Early budget shows deficit

The preliminary budget for fiscal year 2010-11 shows a deficit of $1.2 million in the projected $46 million general fund, which pays 72% of the city’s bills and outlines the measures proposed to keep Laguna solvent.

Battered by the stagnant economy, the budget will be trimmed by reductions in staff, although not by layoffs, minor cuts in service and some employee compensations in order to balance municipal spending with revenue, as required by law.

“In short, balancing the budget for the 2010-11 fiscal year was ‘relatively’ painless compared to the state, counties and most other cities,” City Manager Frank stated in a memo to the council. “There are no layoffs, only minor reductions in services, no mandatory furloughs and no base salary cuts — in fact firefighters will receive a pay raise.”

The picture may be more red than rosy for the next four years, Frank said.

Unless the economy improves dramatically, he is predicting annual cuts of almost $3 million to fund the increases in the Public Employees Retirement System, generally identified as PERS.

The state’s financial situation and actions also could adversely affect the proposed budget that Frank sometimes refers to as a spending blueprint.

“Everything in this preliminary budget is based on the questionable premise that the state can somehow extricate itself from its interminable fiscal insolvency without abrogating money from municipalities — probably a Pollyanna-ish approach,” Frank advised the council. “Attempts have been made by the profligate state to steal gas tax revenues and transit funds, terminate grant programs, shift service requirements to cities and counties, and add or increase fees.”

However, the city must adopt a balanced budget by July 1.

Frank puts together the city’s budget with estimates of expenditures and income, which has definitely decreased during what he calls a pernicious economic downturn. On the other hand, Laguna is doing better than most communities, he said.

He anticipates that the general fund revenues in fiscal year 2010-11 will be virtually the same as in the current fiscal year, slightly more than $44 million, about $1.2 million less than projected expenditures, which will be covered by reserves.

Property taxes pay a lot of the bills and though the revenue has decreased, it is still the backbone of the city’s economy.

“Our budget is predicated on no change in property taxes,” Frank said.

But if the county tax assessor’s prediction of 1% to 3% decreases for most cities is correct and Laguna is one of them — which won’t be known until July — the council will have to reduce appropriations even more than the cuts recommended by Frank.

Each 1% increase or decrease in property tax revenue is worth about $200,000, Frank said.

If there is no change from Laguna’s 2009-10 tax receipts, the city will get about a 3.8% increase.

Transient occupancy taxes, better known as hotel bed taxes, are the city’s next best income producers.

“We are experiencing an 18% lower return from hotels than was generated in the 2007-08 fiscal year, which was the zenith for hotel operators in the community,” Frank said.

Sales tax revenue is down by an even higher margin — 24% from the 2007-08 high — and doesn’t appear to Frank to be improving in the next year.

The city will stay afloat by drawing down on a reserve fund approved by the council for exactly this financial quagmire.

Frank credits the council for its foresight.

“In the midyear budget report on Dec. 8, 2008, we had higher balances than expected and part of the recommendation was to establish a $2.5 million ‘recession smoothing’ fund,” Frank said.

Other financial challenges

Laguna’s firefighters are in the last year of a contract that gives them 5% raises and $25,000 in certification pay — $365,000 total.

The firefighters have not indicated a willingness to forgo that increase, Frank said.

To compensate for the firefighters’ raise, Frank proposed to cut the reserve program in half, eliminate exceptional performance pay, curtail the overtime budget, pare maintenance and operational accounts, eliminate any money to expand the fuel modification program and make no capital equipment purchases in the next fiscal year.

Part-time marine safety personnel gave up an increase due to start July and the Municipal Employees Assn. relinquished their previously negotiated 5% increases for fiscal years 2010-11 and 2011-12, but the municipal employees will get an increased retirement benefit, starting July 1, which will cost the city $405,000 annually.

“We had expected a significant number of retirements because of the benefit; but only five employees have agreed to retire in July even with a $10,000 incentive,” Frank said.

Attrition would help the city avoid layoffs.

Cost-saving steps:

 City department budgets will be held to 2009-10 levels, with unavoidable cost increases to covered by other departmental cuts.

 Three vacant positions have been eliminated: a civilian investigator, an office specialist in zoning and a street maintenance worker, reducing payroll by $250,000 a year.

 Two retiring recreation supervisors’ positions have been reclassified downward, saving about $40,000 a year.

 Marine protection officer’s work week were reduced to 24 hours.

“Over the next several years — unless there is a distinct upturn in the economy and/or compensation decreases for employees — about 25 to 30 additional positions will have to be excised from the budget,” Frank said.

All of the cuts are subject to council approval, which sometimes includes some horsetrading to keep pet projects funded.

The 220-page preliminary budget is available for public review at the Laguna Beach Library, 363 Glenneyre St. in the administration department at City Hall and on www.lagunabeachcity.net.

Frank’s proposed budget will be reviewed by the council at a public workshop scheduled for 3:30 to 5 p.m. May 4.

Approval is scheduled for the June 15 council meeting, which allows a 15-day grace period if needed before a balanced budget must be in place on July 1.