Budget Adjustments Suggest WeHo Hotels and Some Restaurants and Bars Are Near Capacity

The City of West Hollywood’s revenue has grown more slowly since the big increase it experienced at the end of the Great Recession. A mid-fiscal year budget report shows the growth rate has declined from an increase of 15% in that fiscal year (2013-2104) to growth of only 2% during the first half of this fiscal year.

But the report, from City Manager Paul Arevalo and the city’s Finance & Technology Services Department, says the decline isn’t a sign that local economy is slowing down. Rather it is an indicator that some of the city’s main sources of revenue are at or near capacity.

The report, presented last week to the City Council, notes that hotel occupancy rates are in the high 80 percentiles and that average daily room rates are above $300. The report also notes that business at many popular restaurants and bars is “at or above pre-recession revenue peaks.”

“With this in mind,” the report says, “any significant revenue growth will likely be generated by new sources.”

Among the sources it projects are new hotels (hotel room occupancy taxes are the city’s single largest source of General Fund revenue.) The report notes that three new hotels are opening over the next two years. The James is expected to open in May with 286 rooms, the Kimpton La Peer will open this Summer with105 rooms, and the Marriott Edition will open in Spring of next year with 190 rooms.

“The city is also anticipating new revenues over the next several years from advertising sources,” the report says, “including the Sunset Spectacular billboard, new digital bus shelters and revenue sharing from the Sunset Time billboards.”

The report states that the city has been cautious in its spending over the years, which allowed it to remain in good financial shape through the last recession. But, it notes, “significant questions and concerns remain about the long-term strength of the economy. Specifically, the country is likely due for a recession within the next few years.

“The end of the great recession was nearly eight years ago, and since the beginning of the 1980’s the time between recessions has lasted approximately eight years.

“Experts also have varying views about how the new (Trump) Administration’s policies may affect the economy due to the lack of specifics about their economic policies. However, the state’s economy is increasingly global in nature and nationalistic leaning policies supported by the new Administration, such as reduced immigration, restructuring of international trade agreements, new tariffs on foreign goods, increased restrictions on undocumented residents, and increased tensions with foreign allies, could all weaken the state’s economy.

“To buffer the city from the impacts of a recession, Finance staff will continue to conservatively budget revenues, follow and exceed its reserve policies, and seek new and expanded sources of revenue to further diversify the city’s revenue stream.

The city’s General Fund for the 2016-2017 fiscal year is budgeted at $88.3 million in revenue. Another $41.3 million is budgeted for funds whose revenue is used for specific purposes such as traffic mitigation, the Sunset Strip and West Hollywood Design District business improvement zones and payments into the city’s retirement fund.

As of Dec. 31, 2016, the city had received 48% of its budgeted revenue. Its three largest revenue sources increased while several smaller ones saw a decrease over previous years. Those sources are:

— Hotel room occupancy taxes (also known as the transient occupancy tax), was up 7% in the first half of the fiscal year with a total of $11.3 million.

— Property taxes, WeHo’s second largest source of revenue, which increased by 9% in the first half of the fiscal year to a total of $6.5 million. Los Angeles County collects property taxes and forwards 40% of the amount from WeHo properties to the city. The city report attributes the increase in property tax revenue to ” a combination of factors, including rising property values, increased sales, and the addition of new buildings to the city’s property tax roll.

— Sales taxes, whose revenue increased by 5% in the first half of the fiscal year to $6.7 million. Mid-year sales tax amounts only include five months of data, as there is a two-month delay in the remittance of the tax from the state. The report notes that the “city’s sales tax revenues have been spread across all major consumer sectors, including restaurants and hotels (34% during the third quarter of 2016), general consumer goods (32%), state and county Pools for online sales (12%), food and drugs (sales at grocery stores and pharmacies) (8%) and business and industry (5%).”

Other revenue sources such as licenses and permits, parking fines, parking meters were mixed or showed declines. City permits in the first half of the fiscal year reached 100% of the amount budgeted for the entire year, which the city attributes to the payment of community development fees by developers of large real estate projects. The city projects a slowdown in development in the second half of the year.

Revenues from parking fines, which are a source of complaints by many residents and visitors, decreased by 14% from the same time in 2015-16. Among the likely reasons are: 1) fewer tickets in residential neighborhoods, likely due to longer meter hours in adjacent commercial areas and thus more evening availability in legal spaces, 2) more people using ride-sharing apps which free up more parking spaces, which results in less people getting ticketed, 3) more resources provided by the city to help people find parking, 4) the opening of new public parking lots, and 5) better signs at valet parking spaces that have led to fewer cars being towed.

