City facing financial crunch

Barbara Diamond

Laguna Beach is looking ahead to some hard financial times, despite

higher-than-anticipated revenue from property and sales taxes and

some substantial departmental savings this year.

“It’s not going to be fun,” City Manager Ken Frank said.

The financial setback is mostly not the city’s fault. The city has

$1 million more revenue this fiscal year than expected, with sales

taxes almost $200,000 higher than expected and property taxes

increasing by 10% rather than the 7% predicted by the notoriously

cautious city manager. Fees for planning and construction of new

homes were also up, and net expenditures were $600,000 lower, with

major savings in the fire and police departments and the city

attorney’s office.

However, the city lost about $1 million in anticipated income when

Gov. Arnold Schwarzenegger cut the automobile license fees -- a loss

that could be felt for many years.

“That made him a hero to millions of motorists, but it was local

money,” Frank said. “The governor has pledged to restore it, but that

needs action by the Legislature.”

On Thursday, there was a debate in Sacramento about

Schwarzenegger’s plan to send emergency payments to local governments

to make up for the license fee decrease. The plan could mean Laguna

won’t have to make as many cuts as is feared will be necessary.

Without the emergency funds from the state, Frank said the missing

funds would equate to the loss of 10 employees with benefits and

predicted staff reductions.

Even if the state restores the funds to the city, officials here

will still have to deal with an insurance fund deficit, which means

city officials will face some tough decisions, Frank warned.

“Unfortunately, the insurance fund is about $1 million out of whack,” Frank said.

He said the deficit was caused by new, more realistic projections

made by the city’s new workers compensation administrators.

The city also has had to make up for investment losses in the

state’s fund for employees’ retirement. CalPERS, as the fund is

known, announced Tuesday that it was filing a class-action lawsuit

against the New York Stock Exchange, claiming that illegal trading

practices have cost it millions of dollars.

“Looking forward to next year, the situation was already bad

because of the escalation in retirement benefits,” Frank said. “We

will have to reduce services.”

The city is not alone.

“Huntington Beach just laid off people,” Frank said. “Brea, one of

the richest cities in Orange County, laid off 14. Santa Ana has 50

vacancies.”

Frank said he hopes to avoid layoffs.

“We have instituted a hiring freeze,” Frank said.

When Community Development Department Director John Montgomery was

promoted from assistant director, that position was not filled. There

is also an opening the police department left vacant.

“We had already predicted staff reduction on July 1,” Frank said.

“It may be more than expected.”