Rancho P.V. Faces Tough Choices on Budget Deficit : Finances: Without higher taxes or service cuts, the upscale community will find itself $1.25 million in the red at the end of next fiscal year.

Without new taxes or more layoffs and cuts in services, financially troubled Rancho Palos Verdes faces a $1.25-million deficit next fiscal year, city officials said.

The projected shortfall represents 18% of the estimated $7-million general fund budget for fiscal 1992-93. It also comes at a time when the city has already laid off a fifth of its staff and made deep cuts in services in the struggle to balance this year’s budget, City Manager Paul Bussey said.

And, he noted, prospects are bleak for an easy solution. In a gloomy report to the City Council, Bussey said the general economy and other factors have left many cities, including Rancho Palos Verdes, “experiencing their worst fiscal crisis since the Great Depression of the 1930s.”

The affluent bedroom community, with its upscale, conservative reputation, has been known for low taxes and limited government since its incorporation in 1973.

It is the low tax base, combined with the impact of the recession and a $2-million bookkeeping error in the 1990-91 budget, that have put the city on the financial brink, officials acknowledge.

With the municipal election coming up Nov. 5, the fiscal crisis has moved into the spotlight, and the winners of the three council races have hard choices to make.

Options facing the six council candidates are higher taxes or fewer services. If the views of the present council are any indication, the campaign is likely to be heated.

“We are very close to the bottom of our barrel,” warned Councilwoman Jacki Bacharach, who has two more years on her current term. Although more cuts may be possible, she said, “there is no way we can carry the city into the future without more taxes.”

Mayor Douglas Hinchliffe agreed, saying he is afraid the heavy cuts made in the last fiscal year in staffing, street maintenance and other services are already hurting the city’s image.

“If we make more cuts, it will cost our residents far more money by depreciating the value of their homes,” Hinchliffe said. He leaves the council in November.

Not everyone agrees that higher taxes are needed or that the council should have the only say on tax issues. Councilman John McTaggart, up for reelection, said voters should decide on tax increases.

Councilman Robert Ryan, with two more years on his term, favors more cuts, not tax hikes. He singled out the parks and recreation budget and the cost of contracting out the city’s public works functions.

“It doesn’t make sense to be subsidizing finger painting, or to be contracting the city’s public works out to a private company when we could hire some retired engineer for a lot less money,” Ryan said.

Rancho Palos Verdes has traditionally handled few city services itself, instead contracting for fire, police, engineering and similar tasks. It has its own Parks and Recreation Department.

The current crisis was triggered by a $2-million accounting error made when the 1990-91 budget was prepared two years ago, Bussey said. He discovered the error soon after he was hired in June, 1990.

The city loaned the money to the Rancho Palos Verdes Redevelopment Agency to help fight landslides in Portuguese Bend and Abalone Cove. However, city staff failed to note the loan when the 1990-91 budget was drafted, and city officials thought they had $2 million more to spend than was available, Bussey said.

By the time the error was detected months later, city revenues were falling far behind projected income. Officials made up the difference by dipping into reserves and capital funds earmarked for roads and other building projects.

That error wasn’t the only problem. As Bussey noted, the city’s small tax base and low taxes mean fewer dollars in the general fund for streets, parks, planning, city administration, recreation and other services.

“We spend significantly less than our neighbors,” Bussey said. He determined that Rancho Palos Verdes is last among South Bay cities in per-capita spending.

Bussey said Torrance spends $763 a year per resident; Rolling Hills Estates, $459, and Rancho Palos Verdes, $179.

And there are other problems. The 1990 Census showed that the city has only 42,000 residents, down from 49,000 in 1980. As a result, its share of federal and state funds has been cut by $650,000, Bussey said.

The 1991-92 revenue shortfall was $1 million before the city laid off 10 of its 50 workers, cut street sweeping and maintenance, and dipped into reserves. By year’s end, Bussey said, the budget will balance and the city may have a small contingency fund.

But there are no reserves to help balance next year’s budget, he said. The current numbers show the city will fall $1.25 million short by June, 1993, if something isn’t done.

The council ordered Bussey to list additional cuts. The list includes eliminating 14 more jobs and cutting $737,900 from public works and $242,000 from parks and recreation. These and other possible cuts would mean eliminating entire services such as park and median maintenance.

Bussey is not recommending any cuts because “they would severely impact city services.”

The other alternative is to increase taxes. Bussey suggested several possibilities: creation of a city-wide assessment district, a parcel or utility tax, an increase in the hotel bed tax or increases in city service fees.

Although the final decision is up to the council, Bussey warned that some decisions must be made “as early as practicable” if the city is to “remain fiscally sound.”

Rancho Palos Verdes Budget Woes

Paul Bussey, city manager of Rancho Palos Verdes, has spent more than a year studying the fiscal condition of the city, where 1992-93 expenses are projected to surpass revenues by $1.25 million. Here are highlights from his recent report to the City Council.

What the city has done so far:

* Trimmed more than $1 million from the 1991-92 budget, including eliminating 10 positions.

* Transferred $1.4 million from the Capital Improvement Fund to the general fund.

* Transferred $800,000 from other set-aside funds to the general fund.

How Rancho Palos Verdes compares with other South Bay cities in per capita general fund expenditures:

Torrance: $763

Redondo Beach: $611

Manhattan Beach: $592

Rolling Hills Estates: $459

Palos Verdes Estates: $410

Rolling Hills: $377

Hawthorne: $277

Rancho Palos Verdes: $179

City staff’s suggestions for ways to increase revenues:

* Create a landscaping and lighting assessment district.

* Levy a parcel tax.

* Levy a utility users tax.

* Increase the hotel room tax from 6% to 10%.

* Increase city fees and service charges.

SOURCE: City Manager Paul Bussey