Part two of two.
City staff anticipates shortfalls, according to the head of the Seal Beach Finance Department.
Finance Director/Treasurer Barbara Arenado encouraged the public to attend the May budget workshops during the April 8 midyear budget review. (For part one of this article, see “Council receives mid-year budget review”)
The review was based on the city’s revenues and expenditures through December 2023.
Finance director’s presentation
The following are highlights from Arenado’s presentation.
“The city revenues overall is coming in slightly stronger than the previous fiscal year at this time, but we do anticipate a few shortfalls in the remaining fiscal year,” Arenado said.
She said overall revenues would come in on budget due to one-time revenues. She also said most of Seal Beach’s revenues come in at the second half of the fiscal year.
“General fund revenues consist mostly of property tax sales tax and utility users tax,” Arenado said.
“When you include franchise fees, transient occupancy tax, and you add in business licenses, that’s 80% of our revenues and 80% of our revenues are based on conditions we cannot control,” Arenado said.
“Sales tax and property tax are revenues for the city, but unlike some other income streams the city doesn’t have direct control over how much money it receives from them. These taxes are determined by factors like consumer spending and property values, which are influenced by the broader economy and local market conditions,” Arenado said.
“Property tax is the city’s largest revenue source, making up 35% of the General Fund and is a stable revenue source at this time,” Arenado said.
She said midyear payments were coming in as expected and staff anticipated hitting budget by year’s end.
Sales taxes
She said sales taxes were trending down in the third quarter.
She said that, according to HdL, if the sales tax declines further, staff may need to return to council for further reductions.
“As of now, we have received less revenue than the same time last year. The city sales tax is mostly consumer goods and casual dining; restaurants and all segments are down besides casual dining,” Arenado said.
“Some good news. UUT is 11% of the budget,” Arenado said.
“The city is receiving growth in UUTs revenues across all categories, especially in electric,” Arenado said.
“For the first half of the year, especially in electric for the first half of the year, we have seen positive gains outpacing assumptions,” Arenado said.
“We anticipate this revenue source to be up 600,000 [dollars] from budget assumption,” Arenado said.
She attributed the increase to increasing costs and inflation.
“More good news is transient occupancy tax which is our hotel tax and we are including in midyear a $200,000 increase to our TOT. The reason is our hotels have surpassed pre-pandemic levels. They’ve exceeded them. This number could even increase slightly as some of our hotels are sold out in March,” Arenado said.
“This is really good news. We’ve partnered with them and we’ve met with each hotel and we’re going to be meeting with them on a quarterly basis so we can continue to get information on where we’re at, it’s really too early to tell as this revenue source is truly highly volatile,
She said the TOT tax was driven by market demand.
Arenado said staff anticipated TOT revenue to be strong through next year, barring any unforeseen economic changes,” Arenado said.
She then discussed charges for services.
Arenado said staff requested a reduction in parking meter revenue by $269,000.
Parking citation revenue was yet another issue.
“A request is being provided to reduce parking citation revenue by a half a million and this is due first to greater compliance, and that truly is the ultimate goal, for greater compliance,” Arenado said.
She also reported on one-time revenue .
She started by saying Seal Beach had paid off the fire station bond.
“Part of that bond covenant was to hold a reserve amount of approximately the first year’s payment and that is being returned to the city and that amount will be refunded back to the General Fund,” Arenado said.
According to her slide, that would be $659,500.
“Additionally in 22-23 the city had severe atmospheric rivers and the pier was damaged. The repairs were completed and General Fund proceeds were used and the insurance payment has been received,” Arenado said.
“Additionally the fire final reimbursement payment for the 2016 pier fire is anticipated to be received by the end of this fiscal year,” Arenado said.
Then she turned to expenditures.
According to Arenado, 50% of Seal Beach’s expenditures are salaries and benefits, including retirement. She said Seal Beach was lean for a full service city.
“Maintenance and operations constitutes 50% of the General Fund budget,” Arenado said.
She said maintenance and operations was expected to be over budget by year’s end.
Arenado said departments are expected to stay within their budgets.
According to Arenado, Seal Beach doesn’t typically have midyear budget adjustments, but there had been so many storms and emergency situations that there were requests for midyear adjustments this year. (Those adjustments were approved last week at the same time the council received the midyear budget review.)
“This year we were under budget primarily due to the city’s vacant positions,” Arenado said.
There had been a delay in both full time and part time hiring “due to ongoing labor constraints,” according to Arenado.
She said overtime was well-monitored but fluctuates due to unanticipated events.
Council questions
“What areas are you concerned with the most out of the based on the midterm analysis?” asked District Two Council Member Tom Moore.
“Definitely would be a reduction in our revenues,” Arenado said.
“We’re seeing over a million in reduction in revenues,” Arenado said.
