The second episode of our Mayor’s Roundtable podcast features Former Mayor Gleam Davis and activist and researcher Juan Matute. While the focus of this podcast is the city’s annual budget, there’s also a really interesting mini-discussion at about the eighteen minute mark where we discuss the future of the Civic, Airport (and Airport Park) and how either or both of those properites could be part of the solution for the city’s ongoing budget deficit.

A full, but lightly edited, transcript of the podcast can be found below.

Damien Newton – I’m here with Juan Matute and Gleam Davis, and we are going to be talking about the Santa Monica budget. Let’s start off with just a very brief overview of how it works. I admitted in the pre-show that last year when I was covering the budget, I didn’t quite understand why we do a two-year budget every year because obviously you’re going to be making changes the following year. 

I was embarrassed to ask anyone why because everyone else seemed to think it was normal. But let’s just assume that I know what I’m talking about today, but still think it would be great for people listening to the podcast to hear why is it that Santa Monica passes a two-year budget every year?

Gleam Davis – Well, maybe I’ll start and Juan can add in. And thanks, Damian, for having us. When Rick Cole was city manager several years ago, it was decided that going through the entire budget process every year was tremendously inefficient.

The budget process requires every department to do a work plan, and submit a budget to the city manager’s office. The city manager then has to deal with it. The idea was that, and best practice really among a lot of governmental agencies is to do what is effectively a two-year budget so that the work plans were only really being revised every couple of years. Also, the heavy duty lifting in terms of council study sessions about the budget only had to happen every two years.

Unfortunately, under California state law, the city is required to adopt a budget every year. So they budget in a two-year cycle, but they still have to adopt a budget on an annual basis. And that’s just a legal requirement.

And simply because circumstances change, you adopt a budget, say, in an even year and you go to adopt a budget in an odd year: revenues may be up, revenues may be down. So there always have to be some annual adjustments.

And that’s what happens in the annual budget cycle.

Juan Matute – That is for the operating budget, which is the current expenses, staff, staff contracts, supplies, et cetera. ah The city also has a capital improvement program, a five-year capital project budget, and it can work on those needs in the off year.

And so this idea of having the operating year and then the capital year, the capital year is less intense because there’s really a long-term need there with the capital projects. It’s a long-term investment plan. It allows the city to shift its focus between those two things in a way that, so the City of Los Angeles does not do a citywide capital improvement ah programming process, capital budget, and they lose sight often of the capital needs.

They are ending up doing a lot of deferred maintenance and underinvestment in infrastructure in the City of LA that, prior to our current budget situation, was less of a problem in Santa Monica and something that was very much reflected in the quality of infrastructure and the built environment in Santa Monica versus the city of Los Angeles.

DN – So they pass a two-year budget, but they still have to look at the budget again every year just because there’s going to be changes and all of that. When I report on it, I haven’t tried to look out and do the second year. Am I doing a disservice? Do I need to change my style?

GD – Well, no, because, you know, the situation on the ground changes and there are budget adjustments constantly. One of the procedural things about the city council is once it adopts a budget at the end of June every year, to make any intermediate changes between the adoption of the new budget the next year takes five votes of the city council.

The reason is that you don’t want to be changing your budget too frequently on the fly. And I’ll be honest, in some of our political times in the last few years, that requirement has saved us from potential problems.

People still tend to think of the budget as just being the year ahead. It really is just a methodology that allows staff not to have to do what is a very intensive process every 12 months, break it out every 24 months, and then really just do adjustments depending on if revenues go up, revenues go down, expenditures go up, expenditures go down, that sort of thing.

So I think looking one year in advance is probably the most accurate way to do it.

It really is more of an efficiency issue than a policy issue, if that makes sense.

JM – And there’s a built-in mid-year budget review in December to do minor course corrections as needed. It’s not like 24 months, set it and forget it, or 12 months, set and forget it. There’s an established process for when revenues are down, revenues are up. There’s this need that we have accepted this grant and so that moves this funding from X to Z.

