Last June, the City of Seal Beach adopted a budget that had only an $11,000 surplus. This surplus was “razor thin” considering that the city is expecting $30 million in General Fund revenue. Even still, this surplus was only possible because staff recommended “robbing Peter to pay Paul.” Specifically, diverting $579,000 of OCTA Measure M2 and state gas tax revenue from road repairs to staff salaries and various other expenses that would otherwise have been charged to the General Fund.
Due to the availability of unused M2 and Gas Tax revenue from prior years, this diversion of new revenue will not impact the $2.2 million package of road-related projects planned for this fiscal year (which started in July). However, the same cannot be said for projects slated for next year if this revenue diversion is repeated.
Regarding incoming M2 revenue, 87 percent ($349,000) of the anticipated $400,000 was appropriated for non-construction projects. This included $55,000 to pay part of the electric bill for our street lights, $184,000 to pay for the city’s senior bus and dial-a-ride programs, $50,000 for street maintenance staff salaries, and $61,000 to pay for a consultant to monitor how well our new Traffic Management Center is doing with signal timing. Last year, all of the $400,000 in revenue was earmarked for road resurfacing.
Looking into the future at the fiscal year that starts in July 2018, if we repeat a $349,000 cost-shift, there would only be $51,000 in M2 revenue left for road resurfacing. Throw in what’s left over in unspent M2 revenue from prior years, and the little bit that’s left over from the $5 million in General Fund reserves earmarked for roads by the council in 2009, and we will have about $220,000. However, this is only about half of the $475,000 that our “Capital Improvement Plan” calls for spending on resurfacing projects in FY 18-19.
Regarding the state Gas Tax, 88 percent ($625,000) of the $713,000 coming in this year was appropriated for non-construction projects.
The $625,000 is made up of two components. The largest is a $550,000 transfer to the General Fund for “overhead and storm drain maintenance.” This represents an increase of $150,000 from the amount transferred the year before. Ironically, this transfer increase will chew up most of the $173,000 bump in revenue we expect from Governor Brown’s recent increase in the Gas Tax. The second component is $75,000 for our biannual survey of city road conditions. To my knowledge, Gas Tax money has never been used to pay for these surveys in the past.
Looking ahead to next year, FY 18-19, no road condition survey will be needed. However, if we again transfer $550,000 to the General Fund for overhead and storm drain maintenance, this will leave only about $163,000 in new Gas Tax revenue. This and a small amount of left-over revenue from the prior year will be just enough to pay for our routine annual slurry sealing of roads, repairing sidewalks, stripping roads, and replacing road signs. However, there will be no money left over to help offset the FY 18-19 shortfall in M2 funds for road resurfacing projects.
The diversion of M2 and Gas Tax revenue described above breaks no laws or regulations. While these revenues must be used for highway purposes, broad definitions in the State Constitution give cities quite a bit of latitude in how they choose to spend the money.
However, all roads slowly deteriorate over time, so we will eventually have to “pay the piper.” Fortunately, our roads had an average rating of “good” on our last report card back in 2016. Therefore, we should be able to temporarily put off some resurfacing projects, and continue to balance our budget with M2 and Gas Tax revenues for a few years or so without major consequences.
However, Seal Beach is clearly now a city struggling to make ends meet despite the economic recovery — “cash strapped” in the words of one Council member. There are several causes for this. Some are within the control of the Council, but the major ones aren’t.
The budget process concluded in June with the Council placing great hope on the hiring of an oil consultant to identify ways to extract substantially more revenue from our local oil and natural gas producers. However, the budget surplus was so small that no money was budgeted to pay for this consultant.
Let’s all keep our fingers crossed that we “strike oil” soon. Otherwise, it may not be long before a day of financial reckoning is at hand with hard choices to be made between potholes, public safety, pay raises, pensions, and raising taxes.
