Draft budget looms over council meeting

Barbara Diamond

A couple of black clouds hovering on the horizon could paint Laguna

into a financial corner next year.

“Two factors beyond the control of the City Council or the city staff

will determine the city’s financial health next fiscal year: the state’s

fiscal quagmire and a county court case,” City Manager Ken Frank said in

summing up the city’s proposed $31-million budget.

Frank will present the draft budget to the City Council at a workshop

and hearing set for 6 p.m., May 22.

A second hearing is scheduled for June 18, at which meeting the

council is expected to approve the budget. A balanced budget must be

adopted by July 1, the beginning of the new fiscal year.

Copies of the draft budget are available at City Hall and on the

city’s web site, o7 www.lagunabeachcity.netf7 , for public review.

“The last time the state faced a financial deficit in the early 1990s,

the state balanced its budget on the backs of the cities and counties,”

Frank said. “Next fiscal year, approximately $1.9 million in property tax

receipts will be transferred from the city of Laguna Beach to the state

because of budget adjustments made in the early 1990s.”

While most state officials have pledged not to usurp local revenues to

balance their budget, it wouldn’t shock Frank if they siphoned off as

much as $800,000 from vehicle-license fees or property taxes.

Frank also points to a legal case in which a taxpayer disputed the

county’s right to increase property taxes to make up for lean years.

Thanks to some fancy footwork by city staff, Laguna did not take as

hard a hit as other agencies.

“If the current court decision is allowed to stand, and if the

assessment methodology mandated the court by that decision is applied

throughout the county, the county auditor-controller has advised us that

Laguna Beach would loose about $800,000 each year in property taxes,”

Frank said. “Also, there could a one-time refund exceeding $1 million.”

The suit is not expected to be resolved for at least a year, but in

the meantime the auditor-controller could put some of the disputed funds

into an escrow account at any moment.

“Except for those two factors the city of Laguna Beach has a stable

financial base,” Frank said.

The city’s revenues have continued to grow despite the nationwide

economic turndown, particularly in travel-related industries. Due to a

conservative estimate of the city’s revenues in July and August of 2001,

the general fund balance enabled the council to complete several

high-priority projects and still have enough left over to balance the

2002-03 budget with no decrease in service, unless a worst possible case

scenario happens: the loss of $2.6 million from 2002-03 revenues.

If that happens, the council will have to consider cuts, Frank said.

He declined to speculate on specifics.

“I don’t know what is going to happen,” he said. “However, most of the

city’s money is in the police, fire and public works departments. Those

would be the ones affected, but I can’t say what precisely we would cut.

Or the council could raise parking fees, as has already been suggested.”

Forewarned is forearmed.

“I’ve already made a list of priorities I want to see funded,” said

Councilwoman Cheryl Kinsman.

Disagreement about spending

The proposed budget doesn’t include funding for some projects dear to

the hearts of council members and residents, but it does include projects

some folks see as unnecessary.

“You have a $20-million wish list and call it a shortfall, deficit or

whatever, it is a list of projects for which there is no money,” longtime

resident Arnold Hano told the City Council Tuesday. “With everything

going to 3rd Street for example, there really is no money for the Village

Entrance. It is not on the back burner. The cupboard is bare.”

Third Street is the site for the proposed senior and community centers

and underground parking from the Laguna Beach Community Clinic to Mermaid

Street.

“Take your wish list and break it into two lists: needs and greeds,”

Hano said. “What goes on the needs list? Matters of health, safety and

the general well-being of the community.”

He cited the corporation yard as a disgrace, unsafe for city

employees. A senior center, which the city would not pay to build or

maintain, would be “Jim dandy,” but not necessary. Nor did a community

center make his needs list.

Funding for low-cost housing, police, firefighters, lifeguards and the

vision process did.

Barring calamitous state or court decisions, Frank’s draft budget

anticipates general fund revenue of $29,741,790. That includes an

expected property tax increase of seven percent. The fund will begin the

fiscal year with a balance of $4,211,492.

