Speaker 2: Motion carries.
Speaker 3: Thank you. Number 17, please.
Speaker 2: Report from financial management. Recommendation to receive and file report on an updated preliminary budget projection, including solutions to balancing the fiscal year 2019 budget shortfall citywide.
Speaker 3: Thank you, Mr. West.
Speaker 10: Mr. Vice Mayor, council members. This is a report that was presented earlier in the day to the.
Speaker 4: Budget Oversight Committee.
Speaker 10: So the Budget Oversight Committee has weighed in on this. I'm sure they'll have comments regarding the the report you're going to see. This is the identical report they saw earlier at 330. So I'm going to turn this over to our finance director, John GROSS, and our interim budget manager, Grace Yoon. And this is a really early look.
Speaker 4: You see.
Speaker 10: At the fiscal year 19 budget. So we wanted to jump ahead on this and deal with a projected shortfall that we chatted about in the past. So, John and Grace, thank you, Mr. West, very much. And I am very pleased with the with Lia Eriksen off on other duties to have Grace Yoon as the interim budget manager and the staff have done a tremendous job getting ready for this. This time at at a December 19th, 2017, city council study session, the Budget Office provided then a preliminary projection for FY 19. This is an update to that preliminary projection, and this update provides a solution to the preliminary budget outlook shortfall. The updated projection shows a balanced fy19 budget when strong balancing actions are taken. The primary causes of the shortfall that we're seeing are pension costs and slow revenue growth. The updated preliminary projection adds $1.8 million of new revenue and $2.7 million in additional cost. The Budget Office has also identified 11.3 million in additional budget balancing actions if the preliminary projection holds after further upcoming updates and if the City Council approves the balancing actions, we should have a balanced budget. This is great news, but there are some caveats I wanted to mention if there are unusual cost increases for F9 90, for F9 19, that's next year. Departments will need to absorb them and there may be impacts from that. At this point, we also do not expect any surplus or new funds for one time purposes. The city is independently recognized as having very good financial management and we are always improving efficiency. But those good aspects cannot overcome the major impacts from pension costs and slow revenue growth. Budget issues are likely to continue into the future. Most importantly, the projection does not include the impact of litigation. That impact will be discussed later in the presentation. In summary, based on the preliminary projection, we have the very good news that we believe we can achieve a balanced budget. Balancing actions and their dollar size are key factors in addressing the preliminary shortfall projection. It is projected that we will require 11.3 million new net new balancing actions to provide a stretch structurally balanced budget. And the Budget Office has tentatively identified preliminary balancing actions that will do just that. We believe there is about $4 million and balancing actions available from fee and fine increases and parking revenues. Ambulance fees are one key area for potential revenue for many people. These fees are often covered by some type of insurance. The current fees are below cost and below the current L.A. County rates, parking fines or another key revenue source. The current fines are below those in Los Angeles, and the city does not charge for the separate fees that the state collects. The Budget Office will also look at other fees that are not recovering costs and other fines for potential increases. We are also suggesting that an initial estimate of $900,000 may be available from transient occupancy taxes on short term rental of homes and apartments done through services such as Airbnb. This is a national issue and we are suggesting that action could be taken by city council in the near term to begin to collect that money. We are also suggesting using $3.1 million in new measure revenue and $3.9 million in a reallocation to public safety of Measure A. We have recently received information to allow us to better project the new measure A revenue. There is now strong indication that measure a revenue is better than we originally projected. In looking at that and proposing that reallocation. We want to point out that there is no adverse impact on the city's $150 million infrastructure program. Finally, an estimated 2.9 million in other balancing actions is needed to balance the budget based on preliminary based on the preliminary projection. We believe that we can find that amount through vacancies, savings, new funding sources, additional efficiencies and other areas of cost reduction. Included in this would be finding offsets for unfunded cost increases that departments incur. Some of the additional balancing actions could have an impact on services, but we would strive to keep them to a minimum. There is a total of 14.8 billion and suggested balancing actions. 