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Santa Monica Is Shrinking City Government Because Of 'Devastating' Effects Of Coronavirus

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The following article was originally published May 6, 2020, and republished through a collaboration with KPCC and LAist.

Story by Libby Denkmann

Like most local governments, Santa Monica is facing long-term deficits that are only deepening as the coronavirus pandemic freezes the economy. Faced with plummeting tax revenues and a gaping budget hole, the city council voted Tuesday to lay off hundreds of workers.

"I know it hurts, but together we'll rebuild a healthy and resilient Santa Monica we can all be proud of," said Mayor Kevin McKeown in a statement announcing the vote.

Interim City Manager Lane Dilg says the dire fiscal situation is forcing an overall downsizing of city government.

"We were directed by city council, and took seriously, making cuts at all levels of the organization," Dilg said on KPCC's Take Two show. This will mean "running a slightly smaller government operation focused on the true needs of our community coming out of COVID-19," she added.

Nearly 250 Santa Monica workers will get layoff notices under the approved plan. Another 126 will leave through buyouts, while 150 on-call workers have already been dismissed.

Some of these positions may be preserved, a city spokesperson noted, pending union negotiations. City council members also have $2 million set aside to spend on preserving programs that further social justice and economic recovery, which could lessen job losses.

The city also identified $117 million in one-time reductions, tapping capital improvement projects and reserve funds.
 

A MASSIVE SHORTFALL

But the problem is immense. Santa Monica depends heavily on tourism, and the hotel, restaurant and retail tax revenue that generates — sources of funding that have been decimated.

The city's finance department is projecting a daunting, long-term budget shortfall that won't easily be bridged:

  • $48 million for the rest of this fiscal year, $102 million next year (starting July 1) and $74 million in FY 2021-22. That's a total of $224 million in deficits through June 2022.
     
  • In FY 2020-21: a 14% decrease in sales tax revenue, 42% drop in hotel occupancy taxes, and parking fees that will will be down nearly 22% this year, followed by 9% next year
     
  • A 23% reduction in the city's FY 2020-21 operating budget

These predictions are just the best guesses of city analysts. "It should be noted that these revenue estimates assume that no second virus shutdown occurs later in the fiscal year," a City Manager Staff Report notes. "A second shutdown would reduce revenues by approximately $10 million for each month of the shutdown."
Santa Monica's reliance on visitors — whether just for a day of shopping or tourists staying in town — along with a significant pension liability, has the city on its back foot responding to the economic calamity of the virus.

"We're simply facing unexpected and fairly devastating decreases," Dilg said.

More cuts are planned to services, including library, swim center and skate park hours. Some programs will be scaled down or dissolvedThe city will also have to stretch out a payment plan for its unfunded pension liabilities by a couple of additional years. The council plans to vote on these reductions later in the month.

Like most cities across the country, Santa Monica is appealing for state and federal help.

"If they're out there listening: we do need the funds. We need them now. Please send them," Dilg said.

Once all the cuts are approved, Santa Monica city staff will release a proposed budget May 26th. A final version must be adopted June 23, ahead of the new fiscal year beginning July 1.

The view to Santa Monica pier on a very quiet beach on March 25. | Taylor Coffman/LAist
The view to Santa Monica pier on a very quiet beach on March 25. | Taylor Coffman/LAist

BIG PICTURE: IS HELP COMING?

Senate Majority Leader Mitch McConnell and President Trump rejected aid for state and local governments in the last round of federal stimulus spending. The final version of the bill signed by President Trump April 24 included $321 billion to refill the coffers of the Paycheck Protection Program, guaranteeing loans to small businesses, and $25 billion to expand coronavirus testing.

Options for local leaders are limited.

States, counties and cities can apply to FEMA for disaster relief funding, which will potentially reimburse governments for up to 75% of spending on things like personal protective equipment, logistics management and medical response to COVID-19

An earlier version of the CARES Act, the pandemic relief bill passed by Congress, included $150 billion to help local governments with emergency spending. But cities with populations under 500,000 cannot apply directly to the Treasury for that money — and it's also restricted to costs directly tied to coronavirus and not available to cover tax revenue shortfalls that are gnawing away at local budgets.

Remarks by House Speaker Nancy Pelosi late last month foreshadowed a partisan showdown over the next round of congressional stimulus spending.

"There will not be a bill without state and local," Pelosi told reporters, according to the Associated Press.

Santa Monica leaders aren't counting on a bailout for cities of their size.

"We are working hard with our representatives to try to obtain some of those funds, but we're also aware that none of that is certain," Dilg said. "Quite honestly, what we're hearing right now — we're not optimistic."

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