City officials are going to have to make deep cuts to balance the 2009-10 budget.
The proposed budget will be reviewed at a public workshop, set for 3 p.m. Tuesday. It is not balanced as required by law — it’s about $2.1 million out of whack.
“Before the [expected] adoption of the budget at the June 16 meeting, I will be recommending approximately $600,000 in cuts from this preliminary spending plan,” City Manager Ken Frank advised the council. “By waiting until June [to make cuts], we will know the most current revenue trends.”
And this time, Frank is not holding the state fully culpable for the city’s economic woes.
“For the first time in 30 years, revenue for the city will actually decline in the current year, compared to the previous fiscal year,” Frank said. “While a small rise in the property tax base is anticipated for next year, it pales in comparison to increases which the city has enjoyed for the last several budgets.”
Sales and hotel taxes also have declined from their zenith in fiscal year 2007-08.
Forecasting revenue is made more difficult by the turbulence in the current economic climate.
Nonetheless, a balanced budget must be adopted by June 30.
“The basic hallmark of next year’s budget is ‘NO,’” Frank said.
No increase in staffing or service; two vacant positions have been pared;
No increase to the materials and supplies accounts for any department;
No additional capital equipment and the capital outlay allowanced has declined from $601,000 this year to $165,000 next year;
No additional overtime, and allowances have been shaved slightly in most departments; and
No salary increases for hourly positions, except the lifeguards who are covered by a contract.
Moreover, programs in which the council has expressed interest are not included the proposed budget, which estimates expenditures from the General Fund of $47 million — give or take a $100,000 or so, and revenues of $44 million.
Dropped projects include webstreaming software, television coverage of Planning Commission meetings, winter homeless shelters, video technology for the police radar trailer and more downtown sidewalk steam cleanings.
Under the topic of expenditure highlights, Frank said there are none.
“We may have been too austere or we may have overestimated receipts in the coming year,” Frank said. “The mid-year budget update will be an opportunity for the City Council to retrench further, if necessary, if our revenue estimates do not reach fruition.”
Property taxes are the principal revenue source for Laguna.
Frank estimated the property tax will increase by 3%, compared to 6.9% in 2008-09 and a whopping 13.6% in 2004-05.
Frank said his estimate might be a tad aggressive because the county assessor has announced that the tax roll is likely to increase 1% and could actually go as low as minus 1% throughout the county.
The transient lodging tax — better known as the hotel bed tax — has surpassed sales tax as the second most lucrative revenue source for the city — and if the Montage Resort & Spa bed taxes were transferred from the Capital Improvement Fund to the General Fund, taxes from the hotels would almost double sales taxes.
Both revenue sources are expected to decline. Bed taxes by a projected 14% lower than in 2007-09; sales taxes by 18% from their high point in 2007-08.
Community Development Department fees will probably drop 20%, according to Frank.
Although Frank assumes the city’s primary revenue source will increase between 1% and 3%, contracts guarantee 5% salary increases to take effect July 1 for police, firefighters, municipal employees and seasonal lifeguards.
“That would be OK if sales and hotel taxes were not actually decreasing,” Frank said.
As a result of existing labor contracts and stable or declining revenue, the city is looking at an increasingly depressing financial picture for upcoming fiscal years:
Frank described it as austere, with the budget $2 million out of balance, a General Fund decline of 11%.
One bright spot, the $2.5 million Recession Smoothing Account, recommended by Frank last year and approved by the council, remains intact.
The deficit will reach about $3 about million, even with several positions pared. The entire Smoothy will be used, and the General Fund reserve will drop to 10%, the legal threshold.
City contributions to retirement funds are expected to increase because of investment losses, and the budget will be $5 million out of whack, which will require numerous layoffs and service cuts.
However, Frank advised, if salaries are not increased, attrition over the next two years would probably obviate the need for layoffs.
Some service cuts might be necessary, but probably not massive changes depending on the state of the economy and the extent of retirement rate increases.
The draft budget is posted on the city’s website, www.lagunabeachcity.net. Copies are also available for review in the city clerk’s office at City Hall and at the Laguna Beach Library.
Reporter BARBARA DIAMOND can be reached at (949) 380-4321 or email@example.com.