City Officials Buckle Down to Hard Times : Government: A $3.5-million projected shortfall can be covered from reserves, but cuts are anticipated. Fiscal problems complicate paying for homeless task force recommendations.

Faced with a $3.5-million revenue shortfall this year and no respite in sight, the city of Santa Monica is hunkering down for its bitter taste of the recession.

Though the city has ample reserve funds to cover this fiscal year’s expected losses, City Manager John Jalili has asked department heads to pencil in 5% cuts as they start preparing next year’s budget, but only as a contingency measure.

“If it becomes necessary, we are ready,” Jalili said.

Jalili also is holding off on filling some vacant city positions to cut costs. He said there is no hiring freeze, at least not yet, just a “hiring patrol.” The city finance director has adopted the term “controlled salary savings.”

The revenue shortfall is hitting the city just as the City Council is looking for ways to pay for the ambitious package of social service and housing programs it endorsed last month, when it adopted the recommendations of the city’s homeless task force.

The extent of the problem was greeted with concern by City Council members, who just a month ago received a glowing report of the city’s financial health from Finance Director Mike Dennis.

Dennis noted that Santa Monica rated consistently among the nation’s top 50 cities in financial soundness, ranking second in revenues compared to expenditures and tied for sixth place nationally in bond rating.

But the period covered in that audit was for the fiscal year that ended June, 1991, and since then the recession has finally caught up with Santa Monica. Dennis said a recent economic forecast by UCLA predicted that the recession will not let up until the spring of 1993.

“We’re going to really have to start cutting,” said City Councilman Herb Katz. “I’m going to ask for a minimum of 10%. There’s no other choice.”

City Councilwoman Judy Abdo said she favored prudence.

“I think it should be taken very seriously and we should have contingency plans based on several possible scenarios,” she said.

Abdo and several other council members reaffirmed their commitment to doing what’s needed to manage the homeless situation in the city. She noted that the city was never expected to shoulder more than a portion of the capital and operating costs of the programs.

The projected revenue shortfall in the $191-million budget for the 1991-92 fiscal year comes from a variety of reductions, Jalili said. The biggest single item is sales tax revenues, which are expected to be $2 million short of projections for the year as a result of slumping retail sales. Another $700,000 in expected bed tax revenue from hotels has not materialized, mostly because the Park Hyatt Hotel, which had been expected to be operating by now, has not been completed.

As a result of the moribund real estate market, $300,000 in expected property transfer tax revenue has been lost to the city. Finally, the state decided to take half of the city’s revenue from moving traffic violations to help resolve its own financial difficulties, which also cost the city $300,000. Miscellaneous small items round out the $3.5 million.

Jalili said the city had prepared for this downturn during the past few years by adding to its cash reserves. “While other cities were draining their general fund reserves, we added to ours last year,” he said.

The $9.5 million in current reserves would go down by more than a third to make up for the expected revenue deficit, leaving a $6-million cushion.

Jalili explained that, unlike some cities, Santa Monica has a multi-year financial plan for stability and to avoid crises that lead to curtailed services, layoffs and empty reserve funds.

The homeless task force has already asked for $500,000 of the city’s reserves to jump-start the housing and service programs. News of the city’s financial position has raised concern among task force members that their plan will face stiff competition from other budget priorities.

“What the city council is going to have to do is decide what the city’s priorities are and fund accordingly,” said Dan Kingsley, Homeless Task Force co-chairman. “It’s the classic political balancing act.”

The task force has taken steps to ensure that its comprehensive recommendations do not get short shrift in a time of belt tightening. Task force member Daphne Dennis has been delegated to appear at a Jan. 28 preliminary City Council hearing, open to anyone who wants to speak to the council on what next year’s financial priorities should be.

At a similar hearing last year, a representative of the Santa Monica Chamber of Commerce advised caution, predicting this would be a rotten year for business and the city would suffer from it. The prevailing view, however, was that Santa Monica, with its diverse economy and strong financial position, was nearly recession proof.

“They found out that’s a lot of hogwash,” said Dave Paradis, executive director of the Santa Monica chamber.