As a member of the now disbanded Financial Review Committee (FRC), many people ask me whether they should be worried about Dana Point finances. The short answer is “yes.”
Despite a rich source of Transient Occupancy Tax revenue (TOT) from our major resorts, over the past decade Dana Point finances have dwindled as the city staff has managed to spend more than it takes in in 9 out of 10 years.
There are some very troubling trends:
- Revenue has grown at a much slower rate than expenditures (revenue grew a total of 6% in the last ten years from $38 million in 2007 to $40 million in 2017, but operating expenditures grew a whopping 52% — from $24 to $36 million). Only 15% of that increase is explained by inflation. This squeezes operating margins and leaves little for needed capital expenditures.
- By almost every measure, Dana Point’s expenditures seem out of sync with comparably sized cities. During that same 10-year period, resident population declined 5% but city staff grew 46%, from 48 to 70 people.
- Comparing 2007 to 2017, revenue increased $2 million but operating expenses grew $12 million. This means there was $10 million less to spend on capital projects and infrastructure.
- In 9 of the last 10 years, Dana Point posted net deficits (revenue less operating and capital expenditures). This is bound to happen from time to time as the City does major projects, but at some point the savings account has to be replenished. We’re simply not doing that.
The amended budget just approved by city council on April 3, 2018 shows the original budgeted surplus for FY 2018 of $346,000 has now become a projected deficit of $2.6 million.
The current 5-year budget allows for no capital projects outside of essential road maintenance. Basically, we’ve depleted our savings account, and there doesn’t seem to be a plan to replenish it. Major public improvements, parking structures, Doheny Village revitalization and other projects are highly unlikely unless this financial picture improves.
The City Treasurer projects that Dana Point finances will be facing a $1.6 million structural deficit by 2020 and $2 million by 2021. Adjusted for the current amended budget, this will further deteriorate, but it’s hard to tell how badly because actual results can be wildly different from projected, as staff’s budgets seldom reflect reality. The bottom line — the City will soon be scrambling to find permanent savings within its operating budget because the growth rate of expenditures is projected to outpace revenue.
There has been little attempt to reign in spending. I was particularly frustrated that the Financial Review Committee’s unanimous recommendation to bid the contract behind the $1.2 million City Attorney expense was rejected by the Council majority (Richard Viczorek, Joe Muller and John Tomlinson). At the same time, our recommendation to immediately start recouping the full cost of user fees for services to developers was ignored, despite the fact that these fees have not been increased in almost 20 years. The city’s consultant estimated we’ve been leaving up to $2 million on the table by leaving these costs to be absorbed by general taxpayers.
All of these issues are solvable with a thorough analysis of every possible revenue source, a fearless fiscal audit of every department to find permanent savings, and a commitment to good financial management. Unfortunately, with the FRC losing its independence (if not its very existence) and the council majority’s apparent lack of interest in fiscal matters, we all have plenty to worry about.