3.5 million of those were already assumed in the original budget. So there needs to be an additional 11.3 million and balance to balance the updated preliminary projection. And we have identified that $11.3 million to achieve a preliminarily balanced budget. The actual budget shortfall and the needed balancing actions may be different from the amount shown in the preliminary projection. It is early in the year and as the year progresses and more information becomes available, there is potential for significant variance to the preliminary projection. For example, a 1% variance and overall revenues could mean 4 to $5 million. Updated projections may require less or more budget balancing actions, and if more budget balancing actions are needed and are not available, then department reductions may be necessary. We expect a major projection update to be released sometime in March and then a final three year projection update will be released with the proposed budget in July. In summary, the 2019 budget is balanced based on the preliminary projection and the 11.3 million in balancing actions. Unfortunately, the preliminary budget that I have described does not take into account the impact of litigation. Litigation has a major budget impact. Litigation will result in service reductions due to a loss of long time revenues. There are two lawsuits that are issues. The recently settled litigation concerning the water utility adds another $8.3 million to the budget shortfall. In addition, depending on whether the city wins or loses some gas utility litigation, it could add another $10 million to the shortfall. These kinds of budget impacts will result in substantial reductions to department budgets and the associated services. The charter amendment, currently being considered by City Council for Inclusion on the ballot, could prevent the service reductions due to the two lawsuits with no historical cost increases. Two Fy19 budget options will be prepared because of the uncertainty with regard to the charter amendment. It cannot be assumed that the charter amendment would put on the ballot or that if it is put on the ballot that it will be has. As a result. The 1419 budget process that is now underway includes the development of two budget options. One option is with no impact from litigation. The other assumes an $8.3 million additional shortfall as a result of the water litigation settlement. Settlement of the gas litigation is expected to be about two years away. So the budget does not include that potential impact. Whether the litigation will impact the budget will be known one way or the other before the proposed budget is completed. As soon as that is known, the appropriate option will become the basis of the FBI 19 proposed budget. As the city manager develops the proposed budget, the budget balancing approach will focus on maintaining services and other key goals. We will emphasize the most important and core services. We will focus on maintaining the previously restored public safety services. We will focus on ensuring a strong public safety continuum. We will focus on providing a balanced and broad range of services. And we will focus on maintaining services that provide financial, technological and H.R. controls and capabilities, and will focus, of course, on strong economic development, strong financial management, and on reducing costs and increasing revenues. We will retain filled positions wherever feasible. The Fy19 budget provides numerous opportunities for city council and community input. Due to the complexities of this year's budget, we are kicking off the formal process a month early with this presentation that occurred a few hours ago to the BRC and the City Council. An updated projection will be provided in a memo in March and a midyear update on FY 18 savings will be provided in May. Then, in accordance with the City Charter, the proposed budget will go to the Mayor in July and the Council in August, and there will be a series of community budget meetings with the BRC and City Council and hearings on the budget. Adoption is adoption and the budget is expected to be either on September 4th or September 11th. And that concludes my presentation and I'm available for questions.
Speaker 1: Thank you very much. That was a great presentation. I want to first turn this over to Councilman Mongo. I'll make some comments at the end.
Speaker 5: Thank you. I want to thank the city staff for their hard work in both tightening up the budget and our economic development and department for helping with our economic initiatives that have made it possible for additional revenues to come in. I know that since the 3:00 meeting today, when we first announced that this would be possible, we've already received some fake news tweets related to people saying that the council's overspending and how could we have a deficit? I think that they're completely misunderstanding. We. In the future, see that expenses are growing and revenues were outpacing them. And so with the partnership of my colleagues, we looked to the future and said. Winter is coming. Let's tighten up our belts now. Let's put forward the initiatives necessary to grow our business corridors, to invest in our opportunities with our revenue related to capturing sales tax leakage, where Long Beach residents were purchasing items in other cities. And now we're reinvesting in encouraging them to purchase those same things in Long Beach so that $0.02 of that $0.10 comes back to the city of Long Beach instead of a neighboring city. And because of this forward thinking city staff and the support of my colleagues, we are ahead of schedule like we have never been before in terms of ensuring that we do not go into a budget process planning for a deficit. And so for that, I just want to make sure that the messaging is accurate and clear. We haven't spent into a deficit. We were projecting. And then with the courage to say, we know what's coming, let's tighten our belts today. Let's invest today. And let's be sure that our future is bright and that the things that the residents care about our public safety, our infrastructure, our afterschool programs are safe. Those programs are key to keeping a community vital. And this budget and this these balancing strategies ensure that the city and the residents are kept whole. And for that, I am so thankful for everyone's support and guidance. I am really proud to serve on this council, and I'm really proud to serve with two amazing budget oversight committee members who, for the first time in years, our committee looked at financial policies and made the tough decisions to look ahead to the future and find resources and opportunity. Thank you.
Speaker 1: Thank you. Vice Mayor Richardson.