Another decrease in revenues was in the “All Other Revenues” category. The city report says “the majority of the decrease can be attributed to four sources: taxi franchise revenue, bus shelter revenue (specific one-time creative advertising campaigns increased revenue last year), state-mandated cost reimbursements (the state made a large one-time payment last year), and photo safety revenue (the city’s photo safety cameras were not operational the first half of this fiscal year; they are anticipated to restart operations in the spring of 2017).”

The report was part of a proposal to the City Council to authorize an update to the General Fund budget based on numbers from the first half of the fiscal year and the cost of projects that the council has approved. That update, which the council approved, includes increasing the budgeted amount of General Fund revenue by $2.5 million and increasing budgeted General Fund spending by $1.6 million. It also increases by $30,000 money for Proposition A fund expenditures and by $100,000 the budget for gas tax fund expenditures.
The increase in budgeted General Fund revenue comes from a refund of $286,374 from the city’s former insurance authority, California Joint Powers Insurance Authority (CJPIA) and for a revenue adjustment of $2.2 million in development agreement that will be made by the end of the year for the Sunset/La Cienega Project and Sunset Time Project.

The increases in the General Fund spending budget include:

— Spending an additional $62,000 to add four additional bicycle security ambassadors to the patrol schedule. “The new ambassadors would primarily focus on the Eastside with a daytime schedule to address neighborhood complaints related to security and homeless individuals loitering in residential neighborhood,” the report said. “Ongoing annual costs for the additional security ambassadors will total approximately $250,000.”

— “$100,000 from the Gas Tax Fund to expand the city’s current curb painting program in major commercial arterials of the city. This enhances the public’s ability to discern “no parking” curb lane restrictions.” That painting already is underway.

— Using $253,000 to begin implementing of Phase 1 of the city’s “Fiber Infrastructure Master Plan.” That phase will include “the beginnings of the fiber infrastructure backbone, by bringing fiber to every traffic cabinet along Santa Monica Boulevard and creating a pilot fiber-based traffic control network along Santa Monica Boulevard to replace the existing copper-based network, and verifying a path for fiber in existing conduit to Sunset Boulevard.”

— Spending $350,000 on a lease and improvements to office space at 8916 Santa Monica Blvd., the home of Koontz Hardware, to provide additional office space for city employees. “Ongoing annual costs for the lease and related services are estimated at approximately $200,000 per year and will be incorporated into fiscal year 2017-18 budget update,” the report says.

— Spending $6,000 to replace computer equipment in the Community Meeting Room, Public Meeting Room, and Closed Session Room at the city’s Library and Council Chambers.

— Engaging a professional urban design firm for $80,000 to temporarily provide architectural and design review services until the city decides how or whether to fill the urban designer role once held by Stephanie Reich.

— Engaging consultants for $500,000 to complete studies and plans that advance the city’s sustainability goals. Those include WeHo’s Net Zero Policy, Climate Action Plan and Green Building Ordinance. The report says part of that money would be used to “address the current backlog of proposed zone text amendments through the use of temporary and contract planning staff.”

— Spending $11,200 to improve the Community Development Department’s permitting system. The improvements would “enhance customer service by enabling automatic electronic customer notifications for scheduled inspection dates/times and approaching expiration dates for building applications and permits.”

— Spending $8,000 for web-enabled tablets for code enforcement’s field officers. “The tablets will allow code enforcement officers to research permits, update case notes and add photographs to existing cases while in the field.”

— Spending $2,500 to buy data on rentals of market-rate apartments to help the city’s rent-stabilization work.

— Spending $10,000 to implement an online special events permitting system, which consolidates permit review into a unified platform across multiple agencies. Eventually “applicants can submit their special event permit and application fees online.”

— Spending $100,000 for a consultant to help implement Phase II of the Administrative Services Department’s review of city human resources policies and procedures. “Funds will be used to further refine and advance current efforts to create a centralized system that ensures accountability and increases efficiency in internal processes,” the report says.

— Spending $30,000 to extend the city’s CitylineX fixed route bus service to the Hollywood/Highland Red Line station on Saturdays. That is expected to launch April 1.