Long Beach Budget Talks May Consider ‘One Time’ Revenue Again

Also, Council OKs Purchasing Software To Include Public In Budget Process

By Sean Belk - Staff Writer

May 8th - After substantial debate last year that led to the city council devising two separate budget proposals, discussion about the city’s policies regarding the use of “one time” revenue may return to the budget process this year.

Looking to prevent possible upcoming cuts to city services, at least two Long Beach City Councilmembers expressed interest in revisiting how the city uses surplus city revenues, primarily sales tax, property tax and oil income, and whether they should be treated as ongoing funding or temporary windfalls.

Faced with a projected $33.8 million structural general fund budget shortfall over the next three fiscal years, the city council is expected to commence budget hearings soon for fiscal year 2013, which starts October 1.

Currently, the city’s financial management operation has a policy where oil revenue from production in oil fields is budgeted using an “under projected” fixed price, typically at $55 a barrel, to withstand high market-volatility. All oil revenue, including profits realized above projections, is considered unpredictable and treated as a one-time gain that may only cover temporary costs, such as capital improvements and equipment, outside of ongoing general fund expenses.

Although also unpredictable in nature, sales tax revenue, however, is used as an ongoing funding source, with revenue above projections often offsetting other shortfalls in the general fund.

Councilmember Gerrie Schipske brought up the agenda item during the May 1 city council meeting, citing articles from the Government Finance Officers Association (GFOA). In the agenda item, she proposed increasing the city’s oil price projection to $75 or $85 a barrel and using revenue that comes in at that projection for ongoing expenses, while using surplus revenue for onetime costs.

She said the city council should establish a policy on how to spend under projected funds. Councilmember Steven Neal gave “merit” to the proposal.

Mayor Bob Foster objected, however, stating that the city’s financial management already has a policy that’s been in place for years, which is to not use any oil revenue for ongoing expenses to prevent shortfalls if oil profits falter down the road. He said changing the city’s fixed oil price is a “fair discussion,” but discouraged changing the city’s financial policy.

“I honestly don’t know why we’re going to rehash this, unless we’re going to change this,” Foster said. “I think [keeping the policy] is the prudent thing to do, otherwise we could spend ourselves into a bigger hole than we already are in.” Further, he said the city uses sales tax revenue, which increased about 11 percent last year, mainly to plug other revenues that come in under projections.

Councilmember James Johnson agreed with the mayor, stating that the city follows GFOA’s recommendations for one-time revenue uses. “We don’t have financial policies for easy times, we have them for tough times,” he said.

Last year, Schipske, Neal and Councilmember Rae Gabelich proposed using oil revenue – which came in over projections due to oil selling at above $100 a barrel – to avert cuts to city services. The proposal was also promoted as a way to leverage pension reform negotiations with the city’s police union.

Ultimately, the city council voted against the plan and, instead, agreed to spend about $18.4 million in oil revenue on one-time costs, such as infrastructure repairs and other temporary city department expenditures, just weeks after the city council approved the budget.

John Gross, director of financial management, said the city’s budgeting staff should have a more clear projection of revenues for the upcoming fiscal year about midway through the current year’s budget cycle.

City Manager Pat West is required to present budget recommendations submitted to the mayor no later than 90 days prior to the beginning of each fiscal year, which starts October 1, according to the city charter. So far, city staff projects a $16.4 million deficit in the general fund for fiscal year 2013.

Also, the city manager is expected to give a presentation on possible “government reform” options, including possibly privatizing some city departments, during an upcoming budget hearing, which city staff said has yet to be scheduled.

In related news, the city council unanimously agreed to purchase and administer interactive budget software to spur more public involvement in the budget balancing process this year. The council agreed to select a vendor without a request for proposals and spend no more than $15,000 on the software.