Speaker 3: Thank you, Mr. Mayor. And thank you. Chair Mongeau Budget Oversight Committee Chair Mongeau. We had a conversation months ago and we literally entitled are our op ed Winters coming or something like that? And I think it's smart that, you know, we asked city staff to take a look at this. And, you know, I just want to say the final financial management staff, this is the kind of kind of creativity we were asking for. I have to say, bring in two proposals to bring bringing to budget options forward. It's interesting. I wonder what the response of the public from the public will be. But I think it's smart to educate people on the potential risk of, you know, the potential impact of litigation, because the reality is we deal with these lawsuits all the time, and many folks don't know sort of the impact of the decisions that we have to make here. It's smart that we're moving it moving forward with a proposal to and, you know, to maintain what we restored. I think it would be unfair to the public if we presented a budget that takes out of service the things that we just placed into service like Rescue 12, like Engine eight, like the South Division. And a lot of times it takes time to ramp up and really adjust our systems. So we have to make sure that we are putting our best foot forward to protect those services. I think the part about strong, strong, focused focus on strong economic development, I just want to underscore that that should be all across our city. So projects that are happening in all parts of our city, we should do we think, you know what I'm talking about time. We should make sure that we're doing what we can to move those projects along in all parts of our city, those economic development projects. So again, I support this direction. Again, the angel is in the details. I do want to better understand what it looks like, sort of the details of what these savings look like. But I love the direction that we're trying our best to sort of protect and preserve the quality services that our city provides. So, so thank you. And I'll be I'll be supportive of this. Thank you.
Speaker 6: Thank you. I definitely want to applaud the BBC and the staff for all the work that they've done on this. I know that, you know, at the end of last budget cycle, it was a lot of conversation. Yes. Like Winter's coming and that we are going to be dealing with a massive deficit. And so I also want to make it clear for some of my constituents that this is, in fact, a proposal from city staff, a projection of where the work is. So I just have a couple of clarifying questions for the revenue from short term rentals. Where did we get that number from?
Speaker 10: That number was based on very preliminary information, very preliminary based on Airbnb and then expanding it to potential other similar type firms. A lot of work needs to be done to confirm that, and we certainly recognize that council has not taken action on this.
Speaker 6: Great. And could somebody update us on just the RFP process and where we are with the short term rental?
Speaker 10: Yes, Councilmember. We have closed the RFP process. We're very close to issuing an award and we would be able to get started pretty soon. So we expect a memo out next week that we can kind of outline where we are in that process. So we issued the RFP in October. We're just about done now, which is about four months. And then we're targeting for summer to be able to do the work, the outreach, and come back by summer, which would line up with this budget process.
Speaker 6: Great. Thank you. And one of the clarifying reasons I asked is because I know in the item that we had also asked through that RFP process for the consultant to explore ways to direct some funds to affordable housing opportunities, considering the balance and the relationship in between short term rental. So I just want to be clear with that as we move forward with the process that there are lots of different ways to get revenue from short term rentals, whether it's fee based or fines or anything like that. But just that that is an ambiguous number that we still have a lot of work to do. So I just wanted to recognize that. I also wanted to just say how much I appreciate the fact that we're looking across the board economic development, obviously not only in downtown but in the third District and North Long Beach is really critical. Adding those housing units is also super critical. And I look forward to having a community process where we talk about how we have equity in services throughout the city where everybody can be involved in this. So I'm very happy that this is coming forward earlier than planned. I appreciate it. Thank you.
Speaker 1: Thank you, Councilwoman Price.
Speaker 5: Thank you. I already asked most of my questions during the BFC. Just as a summary for my colleagues, I did clarify that the reference to the term litigation in the presentation is referencing specific litigation, not litigation in general. So we are and are not anticipating these numbers to change dramatically just because of litigation in general, but but rather more specific litigation. So that was one of the topics I discussed, but I did not talk about short term rentals and I'm glad Councilmember Pearce raised it just in case any of my residents, especially from Naples in the peninsula, are watching. Short term rentals are prohibited in the city of Long Beach. And I understand that. And we're not by any stretch of the imagination changing the policy by discussing this. However, and I just want to clarify, if we do take some action in terms of short term rentals, it's it's right now it's very unclear what that action would look like. We may choose to take action where we allow them in some parts of the city, disallow, allow them and others based on parking impacts, density, all of that. So so hopefully we're not I mean, we understand that we have a long way to go. We're talking about what the fees and taxation rates will be. And in my district, I'm having the communication about whether or not we're even going to allow this. So I just want to make sure that the conversation is very clear because as Jack, my chief of staff, will tell you, we just had a very heated community meeting with multiple petitions going on throughout the district for the city to enforce the ban. So to put it on here as a revenue source, I think might send the wrong message to to some residents who are still hoping that we enforce the ban. So I'm very much looking forward to having that discussion and seeing what options are available. And hopefully our consultant will share with us what some of the best practices that have been utilized by other cities are that might alleviate some of the concerns in our neighborhoods. And so we'll cross that bridge when we get to it. So again, as I stated earlier, I want to thank our staff for putting this presentation together. I think it was really well done and I look forward to the update in March. Thank you.
