While the city works to make up for a $30 million shortfall next fiscal year, an even bigger financial challenge awaits in next year’s budget.
Long Beach finance director John Gross said during a hearing Wednesday that the city is facing a $41 million gap in 2021, one that would likely require them to dig deep into reserves.
Between the $6 million in reserves the city is using to fill this year’s gap, and the $41 million needed next year, the city could be left with just $12 million in a fund that is supposed to be used for emergencies, Gross said during a Budget Oversight Committee meeting.
“Oh my goodness,” Councilwoman Suzie Price said upon hearing his assessment.
Gross noted that help could be on the way if more federal funding is allocated to cities to deal with the pandemic, but without it the city would be in a position where it would have few resources to address a natural disaster or a prolonged economic recovery.
It could also hamper the city’s ability to pay off any large legal settlements it might incur.
Industry standards are not uniform, but cities are generally instructed to have 5% of their general fund on hand as reserves; $12 million amounts to about 2% of Long Beach’s general fund.
Former City Manager Pat West said in an interview that the situation is alarming, but, like Gross, he noted that these are challenges that nearly every city in the country is facing. West, who retired last year, said he was unsure of what standards for reserve level savings were now but that the city tried to meet them while he was in charge.
The closest thing West faced as city manager was the 2008 economic collapse and the recession that followed. For the first five or six years, West said his administration had to navigate about $110 million in shortfalls. The projected shortfalls for Long Beach this year and next total $71 million.
“It’s a terrible, terrible feeling for the elected officials and the leaders of departments because the only way you can balance a budget like this is with cuts to staffing,” West said.
Departments across the city are incurring cuts to their budgets. Staff have also proposed furloughs for all city workers, layoffs and a hiring freeze.
But the projections being made for incoming revenue could be flawed as the recession of 2008 differs from what is happening now.
Bill Fujioka, a former chief executive officer for Los Angeles County, noted that while there are a great number of people facing financial strain now, as there were during the recession, the number of businesses that are closed now is alarming.
With so many businesses opening and closing, and no certainty as to when that trend will end, it’s hard to predict what revenue the city will have. Fujioka said that financial projections could likely get worse, which means deficits could grow as restaurants and other businesses stop paying property taxes and continue to incur losses due to pandemic restrictions.
Property tax and sales tax are the two largest contributors to the city’s general fund.
Fujioka compared sales tax to the shock-absorbing pillars that support a building during an earthquake.
“That’s your sales tax,” Fujioka said. “That’s the center pillar for a city’s economy. And it’s going to be ugly.”
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