City Council
Report
City Council Meeting: May 23, 2023
Agenda Item: 7.A
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department Subject: Five-Year Financial Forecast Update, FY 2023-25 Proposed Biennial Budget, and FY 2023-24 Proposed Capital Improvement Program Budget Recommended Action
Staff recommends that the City Council:
1. Receive the FY 2023-24 through FY 2027-28 May Five-Year Financial Forecast Update;
2. Review and provide direction to staff on the FY 2023-25 Proposed Biennial Budget, including the FY 2023-24 Proposed Exception-Based Capital Improvement Program (CIP) Budget;
3. Review and provide direction to staff on proposed fee changes;
4. Review and comment on the Cultural/Art Organizational Support Program (OSP) funding recommendations for the FY2023-25 funding cycle; and
5. Direct staff to proceed with setting the FY 2023-25 Budget Adoption public hearing on June 27, 2023.
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Executive Summary
The City of Santa Monica’s Fiscal Year 2023-2025 Proposed Biennial Budget builds on the work done in recent years to help our community respond to and recover from the COVID-19 emergency as well as make strategic investments to advance priority areas Council identified at its workshop on March 11, 2023. These priorities are:
• Addressing Homelessness
• Clean and Safe Santa Monica
• Cultivate Economic Recovery and Expand Community and Cultural Offerings • Racial Justice, Equity, and Social Diversity
• Sustainable and Connected Community
This report provides a brief, high level summary to accompany the City of Santa Monica’s FY 2023-25 Proposed Biennial Budget and Capital Improvement Program Budget for FY 2023-24 (Attachment A).
The Citywide Proposed Biennial Budget is $740.9 million in FY 2023-24 and $746.4 million in FY 2024-25, net of reimbursements and transfers. The Budget provides a plan, built upon community-driven priorities, to continue to rebuild, restore and reenergize our community. Looking forward, the City will continue to face and manage challenges, ranging from the economic uncertainty and disruption coming from geopolitical unrest, consumer behavior changes, and trailing impacts of the pandemic.
Despite these challenges, there has been closure on the unprecedented financial blows that the City has weathered over the past three years from the pandemic and the resolution of significant legal liabilities.
The FY 2023-25 Proposed Biennial Budget is posted on the City’s website at santamonica.gov. The document includes:
❖ The City Manager’s budget message, which provides an overview of the investments made to further Council-adopted priorities, using both new and reallocated funding sources, in both English and Spanish ❖ An overview of sources and uses of funds, including a description of employee 3 of 25
compensation costs
❖ A section describing projected revenue performance in FY 2022-23, FY 2023-24 and FY 2024-25
❖ An overview of fund balances for the General Fund and all other funds ❖ Five-year overviews (spanning FY 2020-21 through FY 2024-25) of Citywide expenditures and revenues by fund and by department
❖ Descriptions of each Department and its mission, individual Division functions, and budget and position allocations by Division, Department, and Fund ❖ A listing of proposed enhancements that have been incorporated in the Budget ❖ The FY 2023-24 Capital Improvement Program (CIP) Budget Addendum, showing individual projects in each fund
❖ The City’s financial policies, which are adopted by the Council along with the budget
❖ A separate line item detail is posted online at https://finance.smgov.net/budgetsreports/annual# In preparing this two-year budget, City staff began with a baseline “maintenance of effort” budget that continues current services addressing Council priorities, basic services, and good governance. To this baseline budget, staff added enhancements that further address Council priorities and strengthen governance. Enhancements are funded using new revenue sources coming from voter approved measures, public and private partnerships, rate adjustments, reallocated funding, and successful grant applications. The Budget is balanced in FY 2023-24 and uses working capital funds, already set aside in the General Fund balance, in FY 2024-25 to maintain service levels while General Fund revenues continue to recover in the short term.
The Proposed Budget is prepared alongside five-year forecasts for all funds, the results of which are included in this report, to ensure the long-term fiscal viability of proposed programs and services. The staff report also includes a preview of proposed new or adjusted fees and the Cultural Affair’s Division’s Organizational Support Program (OSP) 4 of 25
grant recipient recommendations for Council’s input. The items will be brought back to Council for adoption along with the Adopted Budget on June 27, 2023.
Background
Since the adoption of the FY 2020-21 Budget, which reflected dramatically restructured operations that focused City operations on the delivery of essential services during the COVID-19 pandemic and the ensuing swift and severe economic crisis, each successive budget has included a small amount of service restoration and investments to address critical needs in the areas of public safety, homelessness, and economic recovery. The FY 2022-23 Adopted Budget also addressed cost of living adjustments for staff after years of no pay increases or pay cuts for some employees. The increases have been funded using incremental revenue growth, federal stimulus funds, and onetime reallocations of funds. Increases to each year’s budget have been balanced with an equally important need to rebuild General Fund reserve levels that were drawn down to address the severe revenue shortfalls during the pandemic and to make large settlement payments.
