee List
E. FY 2021-22 OSP Grantee List
F. Written Comments