Updated Budget Shows Smaller Deficits on Horizon for Long Beach

File photo. 

Despite previous projections placing the budget deficit for the next fiscal year at over $7 million, a special budget presentation made before the Long Beach City Council last night downgraded that projection to $5.1 million and shed positive light on the budget in the coming years.

The city’s overall projected shortfall for the fiscal years 2016-2018 was reduced from a cumulative $15.3 million to $10.3 million.

The $5 million improvement in budget deficits was partly attributed to not spending the surplus revenue leftover from previous years, which has been applied toward the city’s unfunded liabilities, but also to stronger sales tax revenue, the city’s new first responder fee and the ongoing practice of fiscal responsibility by the city council.

In September, the council approved what Mayor Robert Garcia characterized as a “responsible and balanced” budget which included a small surplus of $675,000. Garcia said that although the budget is going in the right direction and doing better than expected, the positive projections shouldn’t serve as a signal to “loosen the belt.” He applauded the work of the council, adding that the deficit is still a real issue, but the new projections show it to be a little more manageable than originally thought.

“While the budget is better than expected and going in the right direction, that doesn’t mean that we can somehow loosen the belt and overspend,” Garcia said. “I think that’s something that’s really important for this council. The reason why our budget continues to improve is because we continue to be fiscally responsible.”

The shortage represents about 1.3 percent of the departmental budget and both city staff and Garcia urged that fiscal restraint will be necessary, given the forecasted price of oil and mounting CalPERS pension fund costs.

Long Beach City Budget Manager Lea Eriksen said the projections are based on a model where the price of oil—something that has dropped precipitously from the benchmark of $70 used just a few years ago—stays at $45 per barrel instead of the $55 mark it was based on for 2016, and $50 per barrel in fiscal years 2017 and 2018.

However, the movement of oil prices is "highly uncertain to predict," according to Eriksen.

Despite the drop in oil revenue and the unpredictable nature of its price going forward, the overall picture of the city’s budget is trending up in shaving off over $5 million in expected budgetary shortfalls over the next few fiscal years.

However, it was cautioned that the shortfalls were expected to persist through the 2020 fiscal year, due to falling oil revenues and payments to the CalPERS stabilization fund. The figures are just preliminary and are expected to be updated early next year when Eriksen said they could materially change. Although the shortfall represents just over one percent of departmental budgets, Eriksen said the city is on track to do better than expected.

“Long Beach is projected to do better than earlier anticipated, but we must continue to take steps to address this new economic reality, and we need to reduce our expenditure growth to match that limited revenue growth,” Eriksen said. “While this is difficult it is manageable due to the mayor’s and city council’s restraint.” 

The CalPERS retirement fund for city employees is expected to cost the city $7.5 million next year and grow every year until it peaks in 2021 at $35.6 million. Garcia said investing in reducing that cost is really investing in the long-term health of the city, pointing out that there would be no deficit if the city wasn’t making payments toward CalPERS, but would in turn create an unfunded liability for the city.

“Long Beach has these small deficits, not because we hired a bunch of employees or because we’re all of sudden overspending,” Garcia said. “These deficits are directly related to the larger pension payment is now making and has been making over the last few years. I say that because what we’re doing now is being responsible about paying down our long term pension obligation, which then creates us managing through these additional deficits.”

 



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