On March 11, 2023, to prepare for the FY 2023-25 Proposed Biennial Budget, Council:
• Reviewed and commented on the FY 2023-24 through FY 2027-28 Five-Year Financial Forecast,
• Set the organizational priorities that will guide the development and implementation of the FY 2023-2025 Biennial Budget,
• Provided direction and preliminary approval for proposed FY 2023-25 budget items, including the allocation of Measure CS funds, the suspension of the unfunded pension liability paydown policy to allow the reallocation of $2.5 million in the General Fund to cover service restoration in key areas, and • Provided approval of the organizational realignment of the Community Service Department to align and focus the City’s work on Council priorities and implementation of newly adopted tax measures, including Measure GS. 5 of 25
Discussion
General Fund Five-Year Financial Forecast Update
The May 2023 General Fund Five-Year Financial Forecast Update incorporates the FY 2023-25 Proposed Biennial Budget revenues and expenditures. The Five-Year Financial Forecast shows the balance of General Fund revenues less expenditures on an annual basis for the next five fiscal years. The Forecast assumptions and results are the same as those presented in the March 11, 2023 Council Workshop (Attachment B).
As shown, annual revenues would slightly exceed expenditures (in the range of $100,000-$200,000) for the next three years. This positive balance reflects the use of working capital reserves beginning in FY 2024-25. Future projected negative balances of $0.6 and $1.5 million, respectively, in FY 2026-27 and FY 2027-28 represent 0.1% and 0.3% of revenues for those two years. These negative balances are at a level that can be managed over the next three years.
Revenue Projections: Over the next five years, revenues are anticipated to increase by an average of 3.5% a year compared to the 30% increase that occurred over the two years since FY 2020-21. During the Biennial Budget period, revenues are anticipated to grow at a rate of 3.2% and 3.0%, respectively, reflecting a slowing in economic growth. It is anticipated that revenues will not fully recover until FY 2027-28. While the 6 of 25
City has already seen a loss of nearly $170 million since 2020, revenues will lag behind normal growth by nearly $80 million over the next five years, for a total loss of approximately $250 million over 8 years, as shown in the chart below.
Expenditure Projections: The Forecast includes negotiated and projected cost of living increases, as well as projected pension rates informed by recent portfolio earnings trends, and projected healthcare rates. Also included is the programming of Measure CS funds, new digital kiosk revenues, and the reallocation of funds to new uses.1 Use of Working Capital Reserves: The General Fund will require the use of working capital reserves to fill budget deficits in years FY 2024-27. While the use of reserves to cover ongoing expenditures is not a sustainable financial practice, the circumstances 1 Not included in General Fund projected revenues or expenditures are Measure GS (2022) funds and Measure HMP (2022) funds. Measure GS funds will be received and programmed in the Housing Trust Fund, not the General Fund.
This funding source has not yet been programmed in the Housing Trust Fund as it is difficult to project because it is contingent on the sale of high value properties. Additionally, there is currently a reverse validation action that seeks to invalidate Measure GS. Because there is no pending request to stay the implementation of the tax, the tax will go into effect on March 1, 2023. The lawsuit may take several months to resolve; as a result, any tax collected and spent by the City would be considered a contingent liability until resolution of the lawsuit, including any appeals.
Measure HMP imposes an additional tax on cannabis retailers and other licensed cannabis businesses, further work is required to amend the amend the Municipal Code to allow for an increase of cannabis-related retail establishments and revenues are not anticipated during the upcoming biennial period. 7 of 25
creating the deficits are in the short term only, including temporary hotel closures to complete renovations, and contractual labor obligations.
Contingency Reserves Gradually Restored: In FY 2023-24 the General Fund budget will be backed by a Rainy Day fund totaling 13% of ongoing expenditures. The Forecast assumes that the City will continue to rebuild its Rainy Day fund, reaching 15% of ongoing expenditures in FY 2026-27. Strong reserves protect our ability to provide essential services and retain jobs during emergencies and economic fluctuations. They are also a signal of a City’s financial health and critical to maintaining the City’s AAA bond rating.
Capital Improvement Program: Prior to the pandemic, the General Fund allocated $21 million a year to its Capital Improvement Program (CIP). This amount was reduced to $7.3 million in FY 2020-21. The Forecast shows funding restored to $21 million in FY 2024-25. Of the $15 million amount set aside for capital projects in FY 2023-24, over three-quarters of the program is budgeted for required ongoing maintenance, vehicle and technology replacement, safety-related repairs and debt service, leaving less than one-quarter of the funding available for community amenities and enhanced services.
