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Wealthy cities discovering they're not recession-proof Wealthy cities not immune to recession

Beverly Hills, Santa Monica and Newport Beach, which are usually shielded from economic downturns, are seeing decreases in sales tax revenues, along with two-thirds of cities in Southern California.

February 17, 2009|Alexandra Zavis

There are million-dollar mansions in foreclosure, layoffs on Rodeo Drive. And reservations are no longer a must at all but the most exclusive restaurants.

As recently as the summer, many wealthy Southern California enclaves appeared beyond the reach of the worst recession in decades. But rich cities, it turns out, aren't always so different from the rest.

City officials in Beverly Hills -- a place insulated from most economic downturns -- now project a $24-million drop in tax revenues over the next 16 months. The loss represents about 15% of the general fund budget, said Beverly Hills City Manager Roderick Wood.

"This will be the largest percentage budget reduction, as far as we can tell, during the city's history," Wood said. "Even for a community as well-funded as Beverly Hills, you absolutely feel a 15% reduction in the budget."

A formal hiring freeze is expected as soon as March, though police officers and firefighters would continue to be replaced, he said. Among other options on the table: reducing police overtime and charging clubs to use city sporting facilities, which would be a first.

Santa Monica officials blame falling hotel occupancy rates, tanking car sales and a sluggish housing market for across-the-board reductions needed to close a budget gap that could swell to $10 million next year. Although the city still has excess revenue from last fiscal year to subsidize this year's budget, City Manager P. Lamont Ewell said he is asking departments for proposals to reduce spending by at least 3% now and 5% next year.

In Newport Beach, a precipitous drop in luxury car sales has left the city with an anticipated $3.5-million budget gap. City Manager Homer Bludau plans to reduce spending on capital improvement projects, including the beautification of street medians, by about $1.4 million. He is also asking departments to trim their budgets by about $1.4 million. Most city job vacancies will be filled internally or not at all.

Sales tax proceeds have declined in more than two-thirds of Southern California cities, according to a Times analysis of municipal revenues collected in the last half of 2008 compared with the same period the year before. Among those affected were some of the wealthiest, including Bradbury, Indian Wells and San Marino.

Even in cities such as Malibu, where sales tax revenues appear to be holding up, officials are bracing for lean days ahead. Administrative services director Reva Feldman said Malibu relies more heavily on property taxes, which she said won't show the effect of the downturn until the next budget cycle. There has also been a decline in building-permit and planning fees as homeowners put off costly remodeling jobs, she said.

The fact that famous revenue generators such as Beverly Hills, Santa Monica and Newport Beach are trimming their expenditures and considering service cutbacks underscores the extent of the meltdown in California municipal finances.

Such places are usually shielded from downturns because they cater to the very rich, have diversified their economies and draw high-spending foreign visitors, even when Americans start watching their wallets.

But with property values, incomes and spending plunging across the country -- and the global economy in serious trouble as well -- few places remain unscathed, said Christopher Hoene, director of policy and research at the National League of Cities in Washington, D.C.

A survey of city finance officers conducted by the league in December and January found that 83% were cutting services and expenditures, and 80% expected to make further cutbacks in the 12 months beginning in July.

The effect of the recession is clear in Beverly Hills' destination shopping district where, for the first time anyone can remember, shops are advertising discounts of up to 80%.

The number of vacant storefronts on Rodeo and Beverly drives has multiplied, with big names such as Lisa Kline and Rock & Republic looking for retailers to take over expensive leases. And jittery sales assistants confide that at least two luxury brand boutiques have handed out pink slips in recent months.

More and more of those accustomed to paying for luxury services are tightening their belts, in some cases because they have lost their high-paying jobs.

Katie Ittner, a hairstylist at Awilda Salon on Robertson Boulevard, said she had a client who called in tears because she could no longer afford to spend $95 to $250 to get her hair colored and had no idea how to do the job herself.

Those who still can spend thousands on a handbag are increasingly reluctant to do so.

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