When the Long Beach City Council wound down its budget cycle in September it projected shortfalls in 2019 and 2020 amounting to about $19 million. However, in light of recent litigation, city staff disclosed yesterday that those projections have grown which could leave the city poised for more cuts in services in the coming years as the budget is balanced.
The council is mandated by state law to pass a balanced budget, meaning it’s illegal to adopt a budget that has a deficit. During a study session held Tuesday night, city staff disclosed that the $10.4 million projected deficit revealed in September for the 2019 fiscal year had grown to $15.6 million.
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That number had since been corrected to $7.3 million but a recent settlement pushed it back up over the $15 million mark. Projections for the 2020 fiscal year ($12-$16 million) and the 2021 fiscal year ($5 to $7 million) also show deficits.
Long Beach Budget Manager Lea Eriksen attributed much of that growth—about $8.3 million— to the recent lawsuit lost by the city against a resident that sued over its practices of charging the water department for access to underground pipes and then transferring that money into the general fund to help finance city services.
The settlement, which was reported in November, will see the city return some $12 million to the water and sewer funds and lose about $7 million annually going forward according to a statement put out by City Manager Pat West. Due to the lawsuit, the average customers’ bill is expected to be reduced by about $3 per month.
Losing the fee revenue, which had been at the city’s disposal since the early 2000s could cost the city, and its residents, millions of dollars in lost services.
A possible solution to that lost revenue could rest in the form of a ballot measure that would rewrite the city’s charter to allow for those fees charged to the water department by the city to remain in place, essentially undoing the settlement announced in November.
“That would mean that voters would allow the city to go back to the status quo and continue to receive the revenue that would be lost otherwise,” Ericksen said. “That $8.3 million is the amount that could be tackled by the Charter Amendment.”
The council could discuss that matter in full sometime next year as it was not listed on the agenda for last night’s special meeting—discussing specifics and voting on the ballot measure would have triggered a Brown Act violation—and last night marked the last time that the city council will meet in 2017.
But even if voters approved a charter amendment it would still leave the city with some $7.3 million expected shortfalls for 2019. Mayor Robert Garcia seemed optimistic that the recent uptick in economic development could help stunt some of the impact of the projected shortfall.
“This budget is not fully anticipating what is to come out of projects like 2nd and PCH or Douglas Park or the development downtown or uptown, in North Long Beach, but I think we have to ensure as a body that we continue to support good development, that we continue to support commercial corridors and that we keep the tax base around these master developments and new housing developments strong,” Garcia said.
While much of the discussion focused on the lawsuit regarding the water and sewer funds, Second District Councilwoman Jeannine Pearce questioned whether there was any other litigation that contributed to annual budgets having to be corrected. Pearce noted that she didn’t “want to make tonight about that” but added that there was a “certain department” that incurred a number of annual settlements that negatively impact the budget.
The Long Beach Police Department has settled a number of high profile lawsuits in recent years amounting to millions of dollars paid out by the city for a variety of causes. In September, the city paid out $2.5 million to settle an excessive force lawsuit and in August, the department settled a suit with a Muslim woman for $85,000 after an officer forcibly removed her headscarf in 2015.
In 2016, the city settled two wrongful death lawsuits for separate officer-involved shooting incidents in 2014 and 2015 resulting in the city paying out $3.5 million to the families of the deceased. A June 2016 settlement saw the city pay $3 million to the family of another unarmed man killed by LBPD officers in 2013. And in 2013 the city settled a suit with the family of Douglas Zerby after he was shot and killed in Belmont Shore in 2010, costing the city $6.5 million.
Litigation against the city is unpredictable and so too are some other wildcards that could be in play for the city’s revenue stream. Long Beach has only begun to see its first medical marijuana dispensaries open, and because of the slow rate of openings, has yet to establish the extent to which the industry will impact the city’s revenue flow. It’s also considering allowing the sale of recreational marijuana at some point next year. It passed a temporary ordinance Tuesday night that blocked the sale until a full discussion can be held in 2018.
The council has also recently introduced a plan to possibly tax short-term rental operators in the city which could bring in additional funds. The rising cost of housing, while displacing some residents, could benefit the city as homeowners rebound from the housing bubble and see their home values rise, which also leads to higher property taxes that the city can benefit from.
As the presentation concluded, the mayor doubled down on his belief that development would ultimately prove important in fending off any potential deficits in the future.
“The hotel that we approved last week is projected to bring in, once built, $1.35 million to the city,” Garcia said. “We have four or five hotels right now in the pipeline. When we build large shopping centers some often bring in $300,000 to $400,000 in revenue every year. As we move forward, I can’t emphasize enough, that the economic development side is not insignificant.”