Sales and bed taxes are projected to return to the level of one year

ago, based on Frank’s discussions with key hotel and restaurant operators

in town. However, rent from the Festival of Arts will be reduced

according to the last formal offer made by the city to the festival

board, still being negotiated.

Frank also assumed a $100,000 state grant for more police personnel

will be continued. If not, police staffing might have to be reviewed, he

said.

Spending could lower reserves

General fund spending is proposed at $30,568,340 -- about 5% above the

current fiscal year. The general fund will be bolstered by a $700,000

transfer from the parking fund, federal and state grants, but depleted by

a $1-million transfer to the Capital Improvement Fund for the community

center project.

Proposed expenditures would leave the general fund with a balance of

$3,184,942, only $128,000 above the 10% reserve mandated by the city’s

municipal code. Expenditures that dip into the reserve require a

four-vote majority by the council.

“I think the city could save money by contracting out some department

activities such as storm drain or sewer maintenance and parking meter

collection,” said Gary Alstot, president of the Laguna Beach Taxpayers

Assn. “Those would be a good start.”

The general fund could get another windfall if the city’s membership

in the El Toro Reuse Planning Authority costs less than the $200,000

proposed by Frank, about half the amount the city has paid in each of the

past two years.

However Kinsman, the city’s planning authority representative, said

Tuesday that challengers of Measure W, which allows only non-aviation

uses for the former Marine Air Base, have not yet thrown in the towel.

Anti-airport forces must remain on alert, she said.

Any spare change could be used to defray some of the costs of

relocating the sewer lines for the Laguna Canyon Channel project.

“Even with the proposed sewer rate increase, the sewer fund will have

virtually no reserve next year,” Frank said.

Significant changes in the city’s sewer division are in the works,

Frank added. The council has established major priorities for upcoming

budgets. Key proposals for next year:

* Spending approximately $1.6 million, half from federal grants, to

replace and reline damaged sewer mains, identified by videotape this

fiscal year;

* Allocating $750,000 to relocate conduits on Broadway in conjunction

with the channel project;

* Evaluation of the North Coast Interceptor and the sewer pump

stations.

Next year’s sewer budget is based on a 10% increase in residents’

sewer fees, starting July 1 and a 10% increase in the following fiscal

year.

No increase would be needed, according to Madeleine Visca, if the city

would curb its spending.

“In our lives, if we can’t make the mortgage payment, we give up the

frills,” Visca said. “I don’t think giving money to the arts should be a

No. 1 priority.”

Even with the rate increase, the city will delay some renovations of

the coastal treatment plant and $1 million will need to be allocated for

those expenses in the city’s 2003-04 budget.

Plenty of places to spend

Should further revenue become available in the 2002-03 fiscal year,

there are plenty of places to spend it, including hiring more staff or

subsidizing the city’s transit system.

Laguna Beach has the only municipal transit system in Orange County.

It is considered essential for students and seniors, not to mention

visitors during the festival season.

Additional costs are being incurred by the provision of nighttime

service through taxi vouchers, the addition of three summer trams and the

elimination of fares on the trams, which the council recently approved,

and the fee for a consultant to evaluate the routing of the trams.

The city’s parking fund remains healthy. Receipts are expected to

exceed expenses by an average of a half million even after transferring

$700,000 to the general fund, subsidizing the transit system and honoring

council commitments of $500,000 for the community center project and $1

million for an underground parking garage beneath the Laguna Beach

Community Clinic. The fund should contain approximately $1 million as of

June 30, 2003 that has not been allocated to a particular project.

One bright spot for budget watchers: Treasure Island.

“Assuming the hotel opens in January of next year, the city will start

getting an estimated $3 million a year in bed taxes in June of 2006 that

is not committed,” Frank said. “I am also estimating $300,000 a year in

property taxes for the city, $500,000 a year in property taxes for the

school district, $200,000 a year in sales taxes and about $600,000 a year

from the Business Improvement District Assessment.

“It’s an absolute gold mine, a fabulous deal for the city and the

school district.”

QUESTION

What should be in or out of the Laguna Beach city budget?