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Friday, July 23, 1999
In the Money
Good times have left many cities with budget surpluses. Officials
are funding projects and services slashed amid recession, but--fearing
another slump--also building reserves. That prompts calls for
tax cuts.
By DOUGLAS P. SHUIT, JULIE HA, ANNETTE KONDO,
Times Staff Writers
With the stock market booming,
property values rising and cash registers ringing up healthy
sales, the treasuries of many Southern California cities are
bursting with cash--and a host of new problems, mostly of the
happy variety.
Just a few years away from steep
budget cuts triggered by the recession of the early 1990s, many
cities have almost an embarrassment of riches.
Budget year surpluses created by
the infusion of sales tax dollars, building permit fees and sometimes
hefty interest earnings have presented cities with a new set
of questions, including:
What should they do with all the
money? Spend it? Save it for a rainy day? Give it back to taxpayers?
Perhaps more important, how do
cities convince skeptics that all the poor-mouthing they've done
in recent years still holds, even with soaring tax revenue?
"Cities are always raising
this question: Do they have enough money to stay afloat?"
said Jon Coupal of the Howard Jarvis Taxpayers Assn. "Clearly,
they do."
Here is a sketch of what is going
on in some cities across the region:
* Riverside is showing a surprisingly
hefty surplus of $10 million. The money has helped add $5 million
to the cash reserve and will help pay for repairs to city buildings,
expand library hours trimmed during the recession, and provide
city employees, who haven't had a pay increase in two years,
with raises of 8% to 10% over the next two years.
* Cerritos is sitting on a $150-million
cash reserve, enough to generate $11.5 million a year in interest
and help pay for a host of new programs, such as 300 new senior
housing units and a state-of-the-art city library.
* Camarillo, considered Ventura
County's cash cow, has amassed reserves of $54.5 million but
still has enough available cash to realign streets for better
traffic flow, spruce up downtown and plant 2,000 trees to celebrate
the year 2000.
* In Los Angeles County, L.A. is
considering using part of its windfall to build a new police
station in the San Fernando Valley. Pico Rivera, with a $7.2-million
surplus, is launching beautification and anti-cruising campaigns
and other projects. Manhattan Beach, which ended the last budget
year $3.5 million in the black, will put $3 million of that toward
a new $23-million police and fire station. In Compton, the improved
economy contributed to a more than 20% budget increase this year,
with money being used to improve basic services, such as pothole
repair, graffiti reduction, trash collection and tree trimming.
* Both old and new cities in the
Valley are sharing in the upsurge. Burbank, home to a number
of movie industry firms, tallied a $2.5-million surplus and is
forecasting annual revenue growth of 4% over the next five years
in part because of the film industry. Calabasas, incorporated
in 1991, has an $8-million reserve already, helped by a $1-million
surplus in its last budget, a figure that represents 10% of its
budget.
* In Orange County, Costa Mesa,
Buena Park, Irvine, Laguna Niguel and Anaheim are among cities
with surpluses. Irvine, helped by a surplus of $13.9 million
in the 1997-98 budget year, is devoting $3.8 million to its reserve,
$2.4 million to street and building repair and $1 million to
fighting the proposed El Toro airport.
The California
Taxpayers' Assn., a business lobbying group, has assigned someone
to clip news reports of municipal budget surpluses. The reports
are put into a newsletter, which gets distributed in the state
Capitol.
"We have been surprised, because
up here in the Capitol we see lobbyists for the cities pleading
for more money," said the association's Stephen J. Kroes.
"Yet everything we see looks positive."
Memories of Bad Times
Despite what seem like boom times,
budget writers are striking a cautionary note, mostly because
of still-fresh memories of deep cuts.
"Things are improving, but
they are still not as good as they should be," said Assemblyman
John Longville (D-Rialto), chairman of the Assembly Local Government
Committee and former mayor of Rialto in San Bernardino County.
"They simply are not as bad as they were."
As a result of the economic boom
of the 1980s, cities hit record sales tax collections in 1990
and 1991. Then they spent most of the 1990s digging themselves
out of a hole created by the worst recession in decades.
Exacerbating the problem was the
Legislature's massive transfer of property tax dollars from cities,
counties and special districts to schools, estimated at $3.6
billion annually. Long Beach, for example, estimates it is losing
$15 million annually in property taxes it would have received
had the tax shift not occurred.
Struggling to make ends meet, cities
cut library hours, reduced or eliminated park programs and slashed
staff through early retirement programs and layoffs.
"We can say now we are probably
fully recovered from the recession, but only in the sense that
we are seeing revenues restored to what they were eight or nine
years ago," said Jim Starbird, city manager in Glendale,
which racked up a $1.4-million surplus last year and has a $38-million
reserve.
"Over the last eight years,
we cut library hours significantly, our street and road maintenance
budget took a huge hit, staff reductions were made in many departments,"
he said. "We have $8 million in pent-up demands to restore
cuts we made to balance our budgets."
Riverside, experiencing a huge
building boom, finished the last budget year with a surplus.
But City Manager John Holmes said 460 jobs were trimmed during
the recession and there has not yet been any measurable growth
in the number of city employees.
Despite such laments, a backlash
is developing in Sacramento.