DN – Let’s talk a little bit. Santa Monica has some unique things in its budget, some challenges from lawsuit settlements and all sorts of other money that’s set in stone and then it’s got some flexibility. But in reality, there’s not a lot of maneuvering that can be done with the budget, as I understand it because there’s a lot of payments that have to happen. 

The city is facing some significant budget challenges because of tourism dropping off. It looked like it was rebounding. But I keep hearing that foreign tourists aren’t all that interested in coming to America these days for some reason.

Let’s talk about the challenges and some of the things the city has to deal with.

GD – The big challenge is there isn’t much discretionary money. Like most human institutions, the vast majority of the city’s budget, the operational budget, not the capital budget, goes to pay the salary of staff. 

Even though our staff is significantly reduced from pre-COVID times, that is still the bulk of the budget. We have the overhang of the Eric Euler sex abuse settlements and some other potential larger liabilities hanging down there. And the city needs to be financially prudent. And that means protecting its reserve fund and what it calls the rainy day fund.

Should there be some sort of catastrophe, an earthquake or what happened in the Palisades with the fires, that the city has the resources to address an unanticipated but costly catastrophe.

The big challenge is not having enough money. We have a council, which for the most part, I think is very smart and has some really good ideas.

You have a couple of council members who unfortunately had their hands tied for a couple of years. Now that they have a more sympathetic council, they would like to do some  positive stuff. And there isn’t really the money to support that. And you have four new council members who got elected because they want to do good things for the city. And, you know, they’re being told by staff there isn’t money for a lot of those good things. So that’s really the challenge they’re facing.

But I think they’re trying to adopt some policies and procedures that might make it possible to do some innovative things even in this current budget crisis.

JM – On a multi-year decadal cycle, Santa Monica’s budget is really related to tourism, retail activity, and associated activities. And so with the rise of the Promenade in the 80s-90s, the city’s budget increased substantially in the 2000s and 2010s, primarily due to the transient occupancy tax, which is a tax on people staying in hotels.

That ebbs and flows with the, both the global economy, visitors, tourists, and also just the strength of “Santa Monica as a great place to go.”

That’s been challenged post COVID and continues to be challenged with the fires and other things. Fortunately we’re in a mega world city and we’re right near one of the top five airports in the world for people getting off the plane and actually staying in the city.

There is an opportunity to grow tourism in Santa Monica and improve the financial footing of the city.

But the city was doing a long-term planning exercise prior to COVID. about whether tourism or some other economic sector would be worth supporting into the future. And that got about 80, 90% done and it remains unfinished.

Now we guess it’s not tourism, but maybe we could make it tourism again, but maybe it ends up being biotech or creative industries or other things.

And so the city is kind of in this period where it’s trying to figure out where that revenue growth is going to come from in the future based on underlying economic activity in the city.

But we haven’t figured it out yet.

GD – Tourism is really the bedrock of the Santa Monica economy. The most recent estimate is that if we didn’t have tourism, there would be a deficit of about $1,300 to $1,500 per household in terms of the city budget and nobody in the city wants to cough up another $1,300 to $1,500 to pay for a basic level of services. 

There is some optimism on the horizon, and whether you call it tourism or just regional events…SoFi Stadium is a beautiful big stadium. The Intuit Dome is big and beautiful and new and exciting. And there’s all sorts of attractions around us.

The good news is that while there are many attractions, there aren’t that many pockets of places for people who are going to expensive events to stay. Nobody who’s paying $5,000 to go see a World Cup game is probably going to stay in Inglewood.

In Marina Del Rey, the hotel situation there has deteriorated over time. So even with international tourism down, Santa Monica remains well placed to benefit from that. 

I will tell you, revenues went up dramatically when Taylor Swift and Beyonce played at SoFi. People stayed in the hotels and when they stay in our hotels, they eat in our restaurants and they shop in our stores. 

While we want to obviously continue to promote tourism there are external factors, as you pointed out, Damien, like a president who’s hostile to people who want to come here and ah concerns about visa issues.

There are ways we can work around it. And as Juan points out, we can look for other opportunities as well. But it’s just going to take some effort. And I think that’s one thing the city really needs to work on more is being more thoughtful and intentional about what it wants its economy to look like.