The reduction of the CIP over the last four years has resulted in deferred infrastructure, technology and vehicle maintenance or replacement. In addition, over $362 million in projects remain unfunded. More information on General Fund funded and unfunded projects is included in the Capital Improvement Section later in this report and in the CIP Addendum included in the Proposed FY 2023-25 Biennial Budget.
Other Funds Financial Forecast Update
Among the larger funds contributing to the City’s operations, the Water, Wastewater, Big Blue Bus (BBB), Airport and Cemetery Funds have sufficient revenue to cover operational and capital needs during the biennial period. If new rates are approved by Council on June13, 2023, the Resource Recovery and Recycling (RRR) Fund will remain self-sufficient during the biennial period and enhanced services can be offered.
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The Pier and Beach Recreation Funds are projected to require subsidies and advances during the biennial budget period, totaling approximately $8.7 million. Continued revenue constraints, including the partial closure of the Pier Deck parking, and pending plans to adjust beach parking rates, are significantly contributing to the situation.
The Community Broadband (CBB) Fund, which supports CityNet operations, will be merged into the General Fund, allowing for greater efficiencies from a more flexible sharing of resources.
FY 2023-25 Proposed Biennial Budget
The Proposed Biennial Budget for the City of Santa Monica totals $740.9 million in FY 2023-24 and $746.4 million in FY 2024-25, net of reimbursements and transfers. The Proposed Budgets for FY 2023-24 and FY 2024-25 represent year-over-year growth of
3.8% and 0.8%, respectively. The budget spans 30 funds and 15 departments. The General Fund, supported predominantly with tax revenues, provides the majority of municipal services, while enterprise funds such as Water, RRR, BBB and the Airport conduct their operations using rate- or fee-based revenues, and still “Other Funds” receive contributions from all funds to service items such as vehicle and technology needs or insurance needs, or conduct activities covered with grant or other nondiscretionary revenues. The moderated growth in the second year is primarily due to a decrease in programmed capital expenditures in the BBB Fund. Additional capital expenditures commencing in FY 2024-25 will be programmed as part of the FY 2024-26 Biennial Capital Improvement Program budget process.
The chart below shows the breakdown of the Citywide proposed budget for FY 2023-24, net of reimbursements and transfers, the first year of the biennial period. This budget includes both operating and capital expenditures.
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Citywide Budgeted Expenditures - by Fund Type - FY 2023-24 (in millions)
The amounts shown in the chart do not include payments for services between funds to avoid double-counting.
Among the large General Fund payments that do not appear in the $412.4 million amount, are contributions to Workers’ Compensation and Liability self-insurance funds, and transfers to the Fleet and Computer Equipment Replacement Fund.
The proposed General Fund budget (including reimbursements and transfers) is $436.9 million in FY 2023-24 and $458.6 million in FY 2024-25. The budgets represent yearover-year growth of 3.8% and 5.0%, respectively. The charts below show the sources and uses of the General Fund budget for the FY 2023-24 Proposed Budget. These charts, as well as charts showing the breakdown for FY 2024-25 are included in the Budget Overview section of the attached budget document. 10 of 25
General Fund FY 2023-24 Proposed Budget
In the chart above, Internal Services includes the Offices of the City Manager, City Council and City Attorney, the Records & Election Services Department, and the Finance, Human Resources and Information Services 11 of 25
Departments. The Office of the City Manager also includes the City’s 3-1-1 and Office of Emergency Management operations.
Changes Included in the FY 2023-25 Proposed Biennial Budget The FY 2023-25 Proposed Biennial Budget includes the most substantial restoration of ongoing services and introduction of enhanced services to date since the 2020 budget restructuring. This is due to a combination of a new voter-approved revenue source, continuing revenue growth, a reallocation of existing funds, new revenues from public and private partnerships, and staff’s ability to expand capacity for cost-covering programs.
As the City enters a period when revenue growth is slowing while factors that drive up expenditures continue to put pressure on available resources, it is imperative to be purposeful and strategic in how funds are spent. Budget enhancements for the most part address the community priorities adopted by Council on March 11, 2023:
- Addressing Homelessness
- Clean & Safe Santa Monica
- Cultivate Economic Recovery & Expand Community & Cultural Offerings - Racial Justice, Equity & Social Diversity
- Sustainable & Connected Community
The following table lists the operating budget enhancements included in the Proposed Biennial Budget. This detail also appears in the Appendix section of the Proposed Biennial Budget.