Moreno Valley in Riverside County
says pressure is already growing for cuts in the utility users
tax, one of several revenue sources that cities statewide relied
on to keep their budgets balanced.
Moreno Valley has a recent history
of running up deficits but finished its recent budget year $800,000
in the black. City Manager Gene Rogers says the money will help
pay for a new animal shelter and a fire station, as well as meet
other needs. But he said some people are clamoring to get rid
of the business tax and the utility tax.
It is too early to suggest that
conditions in the state are similar to those of the mid-1970s,
when rising taxes and huge surpluses piling up in Sacramento
spawned a rebellion climaxed by Proposition 13, which reduced
property tax collections the first year by 50%. But support is
building for a California constitutional amendment that would
permanently realign local government financing.
Some lawmakers and lobbyists in
Sacramento are using the surpluses to argue that cities may be
crying wolf when they plead for more aid from the Legislature.
Assemblyman Bret Granlund (R-Yucaipa)
said that when he researched local government budget numbers
nearly two years ago, he found that California's cities, counties
and special districts were sitting on cash reserves of $23 billion.
"I suspect that number has
gone up quite a bit because of the good economy," said Granlund,
arguing for a tax cut. "No matter where you look, you will
find vulgar displays of cash sitting around."
David Jones, revenue expert for
the League of California Cities, responded that municipal fortunes
can change suddenly with the next recession or tax shift proposed
by the Legislature.
"We are living in fear that
as soon as the state catches cold, we become the state's emergency
robbable bank," Jones said.
Exactly how much money cities are
sitting on is hard to determine. Most cities' fiscal years run
from July 1 to June 30, and it often takes months for them to
make a final accounting.
Not all cities are sharing in the
good fortune, and even among those that are, the situations can
vary widely. And some cities, such as Hawaiian Gardens, still
have chronic deficits.
How Much Is Enough?
In Long Beach, even though tax
collections are coming in better than forecast, there is still
a structural budget deficit left over from devastating recession-era
hits, such as a dramatic downsizing at the city's largest employer,
McDonnell Douglas. Aerospace and defense cutbacks led to the
loss of more than 58,000 jobs in the city.
Long Beach may be Exhibit A as
to why cities like large reserves. It first ran into serious
budget problems in the mid-1980s and was forced to use all of
its $40-million reserve. Once that was gone, the city had to
cut programs, eliminate services and begin raising fees to stay
afloat.
Just how large reserves should
remain is a matter of debate within cities.
Los Angeles, even though it has
by far the largest operating budget in the region, at $2.8 billion
annually, has one of the lowest reserves proportionally--about
2%. Another 2% is in a liability claims account to pay off adverse
court rulings or other claims against the city.
With pressing needs, such as catching
up with street repairs, Chief Administrative Officer Richard
Hart said the city would be hard-pressed to explain why it wants
to keep more money in the bank.
"There are a lot of demands
for the money," he said. "You have to decide how much
you can afford to set aside and balance that against the city's
needs."
Then there is Cerritos, which has
such a nice cushion that its $11.5 million a year in interest
payments from its $150-million reserve is its second-largest
source of money, after sales tax, and is enough to finance 20%
of the annual operating budget.
Arguments are made that cities
that accumulate large surpluses are not spending money, but new
Cerritos budget items include $5 million for 126 senior citizens
homes now under construction, a $2-million addition to the senior
center, and a dramatic expansion of the city's library, adding
space for 100,000 new volumes and one floor for a computer center.
What's more, the city likes to boast that it collects no utility
users tax, property tax or library or street lighting assessments.
"If we lowered our reserves, we'd have to raise some of
those taxes, like other cities," said City Manager Art Gallucci.
The source of the new money flowing
into city treasuries is as varied as the cities themselves.
Many report large gains in sales
tax collections, much of that spurred on by their courtship of
big retailers, multiplex movie chains and restaurants.
Auto sales in Glendale increased
10% last year, the city said. Calabasas has seen a jump of 50%
in its sales tax earnings since the upscale Commons shopping
center opened. Mayor Robert Sibilia said he was "flabbergasted"
by Calabasas' $1-million surplus. "It came at a really good
time," he said. "We just bought a park and bought the
property for our City Hall. We wouldn't do this if our reserves
weren't so strong."
Property values and construction,
particularly in outlying suburbs, are also generating hefty returns.
Santa Clarita's biggest revenue
increase, about $5.8 million in the just-completed budget year,
is from construction-related fees, such as building and engineering
permits, and inspection fees, the city says. On its shopping
list: a new auditorium at College of the Canyons and expansion
of the emergency room at Henry Mayo Newhall Memorial Hospital.
Manhattan Beach Finance Director
Bruce Moe said the city collected an unusually large surplus
of $3.5 million. He attributed the windfall to rising property
and sales tax collections but said he didn't expect the good
times to continue.
"Ordinarily, you might expect
a couple hundred thousand dollars [surplus], not anything like
what we saw last year," he said. "My guess is we won't
see another big surplus like that again."
Times staff writers Monte Morin
in Los Angeles and Ioana Patringenaru in Orange County, and correspondents
Michael Gottlieb in Thousand Oaks and Nancy Forrest, Roseann
Langlois and Brynn Mandel in Ventura County contributed to this
story.
Copyright Los Angeles Times