Just as Santa Monica officials received good news about growing revenues in the first half of its fiscal year, they were forced to consider that the city might absorb millions in additional costs with the elimination of its redevelopment agency.
The agency—set to be dissolved Feb. 1 as a result of a recent state Supreme Court ruling—currently provides 82 low-income seniors with $1.5 million in financial assistance for housing. When the agency is dismantled, the City Council could choose to pay for such programs out of its general fund instead.
“We’re not going to let people lose their housing,” said Councilman Kevin McKeown.
The decision will come amid signs that Santa Monica is emerging from the financial crisis that has devastated California and communities across the state.
In the first half of the fiscal year that began July 1, revenues from assessed property values grew 2.9 percent, tourism-related revenues ballooned 10 percent and business license fees were expected to increase by 4.7 percent over last year, and by more than what was projected when the budget was adopted in June. It did see a dip in its parking citation revenue.
The city now projects that general-fund revenues will exceed what was budgeted by $2.2 million in fiscal year 2011-12 and by $1.8 million in the next fiscal year, which ends in June 2013.
But on Dec. 29, the high court ruled to uphold a state law to eliminate redevelopment agencies. The decision requires that the agencies be replaced by "successor agencies" responsible for administering payments and carrying out existing development projects.
"The most prominent among [economic] threats is the new reality surrounding the elimination of redevelopment," said Santa Monica's acting finance director, Gigi Decavalles-Hughes. "It could tip the city into a deficit in a short time period."
Redevelopment agencies are entities that are separate from cities. They are funded by the increase in tax revenues generated by projects in their areas (Santa Monica has three redevelopment areas), known as tax "increment." The agencies use the revenue to invest in additional projects mainly in blighted parts of cities.
According to a state’s controller’s report, Santa Monica’s redevelopment agency spent nearly $3.9 million on administrative costs in fiscal year 2009-10, including on staffers who focus on development projects and whose salaries are funded solely through the agency.
Additionally, the elimination of redevelopment puts the city at risk of not receiving debt payments from the agency, said Decavalles-Hughes.
Shifting funding for such projects to the city's general fund could cause a $3.6-million deficit by 2015-16, she said.
“Undoing this machine that has served us so well will be complex and disturbing,” Councilman Robert Holbrook said.
He suggested to city staffers that they be aggressive in reducing spending. His comments came before the council voted 6-1 on Tuesday night to make mid-year ajdustments to the budget.
In total, the adjustments will cost an extra $2 million. There were more expenditures than the $2 million, but they will be offset by the higher-than-anticipated revenues, according to Decavalles-Hughes.
Primarily, the money will be spent on debt payments, as well as on recycling and staffing reorganizations.
Councilman Bobby Shriver cast the dissenting vote on the midyear adjustments. He said he was concerned that the staffing reorganization would result in raises, and he demanded a report about the costs to come before the City Council as soon as possible.