Operating Budget Enhancements - ongoing unless indicated otherwise Staffing
Changes
Enhancement
Amount
Funding Source Department/s Description FTEs (in $1,000s) General Fund City Manager Restoration of ongoing funding for the Neighborhood Grant program
- $ 49
General Fund City Manager Resources to support Community Partnerships Program, including the
We Are Santa Monica Fund, the
digital kiosks, LA28 Olympics, film
and event permits, and other publicprivate partnership opportunities
1.0 Permanent
$ 412
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Operating Budget Enhancements - ongoing unless indicated otherwise Staffing
Changes
Enhancement
Amount
Funding Source Department/s Description FTEs (in $1,000s) General Fund Community Development Establishment of ongoing funding for security services program at the Pier
(Measure CS)
- $ 605
General Fund Community Development Restoration of key positions in planning and to enhance economic
recovery work
2.0 Permanent
$ 360
General Fund and
CDBG
Community Development Establishment of a Small Business Assistance and Tenant Improvement
Fund
- $ 150
General Fund Community Development Funding to enhance monitoring and enforcement of the City’s homesharing ordinance (Measure CS) - $ 130
General and All
Enterprise Funds
Finance Position to support payroll operations,
partially funded by enterprise funds
1.0 Permanent
$ 122
Risk Mgmt, Admin Finance Temporary employee hours to
support the Workers' Compensation
program, funded by reallocation of
funds
0.5 Temporary
$ -
General Fund, Misc.
Grants
Fire Dept Changes in the Fire Department to
strengthen Emergency Medical
Services (EMS) delivery. With the
completion of the CRU pilot program,
resources are reallocated to a new
EMS Battalion Chief/Homeless
Liaison, 3 new Captains serving in
the Emergency Incident Technician
role (offset by the deletion of 3
Firefighter positions), a part-time
Logistics position, a contracted case
manager for high users of 9-1-1, and
restoration of a longer Recruit
Academy program that increases the
ability to hire a more diverse
workforce. The enhancement is
partially funded by increased
inspection revenues. (ongoing and
one-time)
(1.0)
Permanent
/0.4
Temporary
$ 235
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Operating Budget Enhancements - ongoing unless indicated otherwise Staffing
Changes
Enhancement
Amount
Funding Source Department/s Description FTEs (in $1,000s) General Fund,
Housing Authority and
Housing Trust
Housing and Human
Services
Recreation and Arts
Positions are added to support the
new Housing and Human Services
Department as the organizational
point for homelessness services and
programs and to manage a larger
voucher program in the Housing
Authority. Positions include the
restoration of a Housing Manager,
Housing Authority Administrator, Staff
Assistant III, and a 0.5 Housing
Inspector, and a new Sr Housing
Specialist and Housing Specialist.
Creation of Recreation and Arts
Department to enhance leadership
around recreational partnership
opportunities. Positions added
include a Director, Administrative
Services Officer and an Executive
Administrative Assistant.
Funding (prorated costs):
General Fund
Housing Authority Fund
Housing Trust Fund
5.5 Permanent
3.0 Permanent
$ 30
$ 452
$ 556
General Fund Housing and Human
Services
Ongoing funding for partial restoration
of the direct service programs of
CREST, PAL, and VAP
- $ 168
General, All
Enterprise Funds
Housing and Human
Services
ADA Coordinator position to oversee
compliance program, partially funded
by enterprise funds
1.0 Permanent
$ 161
General Fund Housing and Human
Services
Expansion of homeless
multidisciplinary outreach teams
(Measure CS)
- $ 460
General Fund Housing and Human
Services
One-time funding for preparation of a
Homelessness Strategic Plan (HSP)
(Measure CS)
- $ 400
General Fund Housing and Human
Services
Redesign of the SAMOSHEL interim
housing program to accommodate
24/7 intakes (Measure CS) (ongoing
and one-time)
- $ 800
General Fund Human Resources Funding for services to administer selection/examination processes to
establish eligibility lists for employee
recruitment
- $ 260
General Fund Human Resources Funding for classification and compensation studies
- $ 140
General Fund Information Services Ongoing funding to maintain previously one-time funded
technology related items
- $ 56
General Fund Information Services Conversion of limited term position to permanent
1.0 Permanent
$ 180
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Operating Budget Enhancements - ongoing unless indicated otherwise Staffing
Changes
Enhancement
Amount
Funding Source Department/s Description FTEs (in $1,000s) General Fund Library & Public Works Restoration of additional service hours at the Main Library on
Saturdays, extending evening hours
at all open locations (M-TH) to 8 pm,
and opening the Main Library one
hour earlier (M-TH) at 10 am. This is
in addition to maintaining services
funded with one-time funds in the
prior budget cycle.
3.0 Permanent
/1.9
Temporary
$ 510
General Fund Non-Departmental Ongoing funding to support the School District’s Playground Club
program
- $ 500
General Fund Non-Departmental Funding for program to offer reduced RRR rates for qualifying low-income
households
- $ 150
General Fund Police Dept Funding to expand security services program at Downtown parking
structures (Measure CS)
- $ 280
General Fund Police Dept Realignment of administrative
positions in the Police Department
- $ (12)
General Fund Police Dept Increase Police Department staffing levels to expand Homeless Liaison
Program (HLP) and to augment
staffing in other areas of need such
as the Downtown Services Unit
(Measure CS)2
7.0 Permanent
$ 2,018
General Fund Public Works Ongoing funding for maintenance of the water features at Ken Genser and
Tongva Parks (Measure CS)
- $ 85
Water Fund Public Works Staffing changes to align positions with operational responsibilities in the
Water Division
- $ 12
General Fund Public Works Funding to increase tree pruning frequencies in high-traffic areas to
improve safety and aesthetics of our
public spaces (Measure CS)
- $ 120
General Fund and
Vehicle Mgmt.
