March 29, 2023 Breaking News, Latest News, and Videos

SMa.r.t. Column: Spending and Pension Policies Are Undermining Our City’s Future

Our guest columnist this week is Marc L. Verville. He is a native of Santa Monica, now lives in Sunset Park and has resided here for over a half century. He served as Vice President of Finance for both Warner Bros and the Walt Disney Company. Marc is deeply concerned about our city’s future. 

On May 28, 2019, the Council proposed a ten-year, $800M climate sustainability initiative.  At the time, they knew they were sitting on an unfunded pension liability of $448M.  And, they had disclosed it could easily balloon to over $700M with even a minor hiccup in CalPERS investment performance.  And, of course, CalPERS financial performance has fluctuated wildly in the last 5 years.  Starting in 2011, the City has made a total of $33.8M in supplemental payments to CalPERS simply to keep the unfunded liability to the current reported $448M.   In June 2019, the Council approved another ad hoc $45M pay down of the City’s pension unfunded liability along with some concessions to a subset of City employees.  However, combined with Covid-related skipped payments for the next two years, and increasing interest costs, this may only result in maintenance of the existing liability.  Meanwhile, a downside liability risk of around $700M+ remains, triggered by only slight underperformance of currently forecast CalPERS investments.

Potential Non-Resident Spending Could Hit $1.5 Billion…or More

Potential climate and pension spending works out to between $1.25 to $1.5M BILLION, to be funded over approximately 10 or so years as the climate initiative has been delayed, but not cancelled.  This, from a city with total annual revenues averaging ~$650M pre-Covid, and which will be $535M this year.   Moreover, the growth of the unfunded pension overhang far exceeds the growth of the city revenues.  The unfunded liability has climbed from 19% of our total annual city revenues in 2004 to almost 70% in 2018.  It will likely land between 80% and 90% in this Covid-constrained 2020, with reduced revenues and suspended CalPERS payments.  As it stands, the current pension deficit translates into a potential tax requirement of almost ~$9,000, and potentially up to ~$15,000 for every household in the city.   

And, let’s not even talk about the gargantuan subsidy requirements for the 6,152 affordable housing units the City wants to build over the next eight years since there is no Council pushback to the 6th Cycle RHNA state mandate.  And, btw, that subsidy is in large part due to developers getting out of meaningful (say Prop R’s 30%) inclusionary affordable production in their existing and planned projects, and shifts the burden to 100% affordable projects requiring huge City support.

Vicious Spiral?

This uncontrolled and myopic spending mentality is creating a financial vortex that is seriously undermining the residents’ future financial stability.  What all this will do is translate into an even larger drive for more revenue.  In this city, that means more hotels and mega projects which, in the best case, drive more socialized costs (i.e. that the projects themselves do not pay for) for services, infrastructure and degradation of our quality of life in congestion, reduced safety, and shuttered local businesses, to name but a few.  In the worst case, they will be built on outdated economic assumptions, deliver few, if any, of the imagined benefits, and become partially empty monuments to myopic agenda-driven thinking.

If nothing else, all this demonstrates three things – the absolute disconnect of resident interests to our city government decisions, a complete denial of financial reality, and the almost complete absence of competent fiscal management.

Potential Outcomes – Bankruptcy and City Employee vs. Resident Prioritization Conflicts

If this financial trajectory is not flattened and reversed, quickly, the only lifeline left for the city will be to declare bankruptcy.  What happens after that?  Likely replacement of the city employees defined benefit plans with shared risk plans.  The resistance against this would be huge.  In 2013, Stockton declared bankruptcy but still did not terminate the defined benefit pension plans.  Instead, they cut resident services, gutted the employee health care plans and raised taxes.  Two of the three actions directly hit the residents.  If Santa Monica’s Covid-induced budget cuts are any guide, there is no reason to believe that Santa Monica would react any differently.  This result places the resident interests against the public safety interests – one of the worst possible outcomes imaginable.  On top of that, the City’s borrowing costs would spike since its credit rating would be seriously degraded.

Is it not clear where this is going?  Is it not clear that we need to stop the vicious financial spiral we have entered and recreate financial stability and predictability for the residents?  

Where Do Residents Stand

The upshot – NONE of these increasing financial risks and taxpayer expenditures are, or will, translate into a more livable city or even sustainable (let alone better) quality of life for the residents.  Without achieving true financial sustainability scaled to the size of our resident base, there can be no environmental or any other kind of sustainability.  Period.  

