Long Beach budget deficit shrinks to $12 million, but potential funding issues remain

The once daunting hole Long Beach officials anticipated in next year’s budget has shrunk by almost $24 million, according to new projections presented to the City Council Tuesday night.

The direst projections for the fiscal year starting in October had previously put the shortfall as high as $36 million, but the city’s financial management team said that number is now closer to $12 million—an amount that could be covered by leftover pandemic relief funds from the federal government

Grace Yoon, a budget manager with the city, said Long Beach will be able to avoid any cuts to services this year because prior budgets performed better than expected during the pandemic. That meant the city didn’t have to use all of the $76 million in American Rescue Act funding it had put into reserves or previously earmarked for maintaining services.

Using the leftover funds to prop up city services won’t cut into any of the other programs—like renter relief and small business recovery—the federal money is also covering, according to Yoon.

Using the funds will help solve this year’s issue, but the $12 million deficit will be passed onto the next fiscal year because it’s a structural funding problem. The new projected deficit for the 2024 fiscal year is $20.8 million.

What’s helping the city? 

A number of positive things have happened since the initial $36 million deficit projection last year. And things have improved even since December when Yoon told the council that the budget deficit was likely to shrink.

Sales tax and property taxes fueled by the sale of homes during a historically expensive housing market have helped infuse the city’s general fund with additional revenue, as have increased utility users’ taxes. Combined, those sources of revenue increased by $18.6 million since the last budget update late last year.

Other more volatile revenue streams like oil are also trending up. Yoon said the city will continue to budget as if oil were selling for $55 per barrel, but skyrocketing gas prices have been pushed up by increasingly expensive oil.

Crude oil has been trading for over $100 per barrel since late February and the ongoing Russian invasion of Ukraine and sanctions announced by President Joe Biden Tuesday, including a ban on importing Russian oil and natural gas, could further roil the market.

Yoon said that any additional funds seen from oil production in Long Beach would likely be made available as one-time funds for the council to use in either this current fiscal year or in the next one starting in October.

Other things, such as settlements and judgments paid out by the city and workers’ compensation claims, have seen some reductions. The city’s contributions to employee retirement plans saw a small increase of $500,000, but Yoon said that was the lowest it’s been in years and there’s a possibility that next year could see the city pay less than this year.

Future concerns for the city 

One of the single largest budget issues facing the city is the outcome of a lawsuit it’s facing for charging its water department fees to access city-owned water and sewer lines. The water department, in turn, passes those costs onto its customers.

Voters ultimately approved the practice by passing Measure M in 2018, which generates millions of dollars per year for the general fund, but it was challenged in court for violating a state law that mandates utility providers charge for only the cost of providing service.

An appeals court ruled against the city in December and now the city is waiting for the California Supreme Court to hear its case in hopes it overturns the appellate court ruling that said that Measure M was unconstitutional.

If the city loses the case, or the court refuses to hear it, it would mean a loss of $9 million per year going forward. The city would also have to pay back millions it has already spent. The sum could be as high as $42 million and could require the city to issue judgment bonds to pay back the money.

A smaller, temporary reduction to the city’s general fund will start this year when the city finally starts paying into a countywide homeless tax that the city has benefited from for the past six years but hasn’t contributed to because its local sales tax increase, Measure A, put Long Beach at the ceiling of allowable local taxes.

For the next four-plus years, Measure A will be reduced by 25% to allow for some of Long Beach’s sales tax revenue to feed into the county’s homelessness tax. For consumers, the sales tax rate will remain the same—the only difference being where the money is directed. The change is projected to cost the city’s general fund between $10 million and $16 million per year until September 2027.

There still remains unfunded or underfunded programs like the city’s road repair plan, park maintenance and other obligations that have been deferred and total nearly $3 billion.

The city must also figure out how it will comply with a new statewide organic recycling law that could require it to buy new trucks, hire new drivers and contract with a facility to process organic waste.

That investment is expected to be offset by “significant” rate increases, Yoon said.

What’s next?

The budget is required to be adopted before the start of the fiscal year on Oct. 1 and has traditionally been adopted in September.

The city started its budget cycle early this year and for the first time ever added community meetings before the proposed budget was released, which has traditionally happened in July.

The public meetings were eventually cut in half and moved online due to a winter surge of COVID-19 cases. At the meetings, residents called for greater funding for things like libraries, road repairs, and affordable housing while others argued whether the police departments should have more or less funding.

A community budget survey circulated earlier this year to gauge what residents’ priorities were before the budget is drawn up yielded 723 responses, most of which (56%) were from the three East Long Beach City Council districts, which are generally wealthier and whiter than the rest of the city.

A community activist criticized the survey during the City Council meeting Tuesday for not being representative of the city as a whole. While just 28% of the city is White, according to the most recent Census, 53% of survey respondents identified as White. Long Beach is nearly 43% Hispanic and 17% of survey respondents identified as Latino.

Feedback from the survey could help city officials determine where to focus funding in the next budget. An initial budget release should happen in the next few months followed by months of public meetings held by the City Council and its Budget Oversight Committee where residents can weigh in on the proposed spending plan.

Losing lawsuit over sewer, water fees could cost Long Beach $9 million a year, officials say

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Jason Ruiz has been covering City Hall for the Post for nearly a decade. A Long Beach resident, Ruiz graduated from Cal State Long Beach with a degree in journalism. He and his wife Kristina and, most importantly, their dog Mango, live in Long Beach. He is a particularly avid fan of the Dallas Cowboys and the UCLA Bruins, which is why he sometimes comes to work after the weekend in a grumpy mood.
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