While economists are pegging the national economy to recover next year, the City of Santa Monica believes its own economy won’t reach pre-COVID revenue levels until 2025.
City staff presented the new five-year revenue projections to council this week. The numbers were based on actual revenues generated in the first half of the year and the impacts of the extended public health restrictions.
Last year, in the midst of historic volatility and the economic devastation brought on by the pandemic, staff’s forecast detailed an annual General Fund deficit of $48 million, $102 million and $74 million over the coming years. Officials cut more than 300 staff positions, reduced services and postponed expenses to handle the crisis.
The June 2020 forecast also anticipated that Stay at Home Orders would lift by July 1, 2020, and that the economy would have already begun a recovery process by January 2021; instead, surges in June and July and since the end of October have resulted in persistent restrictions and closures that have delayed the prospect of reopening and recovery.
As a result, Finance Department Director Gigi Decavalles-Hughes told Council Tuesday, “our research tells us that it will take additional time for economies like ours, which are reliant on the hospitality sector, to recover, so we expect to reach pre-COVID revenue levels in fiscal year 2025 — three years after the rest of the country.”
“But the important takeaway here is that by the end of the forecast period, if we are putting some money aside to take care of these very important things that will make us more resilient, we will have another $9.4 million at the end of that (five-year period),” Decavalles-Hughes added later in the meeting. And if you add that to the $3 million that will be set aside for reopening efforts, starting next year, the city could have $12 million available to address programs and services.
Interim City Manager Lane Dilg recognized the City’s Five Year Financial Forecast showed slow economic growth in an interview with the Daily Press last week but said it was important to recognize the City is no longer projecting deficits like so many other cities are in this moment.
“I think that what we see here is the projections put the city on a stable course through what is a very uncertain and volatile moment,” Dilg said. “I think the other thing we see is we remained fairly on target with our projections because, I feel, we’ve remained open to making adjustments within our current budget to continue to adjust to community needs in a very changing environment.”
However, with a new president in the White House, Dilg does believe there is reason to believe the city could see additional funds that will bolster local recovery efforts.
“Absent stimulus funds though, we are not in a position to add spending to our budget,” Dilg said, explaining how there are some years when the community can provide services and fund them with no hesitancy. “But this year, while we are in a very stable financial position, we need the community to be aware that there are constraints and we’ll have to work within the resources that are available to us. So, if people want new resources then there will have to be some tradeoffs.”
Decavalles-Hughes said it’s also important to remember it’s hard to predict the future.
“But what we can do is talk to many different experts, take a look at what is out there and make whatever determinations we can make based on them,” she said. “This year, we looked at the data as we do each year; we talked to the economist; we talked to our economic recovery team; and we’re talking to consultants about trends that they are seeing, so the process remains pretty much the same at its basic level. Obviously, the results are very different this year but planning and looking at the future is just as important now as we look at how we can refill our reserves… In the past, we had strong reserves and we’ve always been able to maintain them. At this point, it’s just about us needing to build back up.”