City is solvent for now

When City Manager Ken Frank says the city is solvent, council members count on it.

The city manager, known to be financially conservative, reported Tuesday that the city has about $2.9 million more than expected. However, he advised the council in his mid-year budget report to reserve the windfall to carry the city through the next few years of recession and to expect some belt-tightening to keep the city on a even financial keel.

“If Ken says the city has money, you can take it to the bank,” Mayor Pro Tem Elizabeth Pearson said. “We are one of the few communities that are solvent.”

Frank said revenues were higher and expenses were lower than anticipated in fiscal year 2007-08, which resulted in the $2.9 million more than projected. And it can be put to good use in this challenging economy, according to Frank.

“By using the unanticipated surplus over the next two years, the city can maintain the same level of service to the community while most governmental agencies and private companies are re-trenching,” Frank said.

The City Council unanimously approved what Frank called a “Recession Smoothing Account” and allocated $2.5 million to the fund.

“It’s a good plan,” Councilwoman Jane Egly said.

Frank said the allocation would help balance the budgets for 1009-10 and 2010-11, getting the city most of the way through the recession.

He attributed the higher-than-anticipated balance to salary savings, primarily in the police department which was unable to fill vacancies; almost $500,000 additional property tax receipts; about $600,000 more than expected in investment earnings and Bed Tax revenue about $230,000 over projections.

That was the good news.

The bad news?

“This fiscal year, sales taxes appear to be coming in at almost 10% below last year’s level,” Frank reported. “In my 30 years, we have never had a 10 percent sales tax drop, maybe 1 or 2%. It is unheard of, in a town like Laguna.”

Frank also reported that bed taxes are down about 4% and the motor vehicle fee allocation from the state will be well below projections. And the state is charging the city some $65,000 more than was allocated for participation in the statewide monitoring of areas of special biological significance, of which the ocean-adjacent to Heisler Park is one.

“Unless there is a marked turnaround in the national economy, our best estimate at this point is for the first time in 30 years, revenues will be below budget estimates, probably in the neighborhood of $1 million.”

Frank predicted that by July 2012, the city will have gone from plus $2.5 million to minus $2.5 million, unless the city does something different.

He said there will be no increases in operating costs, but no cuts either.

Cost-saving measures were set to begin this week at City Hall, perhaps including a modified job freeze. One way or another, he plans to save $500,000.

The 2008-09 fiscal year is expected to end with general fund balance of $7.1 million, 15% of expenditures, not including the Recession Smoothing Account approved Tuesday.

BARBARA DIAMOND can be reached at (949) 494-4321 or [email protected].