Speaker 10: And if I can add a clarification, Mr. Mayor. Yes, please. So on the short term rentals. That's absolutely correct. We're actually approaching this little differently than some other cities. Some other cities have basically accepted the money and already programed it and spent it before they've allowed it to be legal. So we didn't feel that in our case that that was appropriate. We are here kind of projecting and looking to the future and saying if we were to allow it in some level, it might generate this amount of money. And you heard the finance director say that it's very speculative of what that actual number is, but we're using that 900,000. But we have not accepted it. We are not planning on it's not in the budget yet, but it's part of our future projections. So we wanted to keep that process pure so we can discuss all of those options and come before you with a recommendation before we count on any money in our budget like some other cities have done.
Speaker 1: Thank you, Councilmember Pearce.
Speaker 6: So sorry I forgot to ask my other question. I think I asked this last time that we discussed the budget and in regards to the litigation, but just to be clear that this is only referencing the litigation on the water and gas.
Speaker 9: That is correct.
Speaker 6: So is there a line item where we estimate potential litigation for, say, PD? How do we assess that, that.
Speaker 10: We used a historical practice on that we meet with the city attorney periodically, we review the cases, we look at historical practice, and that has actually served us fairly well. If there is a deviation in any particular year, we generally can fund it over a period of time. So we have not had a big problem with funding that.
Speaker 5: Thank you.
Speaker 1: Thank you, Councilwoman Mongo.
Speaker 5: Thank you. Since we're talking about some of the fines and fees and I know parking tickets was a component of the discussion for the $4 million, I was put on notice recently that we still have not had the RV ban come to the Coastal Commission. It's going to be another seven months. So perhaps we need to discuss options of implementing it outside of the coastal area, especially if we're considering revenues related to parking fines. So if parking fines and fees for individuals, parking illegal trucks and trailers and ARVs are to be considered, maybe that would be something that needs to come back to the council sooner rather than later if we're thinking about it being a component of revenue for next year. So that would be my comment. Thank you.
Speaker 1: Thank you. Seeing that is all the council comment, I want to make a couple of comments and then we'll go for any public comment. So I just want to first just add to staff. I know you guys worked really hard on getting us to this point, and I do think that what is important is that I essentially what we did this year and I do want to thank the BFC and other members of the council. We've had these discussions including I know a motion by I think it was Councilman Mango invited me. Richardson I think towards the end of last year in the budget cycle that we're essentially solving and eliminating the deficit before we even start the budget process and essentially doing it early. And so I think that's really smart. I think it is it's important that we're kind of taking these kind of budget budget balancing measures early. A lot of people don't realize that we we balance our budget every single year. And so sometimes when people hear the word deficit, they don't realize that the second that we think we're going to have a deficit, we eliminate it. And when we pass our budget and I think that's something that's important that we do year after year. And so I'm really glad that with these balancing actions that essentially we eliminate the shortfall, with the exception, of course, of some of that possible legal liability that we have because of that of the utility lawsuits. But if we take these budget balancing actions and the council adopts this as a as our plan, we just we repeat one more time what that is what that leaves our actual deficit number at zero. Well, zero, but nodding, but not including.
Speaker 9: The little but the.
Speaker 10: Litigation. Yeah, the litigation would add 8.3. Right.
Speaker 1: But this would, this would separate the litigation. This would balance the budget and leave our deficit at zero. Is that correct?
Speaker 10: That is correct.
Speaker 1: Okay, great. And then also just to just reconfirm as well, I do appreciate Mr. Modica, I know there's a lot of conversation about short term rentals. I'm really glad that we were finally out there and actually getting the work done because I think there's a lot of interest from the council and all of us to get that work done, including from not just members in the community that are seeing some of the some of these homes and apartments being used for nothing, but essentially the small hotels, but also from the short term rental community. Right. They also want us to pass a policy and they also want to be regulated. And so I think that the I'm glad that you guys selected a conservative number on that. I mean, obviously, the it's it's a small piece of kind of the larger revenue pie, which I think is smart. But I would encourage is the sooner that we have some sort of policy that kind of dictates the future, even even cities that have well, in most most cities have now or either have or are implementing, as you know, the short term rental policies. But even cities that have implemented these and certain begun collecting taxes have seen pretty substantial investments back into their funds because of these short term rental taxes. And so the fact that we're allowing these well, you know, we're not officially allowing in fact, these are being operated with no sort of direct benefit back to the city is problematic. And every day that we don't have a policy and collect that actual support, I think we're just losing revenue that could be invested back into our neighborhoods. So the sooner we do that, I think the better. I think everyone would like to see that done. And then and then with that, I'm I'm happy to know I was not aware that the measure is coming in larger than we originally initially thought. Is that correct? So about 3.9 million more.
