Santa Monica Looks to the Future to Build Upon a Strong Financial Legacy
May 3, 2019 3:15 PM
by Rick Cole
Santa Monica has the 19th largest population among cities in Los Angeles County. It has the third largest budget. Our net worth is $1.6 billion, the second highest per capita in Southern California. We are one of fewer than a dozen cities in California with a AAA bond rating from all three of the nation’s credit agencies. Threatening our strong financial balance sheet, we also have an unfunded pension liability of $448 million.
None of this happened by accident. Actions have long term consequences. Forty years ago, civic leaders and City Manager John Altschuler deliberately sketched out an economic development plan that included replacing obsolete industrial uses with first-class office projects; reviving retail sales in the Downtown core, and promoting Santa Monica as a visitor destination beyond a day at the beach. Within a decade, then-Mayor Denny Zane, City Manager Jon Jalili, and property owners had launched the Third Street Promenade, the catalyst for Downtown revival. When earthquake disaster struck in 1994, Jalili, then-Mayor Judy Abdo, and local legislators pushed a law through in Sacramento that dramatically expanded the redevelopment zone in Santa Monica, opening a gusher of funding that went into rebuilding and expanding our infrastructure and creating affordable housing. Later, the City Council and City Managers supported successful tax measures in 1996, 1998, 2004, 2006, 2008, 2010 and 2106 to fund service enhancements and capital investment.
All these far-sighted actions – and more – laid the foundation for today’s strong city finances. Our first-class services, our modern facilities, and our competitive compensation are the product of civic leaders planning for the future.
On the other side, the most significant threat to our fiscal sustainability is rooted in decisions made long ago as well. Twenty years ago, public agencies throughout California made momentous decisions to enhance pension benefits. It began with SB 400. which passed the State Assembly by a vote of 70-7 and the State Senate by a unanimous 35-0 vote. Local agencies quickly jumped on board with retroactive benefit enhancements. Santa Monica boosted pension formulas for Police, Fire and civilian staff. Despite assurances from the president of CalPERS board that the original State law would not cost “a dime of additional taxpayer money,” the results were disastrous when investments cratered in the Great Recession.
Now we face equally momentous decisions that will have impacts for years to come. Despite worrisome signs, the economy is strong nationally, regionally and here in Santa Monica. Rents, home prices and the cost of living have risen well above the growth in incomes, especially for the poor and middle class. Yet new jobs and wealth are being created as technology transforms our lives and the way we do business. A year and a half ago, for example, an aspiring entrepreneur (who was working out of a WeWork space in Santa Monica) put a handful of scooters out on the street for rent using a phone app. Today, the company he started employs 570 staff members in the Colorado Center, operates in more than 100 cities internationally and is valued at well over a billion dollars.
In this new world, Santa Monica can’t stand still. We are at an inflection point. If we are to sustain our fiscal health in the next decade, now is the time to set a course for a government that works better and costs less – and tackles the biggest threat to our balance sheet, the huge unfunded pension liability.
Over the past several months we’ve been working toward doing just that – and over the next several weeks the City Council will be making key decisions on that direction. Our staff recommendations for the upcoming biannual budget make expense and revenue adjustments of $7.5 million in the first year and $4.9 million in the second year. Some of the savings go to our plan to eliminate our pension debt in 13 years, some go to balancing the shortfall between projected revenues and expenses and some are plowed back into making our government more efficient through investments in technology, equipment, facilities, training and staffing.
In days past, Santa Monica made far-sighted choices that we benefit from today. It also made some decisions, like enhancing pension benefits, which seemed right at the time – but failed to plan for hard times.
The decisions the Council makes between now and June 25 will impact those who live and work here for decades to come.
I hope you will take the time to pay attention to fully understand these decisions and the implications for our community and our shared future. We have prepared detailed outlines of the pension challenge and the six-year budget strategy for creating a government that works better and costs less. Take the time to read them and – as always – I welcome your feedback.
We stand on the foundation built by others. It is our turn to strengthen that foundation – so that those who come after us will have the same benefit we owe to those who came before us.