Long Beach officials are optimistic that the city’s budget deficit could be significantly smaller than the $43 million hole they thought they’d have to fill before approving next year’s budget in September.
The City Council held a study session Tuesday to get a high-level preview of the city’s budget outlook before a more formal report is presented in March.
Grace Yoon, the city’s budget manager, said that while new contracts for the city’s police and fire personnel bumped a projected deficit from $27 million to $43 million, recent trends in sales tax and other city revenue sources suggest the deficit could get smaller.
“It is expected there will be a shortfall, but it will decrease significantly,” Yoon told the council Tuesday.
She pointed to previous years in which the city’s originally projected deficit shrank as the actual amount of revenue the city collected by end of the year became clear.
In the 2021 fiscal year, the city projected an $8 million deficit, but it ended the year with a $2 million surplus. In the 2022 fiscal year, which ended in September, the city projected a $30 million shortfall, and the actual revenue is expected to be determined next month. Yoon said there’s expected to be an improvement in the city’s revenue stream.
A big part of the fluctuations between projected deficits and the year-end numbers has been a quicker-than-expected rebound from the pandemic for things like sales tax and the number of hotel rooms that are being booked in the city, Yoon said.
The Measure A sales tax, which was reapproved by voters in 2020, has outperformed projections and surpassed pre-pandemic levels. The lower budget projections were made because of the immediate economic shock that was introduced by COVID-19 shutdowns of restaurants and other businesses, but consumers spent money instead on home improvements, vehicles and cannabis, Yoon said.
“Actually, people started to spend and continued to spend more,” she said of the pandemic’s effect on sales tax revenue.
The city is still facing some economic obstacles, though, that will not be resolved by higher retail and restaurant spending.
Measure A revenue, for example, will decrease over the next five years as the city begins to pay its share of a countywide tax to fund homelessness solutions. The city has collected about $60 million per year in Measure A revenue, but that could drop to as little as $38 million, city officials said last year.
Meanwhile, the loss of Measure M revenue—which came after a March 2022 court decision ruled the city’s transfer of Water Department revenue to the general fund was illegal—will mean the city’s general fund could have about $7.5 million less annually.
A decrease in oil production, and the potential for a new state law to hasten the city’s phase-out of oil-producing wells, could also cost the city another $20 million in annual revenue.
The implementation of that law, though, could be halted by a statewide referendum being financed by the oil industry, which is currently being reviewed by state election officials. If enough signatures are verified, the law could be put on hold until 2024.
Long Beach had previously said it plans to phase out oil production by 2035.
Mayor Rex Richardson said Tuesday he’s working on a request to have city management present the council with future funding options so the city can continue to provide services with new and sustainable sources. Richardson said he hopes that information can help the city begin to plan for future changes to the city’s financial picture.
Long Beach is hosting a series of public budget meetings where community members can share their thoughts on how the city prioritizes services. The first meeting will be held from 6 to 7:30 p.m. tomorrow in the gymnasium (4000 Building) at Stephens Middle School, 1830 W. Columbia St.
The results of the meetings and an online survey are expected to be given to the council and other city officials prior to the annual budget being drafted.