We are entering a window in time where the absence of change will greatly magnify to the point of irreversibility, the financial risk and quality of life damage we are already living with.   We will be at-risk strangers in our own downtown.

What additional evidence do we need to determine that a new Council government direction is urgently needed to  refocus our city government back onto the residents?  If not this, then what?  

We need competence, experience, leadership, and integrity on our city council. The incumbents have failed. Vote for change this fall. SMart’s picks are de la Torre, Parra, Fonda-Bonardi, and Brock.

By Marc L Verville for SMart (Santa Monica Architects for a Responsible Tomorrow) 

Thane Roberts, Architect, Robert H. Taylor AIA, Ron Goldman FAIA, Architect, Dan Jansenson, Architect, Building and Fire-Life Safety Commission, Samuel Tolkin Architect, Mario Fonda-Bonardi, AIA, Planning Commissioner, Phil Brock, Santa Monica Arts Commission.

For previous articles see www.santamonicaarch.wordpress.com/writing

in News
Related Posts

Eight Santa Monica Police Activities League Youth Complete The Los Angeles Marathon

March 29, 2023

March 29, 2023

Setting a new PAL record for the Los Angeles Marathon, Jade Furukawa came in at 4 hours and 50 minutes...

Bystander Injured After Man Jumps from Third Floor of Santa Monica Place in Potential Suicide Attempt

March 29, 2023

March 29, 2023

Monday afternoon incident results in injuries to a woman in her 70s and a man in his 50s. By Sam...

Clippers Center Ivica Zubac Joins Students for Medical Simulation Training

March 29, 2023

March 29, 2023

Students gain hands-on experience with virtual reality tools, CPR training, and surgical equipment at Cedars-Sinai’s Women’s Guild Simulation Center For...

Santa Monica Hosts Active Aging Group Bike Ride for Older Adults

March 28, 2023

March 28, 2023

Event set for Thursday, March 30, to practice safe biking skills and the rules of the road Older adults in...

City Council Approves Land Use Amendments to Implement Housing Element

March 28, 2023

March 28, 2023

Amendments to zoning codes to support affordable housing production and streamline approval process The Santa Monica City Council has taken...

Changes Coming to Chautauqua and PCH to Address Traffic Congestion

March 28, 2023

March 28, 2023

Two changes coming to intersection of Chautauqua and PCH in late April Residents of Pacific Palisades can expect changes to...

“Hunger Cliff” Looms as CalFresh Benefits Come to an End in Southern California

March 27, 2023

March 27, 2023

Local food banks urge community support as Southern Californians face heightened food insecurity Local food banks in Southern California are...

Historic Santa Monica House with Rock ‘n’ Roll Past Hits the Market for $22.5M

March 27, 2023

March 27, 2023

The Witbeck House, a charming and beautifully preserved 1917 property with a recording studio used by musician Jackson Browne, is...

Community Corporation of Santa Monica Unveils New Affordable Housing Project in Pico Neighborhood

March 26, 2023

March 26, 2023

Brunson Terrace apartments will offer affordable housing and retail space for local businesses Community Corporation of Santa Monica has unveiled...

Los Angeles County Board of Supervisors Rejects Extension of Tenant Protections

March 26, 2023

March 26, 2023

County Board of Supervisors votes down measure affecting landlords in unincorporated areas. The Los Angeles County Board of Supervisors voted...

Santa Monica Pet Hotel Hosts Puppy-Friendly St. Patty’s Day Party

March 24, 2023

March 24, 2023

A new pet hotel in Santa Monica recently hosted a St. Patrick’s Day party for local dogs. Check out all...

Santa Monica Mountains Largest Ever Restoration Project Nears Completion After 7,000 Hours of Volunteer Work

March 24, 2023

March 24, 2023

Final planting event will be held Saturday, March 25 at 9 a.m. for the park’s largest ever restoration project After...

California Appeals Court Rules Uber and Lyft Can Classify Drivers as Independent Contractors

March 24, 2023

March 24, 2023

Proposition 22 exempted ride-share companies from certain labor laws, court rules in favor of the companies By Sam Catanzaro ​​A...

Film Review – Operation Fortune: Ruse de Guerre

March 24, 2023

March 24, 2023

FILM REVIEWOPERATION FORTUNE: Ruse de GuerreRated R114 MinutesReleased March 3rd Now that the season of weighty Oscar contender films is...

Santa Monica Uses Innovative Water Recycling Facility to Capture and Store Rainwater

March 23, 2023

March 23, 2023

City’s Sustainable Water Infrastructure Project reducing reliance on imported water and sets a model for future projects Santa Monica has...