“Like I mentioned, the citations, parking meters, we’re also seeing them in permitting activities,” Arenado said.
“After Covid there was a lot of people home and making improvements. Those are no longer happening and so those reductions in revenues will severely impact the budget going forward because that reduces the ability to fund programs and services,” Arenado said.
“Are we looking at expenses? What are we doing to reduce expenses?” Moore asked..
Arenado said she, departments, and the city manager, have been looking at line item details in expenditures across the board. She said they were looking at all service contracts.
She said the city was negotiating contracts.
“I’ve negotiated three contracts already for reduction in prices,” Arenado said.
“It’s a tough market to negotiate a contract less, but that’s the goal right now,” she said.
She said the goal right now was to preserve what positions the city has because that’s how the city provides the services.
Moore said he didn’t understand the parking meter revenue.
She explained that $349,000 was the budgeted amount for parking revenue.
The actual amount the prior year was $210,000.
Arenado said it was dropping. She said she thought the expectation was that Seal Beach was going to receive more money. She also said everything impacts parking in the city along with citations. That included the rain, staff on the meters, and the number of people visiting the beach area.
Moore said Seal Beach made more money with the parking meters versus the pay stations.
According to Arenado, no. She believed the city anticipated more revenue than the city actually received.
Arenado encouraged the public to attend budget workshops when they are held and provide their feedback.
District Three Councilwoman Lisa Landau asked when the budget workshops be held.
Arenado said right now staff was looking at May 14 and 15.
District Five Councilman Nathan Steele compared the situation to checking an airplane while it was in the air to see if there was enough fuel in to reach where they were trying to go.
“So it’s kind of a forward look here?” he asked.
Arenado said that was correct.
“And right now we’re under pressure on revenue items, in general. I think we have one bright spot in ongoing revenue?” Steele asked.
“UUT and TOT are both up,” Arenado said.
Steele referred to the five-year outlook that came out in 2023. He asked if that was getting better or worse.
“Due to the reductions in revenues, it’s getting worse,” Arenado said.
“What can we do to find new sources of revenue or other cost savings as we go forward?” Steele asked.
“Staff can evaluate programs and services and how we’re looking at that and staffing levels and see if we if there’s any kind of duplication of services which we’re truly not finding,” Arenado said.
“But, really, as these mandated costs consume our budget, we really need to look at opportunities for revenues, especially as we do look at the five-year horizon and beyond,” Arenado said.
“Expenditures are going to keep going up just like in everybody’s household those expenditures keep going up and we need to partner with Council to ensure that we’re working in partnership to increase revenues for the fiscal sustainability of the city
“I completely agree, we need to be looking for revenue opportunities. We also need to be watching our operating budget as closely as we can. I know you’re going through the budgeting process right now for our next year’s operating budget. How is that going? Is it a moving target, is it hard to meet, are we going to make it?” Steele asked.
“Well I have to say you have an excellent team out here that I’ve been partnering with every day. I’ve talked to several of the staff,” Arenado said.
She said staff talk all weekend and work through questions and thought processes on how they can balance the budget.
“Right now, we do have a gap and we’re working to close that as much as we can,” Arenado said.
She said that the city had $1 million less revenue in just one category of charges for services.
“How can we educate the public about this stuff?” Steele asked.
“Communication is key,” Arenado said.
She said the May budget workshops would be an excellent opportunity to ask questions.
Arenado said the budget workshops would be long.
District Four Council Member/Mayor Schelly Sustarsic said she had a question about the parking revenue being down.
“I’m wondering about our expectations for the nighttime hours it seems to me that the cars that are there are mostly going to stay there. Did we overestimate that or is it something else I’m not understanding?” Sustarsic asked.
Seal Beach Police Chief Michael Henderson said that what they were finding is that they are achieving compliance. Henderson said that sometimes results in lower revenues.
Sustarsic turned to the budget amendment. She said she was concerned about the McGaugh Pool and having revenue available for its upkeep “to try to drag out its years.”
She expressed concern that an unexpected event could force what she called a premature shutdown of the pool. “I’d just like to see the pool continue for as long as we can keep it,” Sustarsic said.
City Manager Ingram staf staff would continue through the annual budget process for ongoing maintenance of the pool. Ingram said in the event of something unforeseen, staff would come back to the council for discussion and a budget amendment.
District One Council Member Joe Kalmick asked if there was a horizon on rates for the beach parking lot. “And if we do finally get Coastal Commission approval, do we have any kind of back of the envelop projection of what we might generate in revenue from those increases?” Kalmick asked.
Henderson said the application to increase beach parking rates had been submitted to the Coastal Commission. Henderson said city staff had set up a meeting to discuss it with Coastal Commission staff, but said the process might take some time.
