Starting a City More Expensive Than Expected : Spending: Proposed budget of $7.5 million is almost $2 million more than projected. A public hearing is scheduled for Tuesday.

Interim City Manager Bruce Spragg last week presented Malibu with a $7.5-million proposed budget that leaves $962,485 in reserve for emergencies.

The council has scheduled a workshop on the budget Tuesday at 7 p.m. to give the public its first chance to comment on the proposal. The budget is scheduled to be adopted on June 18.

City officials spent months juggling the estimated finances of a city that, three months ago, didn’t exist. “There are so many unknowns, it was tough to get a handle on,” said Councilman Mike Caggiano. “It was like trying to pick up a jellyfish.”

Spragg said he made hundreds of phone calls to state, county and local agencies to come up with estimates of what the city could expect to take in and spend. One of the toughest challenges, he said, was just figuring out who lived in Malibu and where the city’s property lines are. Spragg used voter registrations lists, utility bills, and all the maps he could get his hands on, and scratched the figure he got on stacks of papers that still sit on his desk and floor.

He used only a pocket calculator to finally figure the budget; the city didn’t have the money to hire an accountant.

Officials say the result is a budget as lean as they could make it--but still nearly $2 million higher than early estimates provided by the state agency in charge of approving incorporation.

In a report to the council, Spragg said the difference is due in part to higher-than-expected costs for law enforcement, which will account for nearly half of the city’s expenditures.

In a presentation this week to the City Council, Capt. Don Mauro of the Los Angeles County Sheriff’s Department, which will provide police service to Malibu, said the increased cost is due to inflation and the increase in traffic on Pacific Coast Highway.

Other big expenses are related to the costs of jump-starting a city and enforcing its moratorium on construction. These expenses include litigation, planning and building services, the drafting of a sewer study, and the creation of Malibu’s first General Plan, a blueprint for development.

Officials promise that most services will remain at present levels. The one addition to existing services is a $50,000 recreation fund that could increase programs for children. Most of the city’s services, which range from animal control to health, will still be provided by the county. The City Council this week signed several five-year contracts with the county for these services, and is expected to approve a final contract for health services next week.

Officials worry that services could suffer, however, if extensive litigation over the city’s construction moratorium consumes the reserve fund. “I’m sorry we don’t have more of a cushion. It’s tight,” said Councilwoman Carolyn Van Horn.

In Malibu, the reserve fund is, quite literally, a rainy-day fund. “If we have a bad rainy season and a large number of expenditures to clean up landslides, we might need to borrow money,” Caggiano said.

Van Horn and several of her colleagues blame the county for the city’s financial straits. “I lay it to the Board of Supervisors and their deliberate delaying,” she said, alluding to the several years it took for Malibu to become a city. Van Horn notes that key revenues, such as property taxes, are by law pegged to budget estimates prepared by the Local Agency Formation Commission, the state agency established to approve applications for cityhood.

As part of its analysis of whether Malibu was financially able to become self-sufficient, LAFCO put together an estimated budget for the city. By law, that budget is used in a new city’s first year as a basis for determining its share of local property taxes. Malibu officials complain that LAFCO figures are so outdated that they don’t reflect a big increase in property values.

Officials emphasized that the budget up for review Tuesday is “fluid” and will need to undergo constant changes in the next year as the fledgling city adjusts to its revenues. Spragg said the city may be forced to borrow money to stay afloat. “It’s been lean and mean, and I can’t promise that we’re out of the woods yet,” he said.

Malibu has not yet received any money from sales, property and utility taxes--three sources that are expected to make up 56% of the city’s revenues. So far the city has been making do with money that has trickled in from vehicle taxes, donations and hotel taxes, according to Spragg. In fact, Spragg, who has been working since September, did not get his first paycheck until last month. But officials predicted that after this coming fiscal year, an increase in revenues from property taxes will keep Malibu afloat.

The proposed budget includes the following expenses:

* $3.335 million for a contract with the Sheriff’s Department for law enforcement.

* $1.47 million for planning, development and building services, which a company currently provides to the city on an hourly basis. These costs are estimated to decrease once the city hires a permanent staff.

* $300,000 for litigation and $80,000 for city attorney salaries.

* $150,000 each for a waste-water study and the General Plan.