Work on the city’s Grow Long Beach initiative, a strategy to increase local revenue as Long Beach prepares to transition away from fossil fuel production, is now underway.
Under the initiative, which the City Council approved last week, Long Beach will put together a detailed plan to foster the growth of a set of specific industries to offset oil revenue that is slated to disappear in the coming years.
The city plans to halt its oil production by 2035—10 years ahead of the state’s goal of 2045—which is when the city’s wells are expected to become unviable due to the depletion of the oil field.
“One of the biggest challenges we have as a city is that the way that we fund our city services is fundamentally changing,” said Mayor Rex Richardson, who spearheaded the project. “This is an opportunity for us to acknowledge that oil certainly is a part of our past.”
Through the Grow Long Beach initiative, the city manager will work with the Economic Development Department to propel growth in several sectors: aerospace and aviation; ports and the supply chain; entertainment and hospitality (which includes arts, culture, tourism and restaurants); health care and hospitals; and finally, education.
“The motion that we brought to City Council really unleashed city staff to begin to put some meat on the bone and shape out strategies around these five key sectors,” Richardson said.
The initiative is meant to not only retain services as oil funding diminishes, but to ultimately expand services, he added.
In a March 7 memo to the City Council, Richardson noted that nearly $12 million of existing general fund services are funded directly by oil revenue—services that include the Fire Department, Police Department, Office of Youth Development and implementation of the City’s Climate Action and Adaptation Plan.
While shifting the city’s revenue strategy may seem like a daunting task, he said the city has already seen evidence that change is possible.
“Investing in growth sectors works, because last year was the first year that we projected that we brought in more revenue from a new industry, cannabis, to our general fund than (the uplands oil fund) received from oil,” Richardson said.
How Long Beach will foster the growth of the five chosen sectors, though, is still unclear.
Although not specific to Long Beach, local governments can raise revenue in a variety of ways, including public-private partnerships, asking voters to increase taxes, raising land values by allowing more construction and property improvements, and pursuing grant funding from the federal or state government, as well as from foundations, said Long Beach’s Financial Management Director Kevin Riper.
As for which strategies could potentially be the most lucrative or could be implemented in Long Beach to make up for lost oil revenue, it is too soon to tell, Riper said.
“We know this is a really great opportunity for us to really take a deep dive on all our business industry sectors, and ask: How do we also continue to diversify our revenue streams as we continue to grow and prosper as a city?” said Economic Development Director Bo Martinez.
According to Richardson’s memo, Long Beach’s oil revenues are expected to decline 9-to-10% each year until 2035.
Because the city must set aside a portion of each year’s revenue to cover eventual abatement costs associated with closing down oil wells (including plugging wells, cleanup, etc.), the revenue available for city services will actually decline faster than the total revenue, at closer to 20-to-25% each year, on average, although this can vary year-to-year due to the fluctuation of oil prices.
“For many years, the city has been setting aside a substantial portion of the annual oil revenue towards the eventual oil well abandonment costs that will be required in the fields when the wells close down, and we’re still on track to do that,” Riper said.
However, Riper noted that Senate Bill 1137, which draws protections around existing oil wells, will make matters more difficult, he said. According to a city memo released in December, the city’s financial loss could be as high as $122 million over the first five years of the bill.
“But the larger portion of the oil well abandonment liability is the state’s,” Riper said.
While Long Beach’s oil abandonment costs are estimated at $154 million, the state owes nearly $940 million.
It will take some work to make up lost oil revenue, but Long Beach is a city with a long history of economic growth and expansion in both population and businesses, Riper said.
Plus, this isn’t the first time Long Beach has undergone a major economic transition—in the early 1990s, the Navy began its withdrawal from Long Beach.
“There was a certain set of economic uncertainty and a change with our city’s identity,” Richardson said of that transition period.
Under then-Mayor Beverly O’Neill’s leadership, the city focused on trade, tourism and technology, ultimately making today’s Long Beach “a better place as a result,” said Richardson.
“We have a lot of good things going for us with these five sectors,” said Richardson. “Aviation has been in our city’s history for 100 years. … Aerospace is something that we should continue to invest in and nurture. … Tourism is huge for us. The greening of our port presents huge opportunities for us. Health care and education—we’re so lucky to have these incredible industries right here in our city.”
As beginning steps, the city’s Economic Development Department will begin to analyze what exactly has contributed to these industries’ growth so far, with hopes of better understanding both what the target industries are and how to enhance their growth, Martinez said.
“There’s going to be a deep dive into each of these industry sectors to really figure out: How do we continue to grow and leverage them within the community?” Martinez said. “So I think there’s more work to come.”
Difficulties with determining potential strategies and moving away from oil revenue can include talent retention and recruitment, particularly as all industries are challenged by workforce and labor shortages, Martinez said.
In the short term, building a relationship with the existing business community will be important, just as examining any potential issues that impact Long Beach businesses will be, Martinez said.
“All great cities come with great visions and plans,” Martinez said. “Part of those plans are execution. And I think this is just another opportunity for us to grow Long Beach.”
Richardson noted that in his first 100 days as mayor, he has taken certain steps to get the plan in motion, such as appointing a deputy mayor of economic development, restructuring City Council committees to align with the five chosen sectors and kicking off “Launch Beach,” a mission to recruit 100 startups in the next five years, aligned with the five sectors.
There is no specific timeline, but Richardson hopes that staff will present short-term, medium-term and long-term strategies to the council.
He also noted that much more can be done to ensure that local communities are benefitting from the industries of Long Beach.
“I think we want folks to say that over the course of this past 10 or 12 years, Long Beach took on its big challenges, brought its community together and delivered results,” Richardson said, “and stood as an example of what a modern 21st century, climate-resilient city looks like.”