Addressing the 37.5% Budget Deficit

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 FY 2017-18 Plan Cover 

The City is faced with some difficult decisions ahead with respect to how we can create a balanced budget while effectively reducing our revenue base by 37.5 percent.  We must continue to pay for fire protection. Now, without a parcel tax to pay for those services, we must pull these monies from our existing general fund budget. If it wasn’t clear before, it will be clear in the coming months that there will be significant reductions in service levels to have a sustainable budget without 25% of current revenues. 

Now more than ever, the community must work together to accept and implement the outcome of the vote.  On July 1, the City must be operating on a balanced budget.  It’s important to understand what a 25% revenue reduction actually means to our budget.  With the parcel tax representing 25% of City revenue, City operations will need to be reduced 36% based on its new revenue base.  The City has a finite amount of reserves to rely upon to smooth the transition of budget reductions so the City Council and staff will need to start immediately determining how to implement savings and create a sustainable budget based on known resources between now and the new fiscal year.

Without an alternative for new funding has resulted in the City being in an immediate stage of crisis.  The crisis is immediate and it is based on long range economic uncertainty, the current challenge of maintaining financial stability and creating a sustainable plan, and the necessity to reduce the budget by 37.5%.   The residents of Palos Verdes Estates have come to rely on a range of excellent government services provided by a dedicated City staff.  Now, choices will be necessary and it is hoped that residents understand why reductions in government services are made.

This will be an open process, so our community has the ability to see actually how their tax dollars are being spent and, now, the changes in levels of service.  We look not only for guidance from the Council, but also the understanding of our residents as we begin to implement reductions. 

For the solving the crisis, the City Council’s policy direction is necessary in order to allocate City resources to priority needs.  On April 25, it is proposed that the City Council provide policy direction so staff can begin the response and recovery phase by developing budget alternatives for implementing a balanced budget on July 1. 

As the City goes through this process, it is relevant to understand that 64% ($8.6 million) of the City’s budget is allocated to personnel.  Therefore, for City operations and especially the Police Department, there is a point of diminishing returns.  In other words, at a specific point, due to a loss of a critical mass of personnel, the outcome is a "fait accompli."  With budget reductions and fiscal sustainability currently in question, the City is not able to recruit professionals looking for stable employment, employees start to send out resumes, and morale drops.  The City currently has had a very difficult – almost impossible time – recruiting officers and dispatchers, thus forcing overtime to maintain officer safety and minimum service levels because we have several vacancies along with personnel on medical or injury leave.  There is a threshold by which the vacancies, due to economic uncertainties will create the need to contract whether or not it is desired by community because service cannot be provided or officer safety is at risk.  Similarly, in non-safety areas, the savings necessary will not be accomplished by cutting corners; it will be by eliminating entire functions.  As staff leave to other jobs or are out for other reasons, there may be no viable alternative for the sustaining the function.

As will be explained in the coming months in preparation of the fiscal year 2017-18 budget, the City is already at bare bones for funding staff, contracts, equipment, technology, maintenance and capital projects.  Increases in the budget that aren’t for personnel approved by the Council have primarily been focused on projects.  The City also has large functional and capital needs for maintaining the quality, safety and character of services beyond the value of the tax revenue lost by not having a parcel tax.  Excess revenue goes into the capital improvement budget.  With using all available property tax revenue completely for operations, transfers for capital projects will discontinue.  Now, the community’s focus must be on sustaining basic services.

I would like to say that the organization recognizes that nothing is protected in the budget process upon which we are about to embark.  There is also little waste or excess to minimize the service level impact.  I’m proud of our City and its staff.  They have achieved the City Council’s expectations for excellent customer service and come to work every day with the sole motivation of serving the public and public interest in the best manner possible.  We are a small team, but we produce a lot within the constraints of the City’s limited financial resources. Our work product and volume of work compares to the best of cities.  

We have a challenging budget to balance, but it is manageable and the City will work though it in a strategic and thoughtful manner with the intent of not jeopardizing public safety, essential services, and residents’ quality of life.  We look forward to addressing it over the upcoming months.

Budget Overview Presentation CC 03.14.17
HdL Property Tax Presentation CC 03.14.17
Police Department Overview Presentation CC 03.14.17


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