Answers to Your City Budget Questions

By: 
Gerrie Schipske

Q. Why is the budget cycle for Long Beach Oct. 1 to Sept. 30?

A. The budget cycle or fiscal year is the 12-month period during which revenue is earned and received, obligations are incurred, encumbrances are made, appropriations are expended and for which other fiscal transactions are recognized.

Up until 1996, Long Beach had a budget cycle of July 1 through June 30. At the recommendation of City Manager Jim Hankla, the cycle was changed to Oct. 1, to Sept. 30 of the following year. If reference is made to the City’s FY2020-21, this is the period beginning Oct. 1, 2020 and ending Sept. 30, 2021.

Long Beach’s change of fiscal year was done to match the Federal government cycle.

Los Angeles County, the State of California and most California cities have the same fiscal year which begins July 1 and ends the following June 30.

Q. Long Beach Finance Director just announced that the city has a $14 million deficit? Can the council pass a budget that includes a deficit?

A. The city is required by law to balance its budget each year, so when a mayor or council member boasts they passed a “balanced budget” – they are simply following the law.

Q. When the finance director announces a $14 million deficit, what does this mean?

A. It means that the City Council and mayor need to get busy and find ways to either increase revenues or decrease expenditures before they pass the budget in early September. Each department has already told the city manager how much it needs for the coming year to operate at current or increased levels. The finance director assesses potential revenues and calculates whether the city will have enough to cover expenses.

Q. Did COVID-19 cause this projected deficit?

A. Not really. Sales taxes are down because of business closures, but the city only relies upon sales tax for 12% of its revenues. The cause of the deficit is that city spending exceeds revenues. The council and mayor need to focus on reducing spending by using performance measures that show whether a department and its programs are efficient and effective. Instead of just automatically budgeting at the same or increased levels for each department, the city needs to start from zero and justify the size of the budget.

Q. What is the source of city revenues?

A. Revenues received as income from a variety of sources: property taxes, sales taxes, licenses, permits, fines (parking tickets, street sweeping tickets), fees (development, recreational, etc.) governmental grants, utility use tax, special revenue funds from county and state propositions and investment income. Some revenue is available from oil wells owned by the city and not located in the state tidelands area. The City Council also transfers funds from the water and gas departments – which is being challenged in court. All of these types of funds go into the “General Fund” and can be used for police, fire, public works, etc.

Q. Does not the city make money from a port, oil, convention center and an airport?

A. The city does own these operations, however, any revenues made must be deposited into the “Enterprise Fund” which can only be spent to operate these services. The reason is a local government can only operate government services – such as police, fire, public works, libraries. When it operates other type of services outside the role of local government, those monies are termed as “enterprise” and can only be spent to operate those services.

Q. Why doesn’t the city get all the revenues from the oil wells in its boundaries?

A. Complicated answer. Long Beach sits on one of the largest oil fields in the U.S. Some of it is underneath city property, the rest is underneath “tidelands” areas that are the property of the State of California and Long Beach is a trustee. In return the state allows Long Beach to keep a fraction of the revenue on this oil to be spent only in our tidelands area. Years back, the city almost lost all its tidelands funds for spending them on non-tidelands matters.

Q. Can the City carry debt even though they need a balanced budget?

A. Yes. Debt includes bond debt, pension and retiree health benefits obligations. The state auditor ranked all cities in term of its debt risk and Long Beach was ranked high in 2018. (https://california-auditor.connect.socrata.com)

Q. What does the city spend most of its revenues on?

A. Salaries and benefits account for approximately 85% of the budget. This is because the city provides services that are delivered by personnel.

Over the past two three budget cycles, the city has hired almost 200 more staff and the budget for the mayor and City Council and city manager have increased over $2 million.

gerrie@beachcomber.news

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