Critically Speaking: Budget time blues?
Tough times could be on deck for the city of Long Beach.
I can remember one of the first budget cycles I covered in Long Beach where former Mayor Bob Foster painted a grim picture of the city’s financial situation in 2014.
Then, the “freight train” that was poised to hit the city’s coffers that year was the steep increase in employee pension contributions, along with other rising costs. It was supposed to be very bad.
As a younger reporter, I assumed the worst.
But that press conference wasn’t followed by draconian cuts and the city survived and has thrived since then. But now the city has a new freight train chugging toward it.
Long Beach’s budget release this year wasn’t ushered in with the same tone as a decade ago but if you read between the tea leaves there are some potential problems on the horizon.
For starters, the nearly $300 million in COVID-19 relief funds that has helped stave off large-scale cuts over the past few years are about to run out. The city is obligated to spend that money by the end of this coming fiscal year and it intends to use $20.3 million in pandemic relief funds to balance the coming year’s budget.
But after that, Long Beach officials will have to find other sources of revenue to cover the $20.3 million that will be kicked down the road to 2026. And it will likely have to do so without federal or state funding.
The loss of that money will present more than just a math problem that needs to be solved. It could also lead to several dozen health department employees, who were funded through that aid package, being laid off.
The $20 million problem is structural, meaning it’s baked into ongoing expenses like employee salaries versus “one-time” costs like fixing a park restroom or paving a street.
The problem could get worse as the city begins to phase out oil money from its future spending plans, something that it has to plan for as oil operations begin to wind down in the city.
But the good news is that the city regularly uses conservative projections when it releases its annual budget, and in recent years those projections have improved markedly by the time the fiscal year finally closes.
For instance, the budget that the City Council will deliberate over for the next few weeks was originally projected to have a $28.4 million deficit. But that then dipped to $23.5 million in March and is now down to $20.3 million.
The fluctuations can come from an increase in people’s spending habits that drive up sales tax revenue in the city or the historically high home prices that the region has seen, which has translated to higher property taxes that the city collects. Both are among the top revenue streams for Long Beach on an annual basis.
There’s also a potentially major lifeline the city’s purse can get via a ballot measure that voters will decide in November. If voters agree to end a decades-long exemption for two power plants from paying the city’s utility users tax—the same one all residents and businesses pay—it could add $15 million annually to the city’s budget.
Expanding the city’s economy could also help and last year’s splashy announcement that the city wants to build an amphitheater near the Queen Mary appears to be moving forward. This week the city put out a request for an operator to run the future music venue.
So are tough times on the horizon? They could be, but there are ways to slow down or even derail this freight train.
But it could be difficult as employee salaries and the cost of materials increase while oil revenue’s contribution to the general fund continues to decrease.
If the deficit gap can’t be closed, then it could require cuts to services and staffing.
However, in my time covering city hall, I’ve yet to meet a city manager who wasn’t confident that the city would weather a financial storm. Let's hope optimism is still in the air.
What happened this week
The talk of what may or may not end up on your local ballot is over after the City Council and Long Beach City College Board of Trustees both voted this week to put questions on the ballot for you to answer in November. Does LBCC need $990 million in bonds to help renovate and build new buildings at its two campuses? Should Long Beach go away from the Civil Service model of hiring to help speed up its hiring process? Should two power plants in the city see their exemption from paying a city tax go away so the city can collect a projected $15 million per year? These are all important questions that could affect the city for decades and you’ll have a hand in deciding them this November. So, if you’re not registered to vote already, now's a good time to do that.
Something to keep an eye on
The former operators of the Queen Mary were back in the news this week and it wasn’t for a good reason. This week, the U.S. Securities Exchange Commission filed security fraud charges against Taylor Woods and Howard Wu, the men who co-founded Urban Commons, which operated the historic ship in Long Beach between 2016 and 2021. The SEC claims the two defrauded investors across the country out of $70 million. The two are not strangers to allegations that they’ve taken others’ money and misused it. The city issued $23 million in bonds to fund repairs for the ship when Urban Commons took over operations but many of those repairs were never finished. This resulted in the city having to pour millions more into the ship when it took back control of it in 2021. The city was not part of the SEC’s filing and previously dropped its claim to any payment from a bankruptcy proceeding for Urban Commons last year.
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