DN – Is there anything that’s sticking out as sort of the big controversial item or items that the council is going to be tackling in the budget? Or do we expect that for the most part, this is going to be a smooth-ish process with a council that has been on the same page for the most part for a lot of the early discussions, not just about the budget, but about other issues as they come up. A lot of 7-0 votes, 6-1 votes.

JM – I think there’s really interesting stuff going on right now that not neither of us know about because it’s one of those things that under California’s Brown Act can happen behind closed doors.

And that is the collective bargaining agreements with the various employer groups for the city. Those are all labor negotiations that happen in closed session with the city attorneys and labor negotiators.

Some of those contracts are very good for the people who are working under them, but perhaps less great for the people in Santa Monica who want a certain level of service ah per per dollar that the city has. 

I know one of one of the things that’s cited amongst people I talked to is that the Santa Monica Police Officers Association that represents the line sworn police officers has had a clause in their contract for about 40 years where they’re the second most highly paid officers of a group of 10 or so police forces in Los Angeles County.

So as other places that have other sources of revenue besides tourism and sales tax, are able to offer raises to their police officers in Santa Monica.

We’ve also had to give them raises, even if we haven’t had the money. That creates some of these challenges. Of course, it compounds with the legal settlement from the sex abuse at the Police Activities League in the 90s.

Those are settlements that happen in closed session. So I think we see seven no votes and a lot of alignment ah in public meetings.

But there are very important and consequential things that are going on right now that will affect the ability of the city to use some, potentially some money or no money on meeting current priorities as the budget comes to final adoption.

GD – I do think there could be some controversial things. I think it depends on what the appetite is of the city council for that level of controversy. The fact of the matter is that ah the city’s already exploring on the upcoming agenda…they have a item to enter into a contract with a brokerage to sell a couple of city properties that will raise some money for the city, but selling, for example, the city TV property on 19th Street will raise a few million dollars, but isn’t going to solve the $100 million dollar hole in the budget.

There are ways to address that. The one that gets spoken about occasionally is the Civic Center property. 

The land mark building on it, that property is of marginal value to the city economically. 

I understand a lot of people are attached to it, have a tremendous amount of nostalgia, and attach a value to it. But monetarily, the presence of that landmark building really causes the value of that property to be much lesser than it would be if it were just a blank piece of land.

If the building were not there, it’s my understanding the property would be worth three times what it is with the civic sitting on it. And it’s a valuable enough piece of property that if you were to put it on the market without the civic, you could probably go a long way towards filling the budget hole the Eric Euler settlements have done. It’s similarly true with the airport.

Depending on who you talk to there’s 190-200 acres out there. 15 acres of it is within the city of Los Angeles and subject to city of LA zoning.

So as people are envisioning what they want to do at the airport, there’s 15 acres that may not really be readily available for whatever vision they have. And maybe it’s worth exploring selling that off.

We have had offers for it in the past. You sell off that 15 acres. I don’t know what it’s worth, but again, it’s worth a substantial amount of money. 

But we have a relatively new and inexperienced council and it really is a question of how much risk are they willing to take? Because either of those two actions would clearly engender a lot of controversy among certain quarters of the public. I don’t know that a majority of people would really care if voters in Santa Monica would care. But there would certainly be a loud vocal minority who would oppose either one of those actions.

DN – I think there are definitely loud groups that would be upset about changes to the Civic, especially with the agreement being signed the other week, and then or changes to the airport. 

JM – Yeah, but it is probably on a two-decade cycle, right? Our options are maybe one of those. Airport Park, there’s Substantial Park at the Airport, Save the Civic.

And if we want both, we’re talking about large tax increases, like a parcel tax to fund some of the lost revenues from those decisions or added expense of converting the airport or maybe even contributing to some vision for the Civic.

If there was a $2,000 per year parcel tax, which is very substantial for Santa Monica, that would generate $45 million annually. And that’s kind of what we’re talking about in terms of the annual gap that would be needed to do these things.

It’s really hard for people to understand the extent to which we have these trade-offs between “Let’s do the Civic” and “Let’s do the airport park” and “let’s do basic city services” that are already in deficit.

