SH City Council approves 2020-2022 budget with reduced revenue and personnel cuts

Signal Hill voters to decide on increasing sales-tax rate from 9.5% to 10.25% in November ballot.

SH+City+Council+approves+2020-2022+budget+with+reduced+revenue+and+personnel+cuts

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During its June 23 virtual meeting, the Signal Hill City Council approved a budget for the city’s next two fiscal years that reflects a revenue reduction and personnel cuts.

To further help cover increasing expenses projected over the next five years, the City will ask residents to approve a ¾-percent sales-tax increase during the November 2020 elections.

Budget
The council unanimously approved a budget for its next two fiscal years, which starts July 1. The 2020-2022 budget– for which the council conducted a public workshop on May 28– includes reduced revenue projections of $800,000 due to COVID-19 business closures.

The budget also reflects $1.3 million in expense cuts across each department, mainly from reduced personnel costs and deferred maintenance and construction, City Manager Hannah Shin-Heydorn said.

To understand the budgeting impact of reduced sales-tax revenue, City staff analyzed data from the 2008 recession, along with recent economic reports, Shin-Heydorn said.

Sales-tax revenue, represents a sizable 65% of the $22.5 million annual revenue in the approved budget, Shin-Heydorn said. She added that staff anticipates a “swoosh-tick” type of economic recovery, with a partial bounce-back of revenue during the 2020-2021 fiscal year followed by gradual growth in 2021-2022.

Reduced tax revenue from auto dealerships, restaurants and hotels especially affected the city’s coffers, Deputy Finance Director Sharon del Rosario said, adding that retail trends had already been shifting toward online shopping, which increased even more during the closures, further reducing revenue.

The City also lowered its projected property-tax revenue– representing 10% of its total budgeted revenue– due to potential delinquencies, del Rosario said.

Oil-production tax revenue, primarily from Signal Hill Petroleum (SHP), is projected in the budget as relatively stable, she added. SHP’s conditional-use permit to drill oil expires June 30, but in a separate discussion, the council agreed to continue it while the City evaluated conditions for a longer-term agreement.

Though each department cut expenses to help balance the reduced revenue, del Rosario said certain costs are out of the City’s control and had to be added back, such as a State-mandated higher minimum wage starting January 2021 and increasing insurance and retirement pension costs.

Those costs continue to increase in the City’s five-year forecast, potentially cutting into its savings, del Rosario said.

“Expenditures continue to outpace revenues and are accelerating at a higher rate than revenues,” she said. “If fiscal activities remain the same, the general-unassigned fund balance and reserves will decrease over time.”

Tax increase
Shin-Heydorn reiterated a case for increasing the sales-tax rate to help grow city revenues and balance its rising expenses. The council had agreed during its public budget workshop on May 28 to place the tax hike before Signal Hill voters on the November 2020 ballot.

See related story: SH City Council considers raising taxes during budget workshop

At the council’s June 23 meeting, Shin-Heydorn referred to the tax increase as the Signal Hill Reinvestment and Recovery Measure.

Signal Hill currently imposes a 9.5% sales-tax rate, of which the city gets 1%, Shin-Heydorn said. Most surrounding municipalities, including Long Beach, already charge the State’s maximum rate of 10.25%, she noted.

Chart from the June 23 Signal Hill City Council meeting showing the City’s forecasted
expenditures (orange bars) increasing over time faster than projected revenues (blue
bars). To help increase future revenue, the council approved a measure for the November
2020 ballot to increase the sales-tax rate from 9.5% to 10.25%. (Courtesy City of SH)

Not charging the maximum rate also leaves Signal Hill open to other agencies– such as the Air Quality Management District (AQMD), LA County and LA Metro– imposing taxes in the city for their own purposes as they have done in the past, Shin-Heydorn said.

The City raising its own tax rate would ensure that the additional revenue stays within its bounds.

“The funds received […] would be dedicated for the sole use and benefit of Signal Hill and would not be vulnerable to other agency grabs,” Shin-Heydorn said.

The alternative of lowering expenses further would reduce municipal services and residential quality of life, she added.

Shin-Heydorn cited a January survey showing that 90% of residents are currently satisfied with city services and 83% said the current quality of life in Signal Hill is “excellent” or “good.”

The survey also shows that two-thirds of residents would support a sales-tax increase to ensure continued services, Shin-Heydorn said. Services that respondents prioritized in the survey include: continuing a fast response to 911 emergencies; maintaining sidewalks, streets, trees and storm drains; and keeping public areas clean, safe and graffiti-free, Shin-Heydorn said.

“The local Reinvestment and Recover Measure will allow the City to continue to maintain the quality of life, maintain quality of services, maintain local property values, ensure future disaster readiness and address basic repairs and maintenance,” she said.

“All for ¾ of a cent.”​

Prior to COVID-19, the city had an unemployment rate of 4% and had seen budget surpluses for 18 of the past 20 years, according to the staff report. Sales-tax revenue for the first two quarters of its 2019-2020 fiscal year came in higher than budget forecasts.

No one could have anticipated what would happen with COVID-19 in 2020, Vice Mayor Tina Hansen said.

Mayor Robert Copeland thanked previous councils for saving the budget surpluses in reserve funds for when it was needed.

Councilmember Edward Wilson noted that the reserves did not have to be drastically reduced to balance the budget. Shin-Heydorn said reserves are currently at 70% of the General Fund balance, higher than the City’s goal of 50%.

Wilson also said a city’s budget reflects its priorities and pointed out that the new budget still including funds for youth services in the Parks and Recreation Department, even though COVID-19 activity restrictions persist. Not only do such programs offer productive avenues for youth and promote public safety, he said, but those youth learn to identity with the city by participation in those programs.

“We maintain our identity through various means and the youth program is one of those,” he said. “We’re not just a neighborhood in Long Beach, we are a separate city,”

The next Signal Hill City Council meeting will take place virtually on Tuesday, July 14 at 7pm. For information on accessing and participating in the meeting, visit the council’s webpage.