Public Works Funding to establish specialized
public space maintenance team
focusing on waste and debris
generated by people experiencing
homelessness (Measure CS)
3.0 Permanent
$ 440
Wastewater Fund Public Works Staffing to help advance water conservation projects (Water
Resources Protection Specialist and
Sr Water Resources Protection
Specialist)
2.0 Permanent
$ 308
Resource Recovery &
Recycling
Public Works Staffing to enhance alley clearing,
illegal dumping and bulky item pickup
services, bike lane sweeping, comply
with State mandatory organics
recycling, and work towards Zero
Waste goal, funded by new rate
adjustments.
18.0 Permanent
/(2.9)
Temporary
$ 1,723
2 On a one-time basis until positions are filled, resources will support the Directed Action Response Team (DaRT) and be saved to invest in Police technology initiatives. 15 of 25
Operating Budget Enhancements - ongoing unless indicated otherwise Staffing
Changes
Enhancement
Amount
Funding Source Department/s Description FTEs (in $1,000s) Airport Fund Public Works Funding to repair and replace aging equipment at airport hangars
- $ 40
Cemetery Fund Public Works Staffing changes to align position with operational responsibilities
0.4 Temporary
$ -
BBB, Water,
Wastewater and
Airport
Public Works and
Transportation
Funding to continue the Trades Intern
Program (TIP), which focuses on
supporting and empowering
vulnerable Santa Monica youth and
adults
5.0 Permanent
$ 373
General Fund Records & Election
Services
Restoration of passport services,
almost entirely funded by new
revenues
1.0 Permanent
$ 103
General Fund Records & Election
Services
Upgrade of Enterprise Content
Management system (ongoing and
one-time funds)
- $ 85
General Fund Recreation and Arts Funding for continuation of the Art of Recovery program
- $ 250
General Fund Recreation and Arts Re-introduction of cost covering Swim Center conference room rental
0.1 Temporary
$ 6
General Fund Recreation and Arts Positions to increase public access to Community Recreation facilities
funded by reallocation of funds.
8.8 Temporary
$ -
Beach Fund Recreation and Arts Restoration of cost covering position to address demand for event rentals
at the Annenberg Community Beach
House
0.5 Permanent
$ 80
General Fund Recreation and Arts Restoration of cost covering access hours at Memorial Park Gym and
Fitness Room and field rentals
1.5 Temporary
$ 81
General Fund Recreation and Arts Creation of a new cost covering Pickleball Program, with dedicated
staff to provide overall program
oversight
1.0 Permanent
/0.6
Temporary
$ 137
General Fund Recreation and Arts Expand cost covering classes at new SaMoHi aquatic facility
0.1 Temporary
$ 5
General Fund
Airport
RES, Library, CMO, PW,
CDD
Funding to support hybrid public
meetings - public comment
- $ 63
Big Blue Bus Transportation Staffing changes to support the BBB’s recruitment and training
efforts, maintenance needs and
security services to restore bus
service to pre-pandemic levels
4.0 Permanent
$ 1,575
Total 58.0
Permanent
/ 11.5
Temporary
$ 14,659
Budgeted Positions
As shown in the detail of enhancements, 69.5 new full-time equivalent positions are proposed to be added to the budget, including 8.5 positions previously added as limited 16 of 25
term positions that are proposed to be extended or converted to permanent positions.
The Proposed Budget includes a total of 2,097.1 FTE positions, 1,341.8 in the General Fund. When compared to the number of positions in the FY 2019-20 Adopted Budget, the City is still 200.8 positions below its prior levels.
Capital Improvement Program (CIP) Budget
On June 28, 2022, Council adopted the first year and approved the second year of the FY 2022-24 Biennial CIP Budget. The FY 2023-25 Proposed Biennial Budget includes a CIP Budget Addendum outlining proposed revisions to the FY 2023-24 CIP Budget and budget plan amounts for FY 2024-25 through FY 2026-27. The longer-range plan is included as a tool to demonstrate total anticipated capital funding needs. However, project needs will be re-evaluated during each biennial CIP budget cycle to ensure that budgets are adjusted to fall within available funding limits and to best reflect updated City priorities.
