Culver City leaders hear stark fiscal outlook as consultants map a path to a balanced budget

Culver City officials were warned Friday that recurring revenues are not keeping pace with ongoing expenditures, a consultant told the council as the city kicked off a strategic-planning retreat and financial summit.

"Based on reviewing recent financial history and doing forecasting work, we see that Culver City has a structurally unbalanced budget," Andrew Klein, a managing director at Ernst & Young, said. He added that the city's contingency reserve is below its 30% policy (noted in the slides as 21%), which "does trigger the need for a replenishment plan from the city manager." (Andrew Klein, consultant.)

The nut of the issue, Klein said, is that growth in expenditures has outpaced revenue growth in recent years; the firm's short- and long-term forecasts show persistent deficits under a baseline scenario and much faster reserve exhaustion in a pessimistic case. Klein urged the council to prioritize efficiency, consider revenue options only after aggressive cost and operational reviews, and build a multi-year financial plan.

Mayor Pruza framed the retreat as an opportunity to narrow council priorities so staff can develop a fiscally responsible FY27 budget. "We have an unprecedented amount of action items," Pruza said, and asked the council to identify three to four priorities that can be accomplished in the coming year. (Mayor Pruza.)

City Manager Otis Jones outlined his goals for the first 90 days: deliver a balanced budget in May "in a way that does not reduce services to the residents, and does not lay off any staff," he said, and to begin work on a 5-year financial plan and a priority-based budgeting approach. Jones said he expects to use Lean Six Sigma and other process-improvement methods to identify operational savings. (Otis Jones, City Manager.)

Klein's presentation reviewed several items that influenced the financial picture: reliance on economically sensitive revenues (sales tax, business tax, transient occupancy tax and transfer tax), significant growth in personnel and benefit costs, and deferred maintenance in capital assets such as roads and parks. The presentation included three forecast scenarios (baseline, pessimistic and optimistic) and an example showing that in the baseline the city's reserves could be depleted within the 10-year forecast horizon unless changes are made.

Council members asked detailed questions about the assumptions and the timing of measures that affect revenue. Staff said several sources already included in the baseline (an approved hotel project, expected increases from red-light camera revenues, and the partial annualization of a sales-tax measure) help the outlook but do not eliminate the structural gap. (Lisa Soger, Assistant City Manager/CFO; Andrew Klein.)

Why it matters: The council must settle on priorities that will guide the FY27 budget and the multi-year financial plan. Staff and consultants were asked to return with a short list of indicators and specific policy and operational options to close the gap, including an approach for replenishing the contingency reserve over time.

What's next: Staff will build a critical path to a balanced priority-based FY27 budget, including targeted efficiency reviews, community engagement, and recommended budget actions and potential revenue options for council consideration.