Recession Turns Redondo’s Prosperity to Fiscal Gloom : Government: City manager says spending must be tightened to avoid projected deficits that would average $2 million yearly.

Redondo Beach, whose economy for the past decade has been as sunny as the Southland skies, is in serious financial trouble and must tighten spending if it wants to avoid an average $2-million annual deficit in future years, the new city manager said Tuesday.

In a report to the City Council, which later this month begins debate on the 1991-92 budget, City Manager William Kirchhoff said the national recession, the state budget crisis and a decline in Defense Department spending have slowed the local economy, which is heavily dependent on housing sales and the aerospace business. The local slump, in turn, has cut into the property tax and sales tax revenues that fuel the municipal budget.

“If we were in the private sector, that would be known as being on the brink of bankruptcy,” Kirchhoff said. “The (financial) indicators are all moving the wrong way.”

Kirchhoff’s projections add Redondo Beach to a growing list of Southern California governments feeling the pinch of tough financial times after a decade of prosperity. Cities as large as Los Angeles and as small as Carson are grappling with projected deficits that have prompted widespread hiring freezes, layoffs and fee increases for everything from business licenses to flag football games.

The bad news, however, marked an especially tough reversal of fortune for Redondo Beach, whose municipal budget had flourished in the 1980s along with its booming beach economy. Assistant Manager Ken Simmons said that the city had not had to tighten its belt since the 1978 passage of Proposition 13, which slashed property taxes and forced drastic cuts in government throughout California.

Those last financial problems forced the city to lay off employees, a solution Kirchhoff said he is determined to avoid this time. Nonetheless, the current financial picture means the city once again will have to make some tough choices on which city services should be scaled back, which openings should go unfilled and which fees, if necessary, should be raised.

Kirchhoff told the council that, in recent years, Redondo Beach has been tempting fate by creating programs and approving personnel contracts that have obligated the city to spend more than it can expect to take in. Since 1988, he said, the city has had to dip into its reserves in order to balance its budget.

In fact, officials were midway through this fiscal year when they discovered the city was running so low on funds that, if action were not taken, the city would have ended the year $1.3 million in the red. Kirchhoff immediately froze 16 open positions and slashed travel and other spending. Those actions, plus a one-time insurance credit and repayment of an outstanding debt, took care of the projected shortfall and left the city with a $548,000 surplus for the current year, Simmons said.

But those budget woes barely had been rectified when Kirchhoff discovered a potential $1.85-million deficit for the next fiscal year, which starts July 1. Scrambling to head off that problem, officials applied this year’s savings to next year’s red ink, and proposed $950,560 worth of cuts. Those varied from a reduction in library book acquisitions to the deletion of stenographic services for the city attorney and treasurer. A plan to maintain the hiring freeze shaved another $672,000 from the proposed budget.

Last year, outgoing City Manager Tim Casey had warned the council that the ‘90s would not be as good to Redondo Beach as the booming ‘80s had been. Casey said then that the real estate market was beginning to slump and that talk of a national recession had begun.

When Casey left, one of the reasons the council turned to Kirchhoff was for his nationally recognized expertise in handling financial crises. Kirchhoff’s management during the early 1980s of the Denver suburb of Lakewood became the subject of a Harvard University case study on budget retrenchment. And in Arlington, Texas, his last post, he helped the city head off the worst of Texas’ economic downturn by similarly forecasting economic problems about a year in advance and taking financial precautions.

Kirchhoff’s handling of the upcoming Redondo Beach budget has reflected his experience. One of his first actions in Redondo Beach was to take a 4% pay cut in his $123,725 salary, which is part of the largest city manager’s compensation package in the South Bay. Later, when he had tabulated the results of his financial trend analysis, he briefed council members and the media days in advance that the economic news would not be good.

In his Tuesday report, Kirchhoff said that the city’s population--now about 60,000--has grown by only about 2% since 1986, and the makeup of the community hasn’t changed to require any great increase in public services. Yet the size of local government has continued to climb steadily. Since 1986, the city payroll has gone from 476 to 520 employees--a 9% increase at a cost to taxpayers of about $50,000 on average per employee.

Meanwhile, he said, inflation has eroded the city’s spending power, and existing funds have increasingly been encumbered by state law, bond covenants and grant requirements. The result, he said, is that, after adjusting for inflation, the city is spending less and less on each citizen and is losing flexibility in its spending.

The long-term remedy, Kirchhoff said, is to begin cutting personnel costs, which make up almost 80% of the municipal budget. He suggested that, in coming years, the city cut another 10 supervisorial positions through attrition. But he also recommended that the council should avoid layoffs and pay cuts at all costs.

“We have some dynamite and deserving employees here,” he said, “There’s no point in trying to solve the problem by balancing the budget on the backs of our employees.”

He also suggested that the city abandon the practice of waiving fees and absorbing operational costs for events sponsored by special interest groups--a step that council members acknowledged would be politically difficult. Each year, for example, the Lions Club, Project Touch and other groups sponsor fund-raisers and other festivities in city parks, often without being charged for police security and use of city facilities.

And, he said, the council might want to increase some fees and charges.

Council members said afterward that they were dismayed, but not surprised by the report.

“I knew we had problems, but then, that’s why we hired him,” said Councilman Stevan Colin.

Councilwoman Kay Horrell added: “Our expenses exceed our income, and that can’t go on.”

Redondo Beach is the latest in a growing number of cities to feel the pinch of recessionary times. This week, Redondo Beach City Manager William Kirchhoff spelled out for council members how the city’s financial indicators have been “running the wrong way”:

* Revenues: This fiscal year, the city was expected to take in $33.3 million, but dipped into its reserves for projected spending of $34.2 million. Until hiring and spending were frozen in April, the city’s financial situation for the coming fiscal year was similar, with only $35.1 million in projected revenues and $36.9 million in proposed spending.

* Inflation: On the face of it, the city’s sales tax and property tax revenues have steadily grown. But that’s not the case when adjusted for inflation. The $8 million in sales taxes the city took in this year is worth only about $6.2 million in 1986 dollars, and its $9 million in property tax revenues is worth only about $7 million.

* Budget Constraints: In 1986, only 30.8% of the city’s money was encumbered by state law, bond covenants and grant requirements. By 1990, that proportion had increased to 37%. Also, personnel costs have eaten up more and more of the city budget, rising from about 71% of all spending in 1987 to 79% in 1991.