Long Beach budget officials are optimistic that the city will be able to close a $25.6 million deficit projected for next year with the help of a rebounding economy, which has allowed the city to stretch federal recovery funds and buy time to develop a plan.

The Long Beach Recovery Act adopted by the City Council in 2021 provided the city with over $200 million in state and federal aid that helped pay rent for tenants and establish a host of programs designed to help the local economy rebound for the COVID-19 pandemic.

It also included about $77 million to replenish the city’s reserves, which were tapped to help plug unplanned deficits brought about by the pandemic closures. With sales tax revenue and a booming real estate market now on the upswing, that money has lasted longer.

A presentation given to the city’s Budget Oversight Committee Tuesday afternoon showed that property taxes and sales tax, the city’s two largest sources of revenue for the general fund, both are expected to grow in the next fiscal year, adding a combined $20.3 million to the city’s coffers. The city’s fiscal year runs from October through September.

Grace Yoon, a budget manager with the city, said that sales tax was really the area of surprise given that budget planners anticipated that to take the biggest hit during the pandemic.

“A lot of sales did not suffer; people were continuing to buy things,” Yoon said, noting that auto sales and spending on home improvement projects went up during the pandemic.

Still, the city will have to find $25.6 million in savings over the next year or city departments could face significant cuts starting next year, when rescue act funds are expected to dry up.

City officials said earlier this month that they anticipate the deficit to continue to shrink, as it has over the past few years while the city used recovery funds to “punt the problem” down the road, something Yoon reiterated Tuesday.

But two things have changed since then that could make balancing the 2024 budget harder: the city lost a lawsuit that resulted in it having to pay $30.8 million back to the Water Department by September, and the city will finally begin to pay into the countywide Measure H homeless tax.

The lawsuit over Measure M will result in about $7.5 million less being pumped into the city’s general fund annually. To pay for the transfer to the Water Department, city officials said at a press conference last week that it could take a loan out from the city’s fleet division rather than issue judgment bonds so the interest paid would be to the city, rather than to the bond market.

The decade-long Measure H homeless tax approved by voters in 2017 to fund homeless services in the county has benefited Long Beach, but because the city’s tax rate was capped out with the passage of Measure A in 2016, city residents have never paid into it.

When Measure A was re-approved and made permeant by voters in 2020, the language in the measure called for Measure A to be reduced from 1% to 0.75% for the remainder of Measure H.

This year, that could mean over $15 million of funds that could have stayed in Long Beach will now go to the county, according to city projections.

Other funds are also seeing a rebound, including the transient occupancy tax ($2.4 million) that is collected through hotel stays, which budget officials said they expect to return to pre-pandemic levels in 2024.

Local taxes and fees charged to operators of cannabis business in the city is expected to generate $12 million this coming year, up from about $9 million projected at the start of this fiscal year. However, there is a movement within the cannabis industry to see those taxes lowered in the coming year.

Aside from the projected budget shortfall next year, Long Beach will also have to negotiate labor contracts that expire at the end of September.

This year, salaries were already projected to grow by $19 million and the city still has to ink agreements with the firefighter and police officer unions. The two departments make up about 58% of the city’s $669 million general fund budget this year and a cost of living increase is likely to be included in the two department’s upcoming contracts.

Long Beach reveals its budget for the coming year; here are 5 key takeaways