Speaker 10: That is. That is correct. About 3.1 million we're projecting for 8 to 18 at this point. First for the structural side.
Speaker 1: Yeah.
Speaker 10: Well double that for whatever little. Yes.
Speaker 1: So the totals double that, huh. Yes. So measure is coming actually in about 6 million. More than expected. Yeah.
Speaker 10: It's about we think it's about 12% up. We're still looking at it, but those are what the preliminary numbers say.
Speaker 1: So I love how you guys gave us those. Conservative numbers, which was good. I appreciate that. Actually, 12% is not insignificant. I mean, that is that's a good amount of money.
Speaker 10: It's very good.
Speaker 1: Yeah. So. So that is. So I'm so I'm really happy. Yeah. Yeah, I'm really happy to see that measure is coming in more than expected. And again, I'm thankful to to the voters that put their trust in us to do that. So that's really, really great news. I was not aware of that. So happy to hear that. Any public comment on this? Yes. Please come forward. Join the other public comment. This will be our only speaker then and the closing public comment.
Speaker 9: Good evening, Mayor Garcia. Council members is the first time I'm actually speaking at council and I'm quite nervous. I don't do well in these settings, so bear with me. My name is Amal, weaker than us. I wear many hats. I'm a father, a mentor, a resident of the ninth district, a voter, and a lead organizer with My Girls in Action, a grassroots based organization here in Long Beach working to empower Southeast Asian young women. For the past 20 years, I am here to speak in support of preserving and increasing funding in the city budget towards positive youth development programs and services such as our parks, libraries and youth programs and other park programing. As a champion and ally to Long Beach youth, I am here to ensure that young people are uplifted as a priority of this Council when considering where to make cuts in the city budget. Long Beach youth and children make up over a quarter of the population and are most in our most vulnerable population. Cuts to youth programing and services will hurt. Already, the city of Long Beach spends less than 5% of the overall budget on positive youth development programs. As a parent and youth organizer, I'm keenly aware that many of the programs available through the city dollars aren't accessible to children in youth and low income communities of color. As a report on Park Equity suggest, the report, which was supported by Councilwoman Nina Gonzalez and many others on this council, only 2020 7% of park programing hours during spring were offered to children and youth. The number of the number of hours for young people increased over the summer, but do not increase in low income communities of color and the number of teen hours actually decrease. There have been great efforts to ensure that Long Beach is a city that attracts visitors and residents alike in the downtown and the beachfront areas. However, communities are lacking safe spaces for young people to access positive youth development programs, to keep young people engaged and surrounded around mentors, intervention and prevention workers and people, and and also just programs that help young people find their voice and purpose. Carmen Girls in Action. Our membership base and community partners are motivated to partner with this Council to ensure that we are creating effective strategies to invest in youth and make them our top priority. The future is bright. When we invest in youth, afterschool programs do make our communities thrive, but only when investment is equitably spent across communities. Lastly, I urge this Council to not play a balancing act with the future of Long Beach children in youth. Thank you. And by the way, I sent many requests to many of your offices for a for a sit down and have not quite heard back from me. So I look forward to a reply soon. Thank you.
Speaker 1: Thank you, sir. See no other public comments. There's a motion and a second on the floor to approve this plan by our management team. So please cast your votes.
Speaker 2: Motion carries.
Speaker 9: Well.
Speaker 1: Great. Thank you. And I want to first of all, I want to I mean, I think we need to again, just think these guys I mean, you you guys eliminated the deficit early this year. So I appreciate that. So let's give John and John, you did a great job. Thank you. Really. You and your team. I know. Fantastic. And grace. And Grace and everybody. Yes. You guys were awesome. So thank you. Let me I know we have to make an announcement. And Mr. City. Attorney.
Speaker 10: Thank you, Mayor. This evening, earlier this evening in closed session, the council by a vote of 7 to 0, approved the recommendation and authorization to file a petition for review in the California Supreme Court in the matter of the city of Long Beach versus the city of Los Angeles, also known as the CIG litigation. Thank you.
Recommendation to receive and file a report on an updated preliminary budget projection including solutions to balancing the Fiscal Year 2019 budget shortfall.  (Citywide)