City reviews draft budget

Barbara Diamond

The news wasn’t good at the Budget Workshop Saturday -- but it wasn’t

the end of the world, either.

“This is the most austere year since 1992-93 when the state raided

our revenue,” City Manager Ken Frank said Saturday. “They are raiding

it again.”

The projected $35-million general fund must be balanced minus the

$675,000 the state will withhold from the city’s property taxes this

fiscal year, as well as next year, but other expenses are expected to

be down in 2005-06.

Gov. Arnold Schwarzenegger cut a deal in early May with the

cities, counties and special districts of California to withhold $1.3

billion in the next two years in return for his support for a

constitutional amendment to protect local property taxes in the

future. The legislature is grumbling about the deal, which it had not

approved as of Tuesday, but the local governments collected enough

signatures to put their version on the ballot with or without the

legislature’s version, Frank said.

Laguna Beach took the biggest per capita hit of any city.

“Thank God for property taxes,” Frank said.

Laguna Beach derives 44% of its income from property taxes, 16.4%

from fees for services, 12% from sales tax and 11% from bed taxes.

Frank has estimated an 8% increase in property taxes, a reflection

of increased values in Laguna Beach that doesn’t hurt homeowners

protected by Proposition 13.

“That is wonderful for property owners and it is wonderful for the

city manager,” Frank said. “It is the highest increase I have ever

estimated.”

He might also have thanked the Almighty for bed taxes, which the

city doesn’t share with the state and are approaching pre-Sept. 11

levels.

Sales-tax revenue, which otherwise would be flat, is expected to

increase slightly due to Montage Resort and Spa, the No. 1 producer

in the city, Frank said.

More than 35 residents showed up for the Saturday workshop, but

none of them had any suggestions on how to balance the pleas for

special projects and mandated expenditures with the limited revenue.

That task was left up to the three members of the City Council who

attended the meeting and the city manager who prepared the draft

budget.

Frank will bring a revised budget to the council at the June 15

meeting with a recommendation to tap into the city’s Contingency Fund

to relieve some of the pain of the state’s deep cut.

Councilmen Steve Dicterow and Wayne Baglin, who were absent from

the workshop Saturday, are expected to have some additional

recommendations.

The city will take an even bigger hit this year from the Employees

Retirement Fund -- a $1.3-million increase to make up for losses in

the state investment portfolio, over which the city has no control --

but city officials knew that was coming.

Benefits for emergency personnel will reach an all-time high with

the “3% at 50” formula. Laguna Beach is the last city in Orange

County to approve the formula, which is based on the employee’s

highest one-year salary, age of retirement and years served.

Workers’ compensation costs the city about $2 million a year, a

woe not singular to Laguna.

“On-the-job injuries are so loosely defined that an employer has

no chance of winning,” Frank said. “If a worker gets cancer -- it is

job-related -- even if he has smoked for 20 years. If he has a heart

attack, it is job-related, even if he is 100 pounds overweight.”

The cost to the city of health benefits also escalated for the

past several years, although the employees contribute for family

members.

At the same time, returns on city investments have decreased, due

to the economy, from a zenith of $1.7 million to $725,000.

Estimated general fund spending, over which the City Council has

discretion, totals $34,870,610 in the 2004-05 budget. Estimated

income is $33,748,300, $420,000 shy of anticipated expenditures.

Frank prepared the budget before he knew how much the state would

“purloin” from the city revenue.

He is legally required to submit a balanced budget to the City

Council by May 1. It must be approved before July 1.

Frank adopted several principles in order to submit a balanced

preliminary budget:

* No increase in full- or part-time staff hours, except Marine

Safety because of the timing of Labor Day.

* No new programs, services or initiatives.

* No inflationary adjustments in operating cost, except in rare

circumstances, such as fuel for the transit department, which Frank

said could not continue in subsequent years without adversely

impacting services.

* No capital outlay for any department, except for items that

could be financed from the current fiscal year’s budget surplus.

He did relent when he calculated the surplus from the budget and

will recommend some one-time expenditures.

In the meantime, Frank said the city has to find a way to live

with the $675,000 cut in revenue this year and next, in addition to

the $2 million a year lost to the city since the early 1990s by what

he dubs the state’s Shift and Shaft Federalism.

“I will look at all revenue and squeeze out what I can,” Frank

said.

Staff will be reduced by attrition, not firing, but he has asked

all department heads to selectively cut their budget requests by 1 to

1 1/2%, which translates to $70,000 each out of the requests from

the Fire Department and Public Works, $13,000 for the Cultural Arts

Department.

A proposed $16,000 cut in the Marine Safety Department request

comes in the face of department and public requests for additional

staffing.

Out of an audience of 35, 25 were there Saturday to support an

officer to enforce tide pool and beach regulations.

“The retaining wall is in the budget for 2009; we’d like it

sooner,” said Michael Hoag.

North Laguna resident Nancy Bushnell said if the city doesn’t

commit funds to help preserve the ocean and the beaches, visitors

would assume it wasn’t a priority.

Lucy Kramer, 11, and Ericka Davidson, 10, spoke alternately from a

prepared text. Kramer said they had heard of a time when the beaches

were far richer in shells, shellfish, tide pool animals and swimming

fish.

“There weren’t any rules about taking things home or killing

animals because no one knew then what we know now,” Kramer said.

Davidson told the council: “You must take the tax money you have

gotten from our parents and do more to protect Laguna’s shore. We

really care about this. Please show us you care about it too and hire

someone to protect our tide pools.”

All three council members said they support a tidewater

enforcement position.

“We all want a marine-safety officer to issue citations,” Mayor

Cheryl Kinsman said. “And we need more lifeguards, but we should get

help from elsewhere. It is not fair for us to pay for the three

million [beach visitors] who come here.

Pearson said the Open Space Fund, which is mandated to purchase

and preserve open space, should include the preservation of beaches

and tide pools.

“It is to our advantage to be poor right now,” Councilwoman Toni

Iseman said. “We can turn down requests. I don’t think we are that

poor. I think we can move things around and get past this bump.”

Iseman suggested one source of revenue would be to start parking

meters earlier. Evening hours could be extended during the summer

months.

Kinsman said she knows of at least one city that budgets on a

two-year cycle.

“Skipping the budget every other year saves time, untold hours,

but it takes more work to put it together,” Frank said. “We could not

come back every six months with changes.”

Under the current system, the budget approved by July 1 is

reviewed in December for additions and deletions. Frank suspected

that residents would not favor the less flexible and more opaque

two-year cycle.

The city manager suggested that another way to balance this budget

would be to borrow from other city funds. Some funds have already

been tapped to pay off Treasure Island Park and he wouldn’t recommend

taking anything out of the capital improvement fund because the city

is already about 10 years behind in projects.

“But about three or four years ago, when things were going good,

the council had the foresight to set up a $500,000 contingency fund

for emergencies,” said Frank.

The fund is over and above the legally required 10% reserve of the

general fund.

He will propose at the June 15 meeting to take $250,000 out to the

contingency fund at the beginning of the fiscal year, perhaps to

replace it in the mid-year budget review and borrow it again for the

2005-06 budget.

“If we don’t take the $250,000 out of the contingency fund we will

have to double the department cuts and that will be painful; it means

layoffs,” Frank said.

Iseman said take the whole $500,000 and get the city past the

current difficulties, which the always cautious city manager said

should ease somewhat beginning next year.

The preliminary budget maybe reviewed by the public on the city’s

web site https://www.lagunabeachcity.net or at the cashier’s counter

at City Hall.

Requests for community assistance grants will be considered

separately by a sub-committee of council members Baglin and Pearson

and submitted to the council for approval.