Due to two shortfalls in anticipated revenue, the city’s operating budget deficit will increase to nearly $1 million, pressing the City Council to decide on how to manage the red ink in a mid-year budget review this fall.
The revenue shortfall comes from two different sources. In attempts to balance its own budget, state officials took possession of the city’s vehicle license fees revenues, totaling $85,000 this year, according to a report released last month by the city manager.
In addition, the county assessor also determined growth of property tax revenue assessments in Laguna Beach at 1.29 percent rather than the “working figure” of 2 percent the city used to estimate its 2011-12 budget. The more accurate assessor’s calculation reduces anticipated revenue from property taxes by $146,000, bringing property tax revenue to $21,289,000 as opposed to the anticipated amount of $21,435,000, Gavin Curran, the city’s finance director, said in calculations made this week.
Property taxes comprise the city’s largest source of revenue at 33 percent of the total $64.3 million budget. The next largest source comes from a 10-percent guest tax from local hotel and motel room rentals at $7.2 million, including $2.8 million from the Montage resort alone.
Last year, the city anticipated zero growth in property tax revenue, but also based budget figures on a best-case-scenario 2 percent growth. The city received a 1.8 percent increase in property tax revenue, which was higher than most cities in the county, reflecting still strong property values in Laguna. Every 1 percent change in property tax revenue in Laguna equals $210,000.
The two shortfalls total $231,000, boosting the city’s deficit to $935,000, up from an anticipated deficit of $704,000. Two corrections have already been made to the original deficit figure of $718,000, a $10,000 error in salary listings in the city’s water quality department and a permanent $4,500 cut in training, travel and fees allotment for the city manager, according to Gavin Curran, the city’s director of finance.
Rather than dipping into the city’s $3.9-million recession-smoothing account or its $4.7-million, 10-percent reserve fund, the city manager’s office indicated to city employees that there may be “expenditure reductions” to offset the increased deficit.