Tight assets, taut plan

Barbara Diamond

The 2005-06 draft city budget cuts pretty close to the bone.

Laguna will have to operate with an estimated income of

$55,552,850 and estimated expenditures of $56,316,350 in fiscal year

2005-06. The difference in revenue and spending is covered by a

starting balance of $9.6 million, according to a draft budget

prepared by City Manager Ken Frank.

He isn’t happy, but he isn’t ready to throw in the towel.

“If we are expected to maintain the current level of service, yes,

we are cutting close to the bone,” Frank said. “It’s not desperate,

but it is very tight and it’s worse [in] other places.”

San Francisco, he said, closes fire stations on a rotating basis

to save overtime. Richmond, despite its oil storage tanks, has laid

off firefighters.

Compared to some of the worst cases, Laguna is doing OK, Frank

said, but it certainly could be better. “Certainly we would like to

have more money for equipment, materials and supplies, but it is just

not there.”

Several factors have depreciated the city’s financial position,

said Frank. State cuts in property tax revenue have challenged

Frank’s legendary financial legerdemain. The cuts were approved by

the voters who overwhelmingly supported Proposition 1A.

“That measure allows the state to purloin another $1.3 billion

from cities, counties and special districts in the next fiscal year

to support its profligate spending habit,” Frank said.

Property taxes are the principal revenue source for Laguna, which

is more dependent on property taxes than virtually any other city in

the state, according to Frank.

“Laguna Beach will be tapped for $675,000 in property taxes next

year,” he said. “That loss exacerbates the difficulty in presenting a

balanced budget.”

City law requires the city manager to present a balanced budget to

the City Council by May 1.

In order to meet the requirement, Frank prepared a draft that

draws the line at increases in staffing, programs, and all but

minimal capital equipment outlays. Adjustments for inflation in

operating costs are described as “austere.”

Revenue and dedicated city funds must cover payroll, employee

pension and medical plans, emergency services, community services,

buying and servicing new city vehicles, cultural and community

programs, lighting city streets and cleaning them, protecting water

quality and repairing, replacing or constructing vital and

not-so-vital infrastructure, among other costs.

“On the positive side, Prop 1A effectively prevents future state

raids on cities, counties and special districts,” Frank said. “The

property tax transfer to the state will terminate on June 30, 2006.

Thereafter, the city will enjoy unfettered discretion in balancing

the municipal budget, and the state will have to confront its own

fiscal dilemma.”

Property tax rates also continue to increase at a comforting 8% a

year. The increase has exceeded that in the past two years, and in

fact has averaged 8.7% over the past decade, but the fiscally

conservative Frank never banks on the estimates.

The city almost always has a better-than-expected bankroll at the

mid-year budget evaluation, as a result of Frank’s propensity to

underestimate revenue and overestimate expenditures.

“Our [estimated] 8% increase in property taxes is a modestly

conservative projection, but it is still dependent upon substantial

increases in property values and an active real estate market,” Frank

said.

Meantime, city officials still have to contend with what Frank

describes as “pernicious increases” in employee retirement costs, due

to losses in the state public employee retirement system investment

portfolio. The 2005-06 costs to the city will be $536,000 higher than

the current year.

Other financial challenges to a balanced budget listed by Frank:

* Employee health costs have escalated faster than inflation for

several years, with a 15% increase assumed to start in January when

the municipal employee contract expires. Police and firefighters have

a contract in place.

* Workers compensation is costing the city about $2 million a

year, which Frank said he hopes has peaked.

* The abrupt cessation of Chevrolet’s donation of lifeguard

vehicles, which will now have to be purchased by the city.

* Maintenance of the Trapeze data retrieval system, which provides

public access to the city clerk’s records and the Community

Development Department files.

* $55,000 a year in additional expenditures for the countywide 800

MHz safety communications system, which was financially supported by

the county until the system was completed.

Expenditures from the city’s general fund -- the discretionary

funds available to the council -- are expected to total $36,880,050,

about 6.4% higher than last year “Unfortunately, in order to submit a

balanced budget, numerous worthwhile endeavors, which have been

initiated or endorsed by the council, are not recommended,” Frank

said.

No funding was included for a study of diagonal parking

($15,000-$20,000); a study of the Nyes Place truck ramp ($20,000);

consultation to keep South Coast Hospital in Laguna ($30,000); El

Toro Reuse Planning Authority ($25,000 outstanding in the current

year); design guidelines ($30,000); additional sidewalk cleaning

($13,000); or an undetermined amount for a contract being negotiated

with an association that represents the city’s hourly lifeguards. And

certainly not the $18-to-$20 million needed to plan and build the

village entrance.

In addition to these council-initiated items, Frank said, most

city departments would appreciate additional staff, reclassifications

of existing employees, more and/or newer vehicles, greater allowances

for equipment maintenance, computer services and other operating

expenses.

Additional funds must be directed to capital equipment

replacement, according to Frank’s memorandum to the council.

Frank excised most department requests from the budget for the

second consecutive year.

“Before any new, ongoing expenses are approved, the city needs to

provide adequate funding for the existing level of service,” Frank

said.

The draft budget is available for review in the city clerk’s

office at City Hall and at the Laguna Beach library. Copies may be

purchased in the finance department.

A budget workshop is scheduled for 9 a.m. May 7 in conference room

A at City Hall, 505 Forest Ave. For more information, call (949)

497-0705.