The revised FY 2023-24 CIP Budget totals $104.1 million. This represents an increase of $8 million from the originally approved FY 2023-24 CIP Budget. The proposed changes are limited to priority needs that have arisen during the first year of the Biennial Budget and cannot be deferred until the next biennial budget process. Absent new General Fund resources, departments have identified alternative funding options such as grant resources, special revenue funds, Local Return Funds, and Community Development Block Grant resources to fund CIP projects. Total budget amounts represent major project support for Water projects identified in the Sustainable Waster Master Plan, Water and Wastewater Main Replacement projects, Big Blue Bus Fund resources to implement fleet electrification master planning and seismic building improvements and ongoing maintenance projects that protect and maintain City-owned infrastructure.
General Fund CIP Budget Changes
General Fund capital projects total $13.5 million (excluding the amount set aside for debt service) or 13% of the total proposed CIP Budget and approximately $0.5 million of this amount represents an increase for the Reed Park Improvements project and the 17 of 25
internal services transfer in the Vehicle Replacement Program outlined in the CIP section of Attachment A.
Prior to the pandemic, the General Fund allocated $21 million a year to the CIP Budget.
This amount was reduced to $7.8 million in FY 2020-21 and has increased gradually since then. Without new funding sources, there is no capacity to restore the annual General Fund CIP Budget to $21 million until FY 2024-25 at the earliest. Current amounts allocated to the CIP are not enough to address deferred infrastructure and equipment maintenance, technology/computer and fleet replacement, and a renewed focus on community amenities that were put on hold during the pandemic. Funding for additional new projects is not available; unfunded projects are shown in the Unfunded CIP List.
Non-General Fund Budget Changes
Non-General Fund capital projects total $90.5 million or 87% of the total proposed CIP Budget. The total net increase from the previously approved CIP budget for NonGeneral Fund projects is approximately $7.5 million. All proposed budget increases can be fully supported by enterprise fund balances, grants, alternative funding or a special revenue source.
The FY 2023-24 CIP budget changes include $4.3 million from enterprise Big Blue Bus funding sources for projects necessary to implement the Administration Building seismic improvement project and augmentation of the 7th Street Fencing Upgrade project. The remaining significant Non-General Fund increases are from an appropriation of $1.25 million in Local Return revenues for the new Bus Terminal at PCH and Sunset Blvd and Parking Structure Study, $1.05 million in CDBG Funds for the 19th Street Open Space Project, Virginia Avenue Park Commercial Kitchen and Virginia Avenue Park Basketball Replacement project, and $0.7 million in Special Revenue Funds for the Marine Park Basketball Court Surface Reconstruction and Park Improvement Program projects.
These budget increases as well as smaller changes are outlined in the CIP Budget section of Attachment A.
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Unfunded CIP List
Projects that were eliminated or reduced to help close the City’s funding gap resulting from the pandemic or did not receive funding due to extremely limited resources are listed in the Unfunded Projects table and are tracked for consideration in future funding cycles. City staff will explore opportunities to leverage City funds with external funding.
At this time, a total of $362 million in projects remain unfunded and are tracked for consideration in future funding cycles. Over 93% ($337 million) of the unfunded list is comprised of requests for General Fund resources with the additional 7% ($25 million) comprised of infrastructure requests for Pier Fund resources. The list of unfunded projects includes a complete remodel/seismic retrofit of Parking Structure 1 and other parking structure upgrades, the Memorial Park Expansion project, Lincoln Blvd. (LiNC) improvements, City Hall North building system upgrades, Pier deck and railing upgrades, Fire station facilities, Gandara Park Restoration, the Public Landscape Division relocation and City Yards Modernization improvements along Michigan Ave. A complete list of unfunded projects is included in the CIP section of Attachment A.
Fiscal Policies
The City’s Fiscal Policies, included as an appendix in the Budget, promote transparency, accountability, and a common framework for managing financial resources. At the onset of the COVID-19 closures, the Council temporarily suspended or changed a number of policies to provide greater flexibility in the use of funds. Three years later, the broad disruption that continues to impact economies, along with a protracted recovery horizon, demands a reassessment of these policies. Staff has proposed the following amendments to the Fiscal Policies. Council adopts the Fiscal Policies along with the Adopted Budget.
Paydown of the Unfunded Pension Liability: On April 11, 2023, Council authorized a suspension of the accelerated paydown of the City’s unfunded pension liability from FY 2022-23 until FY 2027-28, or later, to restore an array of community services and programs such as expanded hours at the Main Library, restoring Youth Program capacity, and restoring positions in Planning and Economic Development to further economic recovery activities, among other restorations. 19 of 25
Shift from ten-year to five-year financial forecasts: Before the pandemic, the City had shifted to ten-year forecasting to provide a longer planning window when dealing with capital projects and changes in pension obligations. Due to the persistent uncertainty in many elements impacting economic conditions, from the impacts of remote work, inflation, labor shortages, changes in travel and shopping, and supply chain disruptions, staff is proposing a permanent reversion to five-year forecasts to mitigate the risk of budgeting using unsubstantiated revenue projections. Staff will continue to monitor extraordinary cost trends beyond the five-year forecast period.
