Long Beach budget officials said Tuesday that the previously projected budget deficit of over $40 million is now just under $6 million as the city moves closer toward compiling next year’s budget, but uncertainty remains as new employee contracts and a statewide oil law could hamper the city’s financial future.
Budget analysts had projected a $27 million deficit for the 2024 fiscal year that begins in October, but the addition of new contracts for the city’s police officers and firefighters union added about $19 million to that shortfall, Grace Yoon, the city’s budget manager, said Tuesday.
Now, that figure has shrunk to $5.8 million, with Yoon crediting things like property taxes ($6.8 million), sales tax ($7.6 million) and the utilities users tax ($5.8 million) all having higher projections.
The net increase in the city’s projected revenue for the upcoming year is $40.1 million, and Yoon said the city was recommending using Long Beach Recovery Act money to cover the leftover deficit to avoid cutting services this year.
“This is great news for maintaining current services, but this approach is not without parameters,” Yoon said, noting that the council needed to avoid adding to the budget without identifying accompanying cuts so as to not create a deficit.
City officials have hinted that some tax revenue streams were performing better than expected, leading to decreased deficits and to additional projects being funded with unanticipated surplus funds from the 2022 fiscal year.
However, the city’s largest employee union is up for a contract renewal this year, and the looming fate of a ballot measure that could reinstitute a state law that could speed up the city’s phase-out of oil production, which would add costs and reduce revenue.
The new contract for the over 2,800 members of the International Association of Machinists and Aerospace Workers union could add millions to the budget. The group was active in last year’s budget cycle and helped secure $5.8 million in employee retention bonuses that they said were necessary to keep up with cost of living increases.
Meanwhile, Senate Bill 1137, the new oil well setback law that was set to go into effect this year, was postponed by a referendum effort, which will now require voters to decide if the 3,200-foot buffer zones between new oil production and homes, schools, parks and other sensitive areas will go into effect.
City officials said in December that the law could affect the city’s oil production and result in a loss of about $20 million per year once fully implemented. This could mean big city projects like the new Belmont Pool would have to be downsized and the city could be left without enough funding to pay for the estimated $154 million in well abandonment costs.
The issue will be on the November 2024 ballot, and if voters affirm SB-1137, the full financial effects are expected to be felt in 2025, according to city management.
“We just have to be smart about it,” said Mayor Rex Richardson of the city’s reliance on oil. “It’s going to end at some point.”
Regardless, Long Beach is still looking at projected budget shortfalls through 2027 with a total of $33.8 million the city could have to find to avoid cuts to services over the next few years.
One of the contributing factors is the city’s Measure A sales tax, which has been reduced from 1% to just three-quarters of a percent. Consumers, though, will still pay the same tax rate, and the remaining quarter of a percent will go toward the countywide homeless services tax known as Measure H.
For the next five fiscal years, including the current one, Measure A revenue is projected to range between $69 million and $75 million until the Measure H tax ends in September 2027. The 2022 fiscal year, the last full year that the city has data for, produced $86 million for the city’s general fund.
Pandemic relief money, which the city has used to plug deficits over the past few years, is also set to run out. Yoon said the city has used the one-time funding for ongoing expenses, which is counter to the city’s policy.
However, she warned that continuing to do so would only push the problem down the road, something that one member of the council acknowledged at the close of the special meeting Tuesday.
“I would just say that punting our fiscal problems does not make for a brighter future for our city,” said Councilmember Al Austin. “I think it’s very risky, and we need to acknowledge that as well.”
The city’s proposed budget is expected to be unveiled later this year after it’s delivered to the mayor in early July. The results of the community meetings that the city held earlier this year to gather residents’ priorities for the budget are expected to be released in the next few weeks.