But like there is a consequence and a price tag associated with that. And it is substantial. And I don’t know if the people of Santa Monica would vote for an increase in their property taxes or other types of taxes that would be that substantial.

DN – You know, I did this podcast wrong. We should have opened with let’s sell the Civic and a big chunk of airport property instead of putting it here at the end of the podcast. We definitely…I definitely did this wrong.

JM – You have your teaser for your intro.

DN – “Join us at the 16 minute mark when Gleam suggests that we just sell the airport.”

JM – You’ll put all the ads in about whatever it is that I don’t know who’s selling ads on your podcast, say.

And then they’ll get through several ad cycles. I know as a former board chair, Santa Monica Next is a big profit-making enterprise for it.

DN – Oh, absolutely. Yeah, I’m sure you know that very well.

I was in Feinstein’s Facebook group ah the other day, i posted something nice about the Corsair winning a bunch of awards. I don’t really know a lot about SMC’s academics, but their journalism department is great.

They win awards for their newspapers. Kids go on to Annenberg. Like, it’s really fantastic, which is… also kind of ironic for reasons I won’t get into here, involving the state of local journalism in Santa Monica.

And someone writes, “You only write that because SMC pays you to write good things about them.” You can go to any news website in this city and SMC has bought ads… except for one.

JM – I hear that Don Gerard’s retiring and maybe once he does his replacement, they’ll  buy ads with Santa Monica next.

DN – (grumbling)- I think they even have two ads on Surf Santa Monica. I don’t know.

JM – I think that’s a very astute observation about the college’s role in the community.

DN – Yeah. So yeah, the last five minutes of this podcast were fire.

GD – Hopefully that fire won’t translate to someone trying to burn down my house.

DN – You didn’t actually suggest selling the airport. You just pointed out that there’s 15 acres of it that could be profitable to the city as part of dealing with the larger issues they face. That’s a fair observation.

GD – To  circle back to where we are, the fact of the matter is that if people want to renovate the Civic, if they want to build a substantial amount of parkland out at the airport, whether it’s 100% or 50% or whatever, they’re going to have to find some significant source of revenue.

Selling, for example, 15 acres at the airport could go a long way towards funding the  building of the rest of the park. 

Sadly, Santa Monica used to pride itself on being one of the few fit cities that had a AAA bond rating. No more. Because we depleted our reserves to a point where we no longer qualify for a triple A bond rating.

So reinvigorating, replenishing those reserves would not only be good from a bond rating standpoint, but it actually saves the citizens money because the higher bond rating, the less we have to pay on bonds.

JM – If we do some sort of project at the airport with less than a AAA bond rating, there’s going to be a lot of challenges, for sure.

So we have to get our fiscal house in order, and that means making tough choices and recognizing that we can’t do everything. Santa Monica is a wealthy city, both in terms of population and the city budget. It’s still one of the top…it’s 80 something by population in California, but top 10 for general fund budget, because it’s got a lot of activities. 

It’s got a lot of services that the city provides, in the bus parks and recreation. It operates an airport. We have a large police force given our nighttime population, but historically not the daytime population versus other places. 

We’ve had a very abundant past, in terms of resources for the city, but the scarcity that permeates everything is catching up even with Santa Monica and the people who live here with the higher housing costs and everything else, higher construction costs, and now higher ah interest rates on our on our debt to get infrastructure projects done, including airport.

DN – From my Mar Vista community just to the east of Santa Monica, if we had to choose between the Civic, or your city services, or selling airport land, we would vote unanimously to maintain the airport land and not build anything on it ever.

That would be my community’s vote, but we don’t get one…which is probably good.

GD – Well, that’s one of the challenges of the airport, right? You know, when people joke that it’s our central park, and the answer is, well, no, really, it’s Mar Vista’s Central Park.

DN –  We only surround IT on two sides.

GD – If people want empirical evidence of who will use that park, they only have to look at the dog park that’s out at the airport right now. When we built that dog park, 90% of the people who used it were from outside the city.

And the few people from the city who were using it got all up in arms because it was quite crowded. There was tremendous demand from the people in your neighborhood, Damien….