Elimination of expenditure control budgeting: Expenditure control budgeting previously allowed General Fund departments to maintain one-third of their non-salary operating budget savings to be used at the department head’s discretion to fulfill the mission of the department. With extremely constrained budgets throughout the City and fund reserves at a low level, it is prudent and necessary to consider the best citywide use of any savings.
General Fund Operating Contingency (Rainy Day Fund): 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. They are also a signal of a City’s financial health and critical to maintaining the City’s AAA bond rating. The fiscal policy reflects a gradual rebuilding of the Rainy Day Fund, with a minimum 13% reserve level for FY 2023-24, and 13.5% reserve level for FY 2024-25, reaching a 15% reserve level in time for the FY 2027-29 Biennial Budget.
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. Per the City’s Fiscal Policies, a Citywide fee/cost of services study is conducted at least once every five years. The last study was presented to Council as part of the FY 2021-23 biennial budget. In the years 20 of 25
between studies, most fees are administratively adjusted by a factor equal to the net change in City salaries and benefits costs for that fiscal year. The administrative adjustment is 4%. Also, staff has undertaken focused reviews of several program areas to propose new fees or revisions to existing fees. Proposed changes are discussed below and listed in Attachment C. The actual final proposed resolutions will be presented for adoption with the Proposed Budget on June 28, 2023.
Community Development
• Architectural Review Board – Administrative Design Approval (New Construction): A fee for new construction projects that are eligible for the streamlined staff-level review process pursuant to the zoning amendments to implement the City’s certified 6 th Cycle Housing Element.
• SB 9 Conformance Review: A fee for the staff-level review of housing development on single-unit dwelling parcels pursuant to SB 9, that requires cities to allow one additional residential unit onto parcels zoned for single-dwelling units by constructing two units on a single lot or the subdivision of one lot into two separate lots. • Carousel Building Rental Fees: Special event rental rates for the Carousel Building have not increased since 2014. In consultation with the Pier Corporation, the entity that handles private rental of the Carousel on behalf of the City, Staff recommends rate increases, which will continue to keep the Carousel as an affordable venue while remaining competitive with other similar venues surveyed. Special event rental of the building helps to offset City expenses for maintaining the Carousel as well as the Pier Corporation’s staff costs for managing bookings.
Recreation and Arts (formerly Community Services)
Staff recommends increases to the hourly rates charged for the Aquatics Program to align with the actual hourly rates paid to staff and ensure that the City recovers the cost for the services provided. In addition, the Beach House recommends the addition of new fees for contractor-instructed activities that are being offered. 21 of 25
Department of Transportation
The Department of Transportation recommends the addition of ten new fees for the Parking and Mobility Divisions to ensure that the City recovers the costs to install and remove event-specific signage, decal stickers for the Beach Bike Path program, and meter pole removals and installations, as well as the revision of one fee description.
The fees are hourly rates based on the fully burdened cost of the position performing the specific service. The new fees will ensure that the City recovers the cost of services provided.
There are no proposed rate changes to transient and permit parking lots/structures at this time. Staff will include the following changes in the parking resolution to be approved during final budget adoption on June 27, 2023: 1) Extend the downtown discount validation program through June 30, 2024; 2) Increase preferential parking permit fees by 4%; 3) Establish a Pilot Beach Electric Vehicle Parking Permit for Beach Lot 5 South; 4) Establish a Pilot Electric Vehicle Parking Permit for Lots 7, 8, 9, and 11; and 5) Establish a parking rate for City spaces for the 1560 Lincoln Boulevard Structure.
Library
Staff recommends changing the conference or meeting room minimum rental requirement from 3 hours to 2 hours to provide the community with flexibility and provide consistency with rental rates across all locations. The hourly rental rate is unchanged.
Police
Staff recommends deleting the 30-day vehicle impound because it is no longer being charged.
Public Works
Staff recommends the creation of two EV User fees instead of one flat rate to reflect the lower electricity rates during off-peak winter months. Staff also recommends new fees for the Cemetery to establish a pricing list for the new cremation niches that are now available due to the Abandoned Graves Project and property sold back to the 22 of 25
Cemetery. Staff also recommends adjusting several existing fees to ensure consistency with similar fees.
