Council approves budget despite deficit

Laguna Beach will likely spend slightly more than the city takes in next fiscal year, but city officials said they have the deficit-spending covered.

The City Council on Tuesday adopted a $67-million budget with a deficit of $718,100, which is offset by the starting balance for the new fiscal year.

The expenditure is backed up by the city's untouched Recession Smoothing Account, set aside in 2008, and a city-mandated 10% reserve fund.

"Laguna Beach is in much better shape than other communities," City Manager John Pietig said.

However, the city's future financial position is dependent on some factors not under its control, including recovering from the recession, Pietig warned the council.

"This is not a typical recession," Pietig said. "And it will continue much longer than the average recession."

He described the usual recession as a V, a steep drop and a steep recovery. Pietig said the current recession is more like an L, with the same deep drop, but a different recovery pattern.

"The growth rate will continue to be below average," Pietig said. "Banks are unwilling to lend money and buyers are reluctant in these uncertain times.

"We have to be prepared for the long term. Unless there is a sustainable economic recovery leading to a long-term increase in revenues, the city will need to cut approximately $2.1 million from future budgets."

Laguna is facing increases in the cost of employee retirement and health care. Negotiations are underway with employee unions, which in some cases have forgone raises in the past three years.

The city has also eliminated 10 positions, without any layoffs, furloughs or significant reduction in service, Pietig said.

No salary increases were recommended or approved for the next fiscal year.

City Treasurer Laura Parisi's annual request to have her hours increased to full time was voted down 3 to 2. Mayor Pro Tem Jane Egly and Councilwoman Verna Rollinger reviewed the request but split on the recommendation.

Rollinger supported the request. Egly voted with council members Kelly Boyd and Elizabeth Pearson against the increased hours, which was estimated to cost an addition $53,000, including benefits.

"I can't vote for this," Boyd said. "If Laura is having a hard time with her duties, we can move some of them over to the Finance Department."

Of more immediate concern: The unresolved California budget could have an adverse effect on the city's budget, which includes a $100,000 state grant to fund Police Department jobs.

If the grant is eliminated, the council will have to revisit the city budget early in the fiscal year that begins July 1, Pietig said.

Another cloud on the city's financial horizon is the amount of revenue that will be generated from property taxes, which account for more than 56% of the city's spendable income.

The city is estimating a 2% increase over 2010-11, but the county assessor is predicting a lower amount; final calculations won't be available until July.

However, the city's share has consistently beaten, even if not by much, county projections, city officials said.

Each 1% represents a $210,000 shift up or down in the General Fund, which is the spent at the council's discretion.

Revenue also comes from hotel bed taxes, expected this fiscal year to bring in $4.4 million, or 9.8% of the city's total income.

Sales taxes are forecast at $3.1 million. Both revenue sources are well below their highs, as is the estimated revenue from property taxes.

The adopted budget included some projects prioritized by the council at the budget workshop in May:

•$60,000 for a lobbyist for federal grants

•$30,000 for a hazard mitigation plan for the Federal Emergency Management Agency

•$100,000 for a parking study, rather than a vacancy sign for the Glenneyre Parking Structure

•$300,000 for a public pathways and Complete Streets Project, to be funded by taking the money for construction of the Sun Valley Debris Basin from the city's Disaster Relief Fund

•$224,500 in community assistance grants, funded by lease payments from the Festival of Arts

The approved budget is available at or at City Hall.

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