Q & A about Culver City’s Budget

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City budgeting is different from budgeting for a family, because the City Council has discretion over how to spend some of the city’s money, but not all of it. The General Fund pays for most of the city’s core functions. In Culver City, it makes up slightly more than half of the city’s total budget. We focus on the General Fund because that’s where City Council has the ability to make allocation decisions. The bar graph below shows how the proposed budget for Fiscal Year 2024-25 (July 1, 2024 – June 30, 2025) distributes the city’s General Fund spending. In the next fiscal year, spending for Police and Fire Services is expected to total 52% of the General Fund (not including internal transfers), compared with 49% in FY 2023-24.

I see the chart doesn’t include Transportation. Does that mean it’s not part of the General Fund?

That’s right. Our municipal bus line, including drivers, maintenance, and equipment are financed by federal, state, and county funds that must be used for transit. In FY 2023-24, rider fares contributed less than 4% of the Transportation budget. Other services paid for outside the General Fund include refuse pick-up and sewer.

Where does the money come from for the General Fund?

People may be surprised to learn that annual property taxes do not contribute a significant amount to the General Fund budget. It’s not even among the top three. Thanks to Proposition 13, the assessed value of real estate in California is not based on its current market value. After Prop. 13 was passed by voters in 1978, property assessments were rolled back to their value in 1976, the tax rate was fixed at 1% of assessed value, and it was allowed to increase no more than 2% each year unless the property was sold or significant improvements were made. As a result, the median assessed value of Culver City homes is low in comparison with areas that were considered more desirable in the 1970s. In addition, Prop. 13 gave the state control of redistributing property tax revenues. Culver City gets to keep approximately 10.5% of the property tax that is collected, whereas
Santa Monica retains about 14%. This is part of state law, and it can’t be changed unless voters agree to change Prop. 13. The next bar graph shows the sources of revenue for the General Fund. The largest contributor to the General Fund is sales taxes. The combined sales tax for the state and LA County is 9.5%. Culver City receives 1% out of that amount. Culver City voters also approved $0.75 in local sales tax, and the city gets to keep all of that.

The second biggest contributor is the Business License Tax. In November 2022, Culver City voters voted to update business tax rates for the first time since 1965. This change went into effect in April 2023. Business License Tax revenue is expected to increase approximately 38% in FY 2024-25 compared with the current year, contributing an additional $8.75 million to the General Fund.  

It looks like the city’s planned expenses are greater than its expected revenues. Is the city allowed to run a deficit?

Culver City is still recovering economically from the pandemic. Expenses have increased as vacant city positions were filled, but revenues have not recovered to the same extent. In addition, the city opened Project Homekey at the two former motels on Sepulveda in the current budget year. This was the culmination of a process that started in 2018 with the city’s official homelessness plan, and it includes 35 units of desperately needed permanent housing with wraparound services. The biggest new expense was temporary services for our unhoused neighbors, including 38 units of Homekey transitional housing, the 20 tents at Wellness Village, a motel master lease, and services to support these residents. Homelessness is a housing problem; we must invest in both permanent housing and services to help people get off the street instead of criminalizing them. The city also finally implemented the unarmed mobile crisis team, which was approved in 2021. 

Culver City is required to maintain enough cash to pay its bills even if expenses are greater than revenues. In addition, the city’s policy is to maintain a Contingency Reserve of at least 30% of General Fund expenditures in case of emergencies. Due to prudent financial management over multiple years, Culver City had built up substantial reserve funds. These are being used to cover the shortfall in the current fiscal year, which included purchasing the gun store and funding some of the services provided to our unhoused neighbors. The projected $17.1 million deficit in FY 2024-25 also will be covered by reserve funds. However, the General Fund reserves can only cover a few more years of deficits.  

As Mayor McMorrin wrote in her weekly email on May 24, “I think this deficit is an invitation for us to reconsider how we do things as a city, how we might do them differently, and how we can be creative in partnering and finding solutions to ensure everyone in Culver City has what they need to thrive.”