DN – I’m a cat person.

GD – …to use that dog park. So then they passed a rule that nobody who didn’t live in Santa Monica could use it. And then holy hell broke loose.

And Mike Bonin…

DN – Rosendahl. It’s pre-Bonin, right?

GD – Maybe it might have been Rosenthal, right?

DN – Yeah. Phil Brock goes like chapter and verse on this sometimes.

At least every two years, he tells the story of  Bill Rosendahl losing a gasket about it.

GD – Yeah. Yeah, it might have been Rosendahl. And I think Bill actually, you’re right, because I think he went to a rally on City Hall property to open the dog park: Freedom for the Mar Vista Dogs.

And so they finally came to some agreement. But, you know, that’s just a microcosm of telling you who’s going to use the park if we build it.

DN – I mean, it sounds fine to me. I mean, it’s a nice big park.

JM – That’s just evidence that we don’t shouldn’t necessarily expect the people of Santa Monica to be charitable with paying for parks that other people can use because based on history, they had to have a rally at City Hall to non-Santa Monica residents. So should we learn from history or see if it will repeat itself with the airport?

GD – I have a sense that it will repeat itself to some extent, but yeah that will be an interesting topic for another podcast, what to do with or at the airport.

DN – We’ve talked a little bit about it. I’m not sure who to have on as guests for that. So we should talk about that offline. Although if anyone has listened and has gotten to the 27 minute and 44 second point, I know who should be in that podcast. You should email me, Damien at Santa Monica next.org.

JM – Frank Gruber just emailed you.

DN – I don’t know. I don’t know who to do. Anyway, let’s try to wrap up. We’re hitting the 30 minute mark. Are there any closing thoughts or do we think it’s just we think we’ve covered all the big points?

JM – Stay engaged, stay involved, look at what’s going on with the budget. 

If more people are looking at it and holding both the council, but also the staff accountable, then I think we’re going to be able to make sure that the budget is serving as many people as possible. And particularly in those areas of perhaps the greatest need of Santa Monica,which include, I think, in my opinion, um some of the social services and the  funding that the city provides to maintain excellent public schools.

GD – People need to understand that the budget is a complex document. You know, for example, people will say things like, “well, why don’t you just take money from Big Blue Bus to fund more police officers?”

And that’s because they don’t ride the bus and they want more police officers without understanding that we have a lot of enterprise funds in the city that are separate and untouchable from the general fund. In Big Blue Bus, there’s a transportation fund, there’s a beach fund, there’s a water fund.

That really means the amount of money that’s available to spend on most of the services that we provide to all residents, like public works, trash pickup, police, libraries, comes from just what is a subset of the entire budget.

It’s a pretty complex process and it helps to understand the process before you start to complain about the process.

I’ve had so many people in my time on the council tell me that we just ought to take the money from X and give it to Y. But the money that X has belongs to can’t be used for Y. 

Some of those common misperceptions about the budget lead to a lot of anxiety that’s just completely unnecessary. So I agree with Juan, stay engaged, figure out what’s going on, you know, take the time, listen to the, read a budget staff report, listen to a budget hearing.

You’ll find out that as I always tell people who are running for city council, they’re really running to be on the board of directors of a corporation that’s got billions of dollars in assets and a $750 million budget.

That’s a pretty big responsibility, but it’s also a complex responsibility.

DN – And you can also read Juan’s coverage at Santa Monica Next because so far he’s done most of our budget coverage. Although Todd’s kicked in some too. And I’ll try to re-explain the one versus two years in a couple of weeks when we get closer into budget season.

Anyway, thank you both for your time today. It was great. We covered a lot of ground. I’m sure I’ll talk to both of you soon because you know we’re all in the same signal chat.

GD – Absolutely.

DN – Topical joke, if you’re listening to this you know years from now. Signal jokes were all the rage in April of 25.

GD – That’s right. And and and and we’re all we’re all hoping that the editor-in-chief of The Atlantic is joining us as well.

DN – Yeah I think he’ll be on any moment now.

GD – Well, thanks, Damian.