Urban Runoff In-Lieu Fee
SMMC Chapter 7.10 Urban Runoff Pollution Mitigation allows a building permit applicant for a new development or redevelopment project in the City to pay an Urban Runoff Reduction Fee in-lieu of on-site installation of improvements to mitigate runoff from the project site. The fee proceeds are used to construct improvements on City property that would achieve the same level of runoff mitigation. The municipal code allows for yearly increases to the fee based on actual costs of City projects, but the fee has not been updated since 2010. Staff recommends that the fee increases be phased in over the next five years to ultimately reach actual construction costs. The proposed fee rates are as follows: Year1 (FY 2023/24) $12.27/gal; Year2 (FY 2024/25) $16.93/gal; Year3 (FY 2025/26) $21.60/gal; Year4 (FY 2026-27) $26.26/gal; Year5 (FY 2027/28) $30.92/gal).
Records and Election Services
Staff recommends that Council consider establishing three new election fees. The initiative fee is at the rate allowed by the California Elections Code (Chapter 3, Article 1, Section 9202), although it does not achieve recovery for the cost of administering an initiative process. The statement fees are the rates that Los Angeles County charges the City to ensure that the City recovers the cost of the services provided during the election process.
Council may elect to subsidize these fees partially or fully:
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• Initiative Fee: The proposed fee amount is $200.00.
• Candidate Statement Fee: City Council and Rent Control Board: The proposed fee amount is $1,100.00.
• Candidate Statement Fee: College and School Board: The proposed fee amount is $1,200.00.
Organizational Support Program
The City’s Organizational Support Program (OSP), managed by the Cultural Affairs Division, provides multi-year grants to the City’s resident arts and heritage nonprofits.
OSP funding helps secure Santa Monicans’ access to world-class cultural opportunities by directly supporting organizations’ operational expenses. The OSP application process was re-opened this year for the first time since 2019. Proposals were solicited for the grant period FY2023-25. A request for applications was distributed widely in December 2022; the City received 27 eligible submittals. Applications were reviewed by a diverse jury of arts professionals, including regional experts in each of the artistic/cultural disciplines represented in the applicant pool. Cultural Affairs Division staff reviewed applications for eligibility only; staff did not score applications.
During the last OSP cycle, in 2019, some of the eligibility requirements were eased to allow more organizations to apply, which resulted in an increase of small and mid-size organizations who tend to serve more diverse constituencies. These new grantees received a smaller “starter grant” because of budget limitations. Those limitations are ongoing, and the budget is further strained due to three new applicants entering the program this cycle. OSP funding is intended to provide a stable level of support for grantees year over year; the goal is to provide funding amounts that do not fluctuate wildly. Due to an anticipated flat budget for the program, staff recommends that new applicants begin with “starter grants,” while those who were new in the last cycle receive a slight increase based on the panel scoring, which will step them up toward the more traditional funding levels. Staff is recommending level funding for long-term organizations. This approach balances the critical mandates of equity with the realities of larger organizations, which are also very much in need after three years of pandemic 24 of 25
closures and restrictions. Together, the 21 cultural agencies recommended for this year’s grantee pool is more diverse than any in the history of the program.
The total funding level for FY2023-24 is $409,925, a 2% increase over 2019. Detailed information about the OSP, individual grant recommendations, and the 2022 Community Assessment which informed the grant process and staff’s recommendations, are detailed in the Organizational Support Program (OSP) Grants for Arts and Culture Nonprofits 2023-25 (Attachment D).
Next Steps
Council will convene a public hearing on June 27, 2023 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 23, 2023 Council meeting. Public testimony is also welcome at the Budget Adoption hearing on June 27, 2023.
Environmental Review
The FY 2023-25 Proposed Budget is categorically exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The Proposed Budget is covered by the common sense exemption which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” Therefore, it can be seen with certainty that actions would not result in adverse physical impacts on the environment, and as such, is categorically exempt from CEQA.
Financial Impacts and Budget Actions
The Fiscal Year 2023-2025 Proposed Biennial Budget is:
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• Citywide Expenditures: $740.9 million in FY 2023-2024 and $746.4 million in FY 2024-2025, net of reimbursements and transfers
• Citywide FTEs: 2,097.1 (2,003.2 permanent and 93.9 temporary) • Citywide Revenues: $747.2 million in FY 2023-2024 and $782.0 million in FY 2024-2025, net of reimbursements and transfers
Staff will integrate comments from the Study Session in the preparation of the budget that will come before the Council for adoption on June 27, 2023. At this meeting, staff will recommend adoption of the first year and approval of the second year of the FY 2023-25 Proposed Biennial Budget, as well as the adoption of the second year of the Capital Improvement Program Biennial Budget.
Prepared By: Oscar Santiago, Budget Manager
Approved Forwarded to Council
Attachments:
A. Attachment A - FY 2023-25 Proposed Biennial Budget
B. Attachment B - March 11 Council Workshop (Web Link)
C. Attachment C - Revisions to Fee Schedules FY 23-24 FINAL D. Attachment D - OSP 2023-25
E. Attachment D - OSP 2023 Community Assessment Report FINAL F. Written Comments
G. PowerPoint Presentation