"Long Beach hotels experienced a significant decline in occupancy within the first five months of the fiscal year. Through February, which is the latest data available, occupancy has averaged 61.3 percent, compared to 69.7 percent a year ago (reference table below)."
[The memo does not cite a source for the occupancy figures, so we don't know if they are from the "LB Area Convention and Visitors Bureau" or elsewhere. We presume the revenue figures are City Hall's own.]
The decline in hotel occupancy rates "can be attributed directly to the events of September 11. The outlook for the full year is a shortfall of about $1.2 million in budgeted General Fund revenues. Recent economic reports have indicated a recovery in this sector may follow the recovery in the general economy expected later this year," the memo said.
It added, "The TOT is also the primary source of revenue for the Special Advertising and Promotion Fund (SAP), which funds the Convention and Visitors Bureau and other City promotions and the Redevelopment Agency (RDA) repayment to the Harbor Department for the Convention Center expansion loan. Shortfalls of $722,300 in SAP TOT and $492,500 in RDA TOT are also projected."
"The City receives 2 percent of the Southern California Gas Company's (SoCalGas) gross annual revenue that is generated within the City of Long Beach. The fee is for the right of SoCalGas to transport natural gas through pipelines located within the City to SoCalGas customers, primarily the large electric generation plants within the City. The revenue received by the City is determined by the price of natural gas and volume transported. These revenues were very volatile last year, and, due to the energy crisis (and perhaps industry manipulation of natural gas prices), City revenues from this fee came in at unprecedented amounts in FY 01. Since adoption of the FY 02 budget, natural gas prices have stabilized at normal price levels, and usage by the generation plants has dropped as well. As a result, the fee is currently on a trend to close the year more than $4 million under budget," city management's memo advised.
And what about Norm Ryan's Prop J utility tax cut for which City Hall forecast dire consequences and the public voted in by a near 70% margin?
One bright spot was business license tax revenue: "Total FY 02 [business license tax] revenues may be approximately $180,000 higher than budget. The estimate does not take into account the recently approved amnesty program and the 15 percent discount for on-time payment; the amount discounted to date totals $122,000, which reflects a 60 percent participation rate. Fortunately, this loss has been offset with an increase in new business license revenue of $194,000 YTD. The true effect of these programs will be known later in the fiscal year."
The bottom line: "The FY 02 adopted budget consists of $357.6 million in expenditures and $333.2 million in revenues. The gap between expenditures and revenues was filled with $24.4million in carryover (a combination of the 2 percent savings and additional unbudgeted revenues) from FY 01. All things being equal, a similar gap could logically be expected in the FY 03 budget. If current trends continue, there will not be any carryover [emphasis in original] to help balance the FY 03 budget," the memo advised.
To deal with these development, Finance Director Torrez said the City Manager "has already had several sessions with his Executive Management Team to develop budget strategies. In addition, with today's report, the City Manager is again directing all departments that report to him and that have General Fund budgets to adhere to the budget policy. That policy is as follows:
1. All non-safety departments will manage their FY 02 expenditure budgets to close the year at no more than 98 percent of their General Fund budgets; and 2. Police and Fire Departments are exempt from this policy, however, they should not exceed their current appropriation levels."
The memo added:
"If City revenue performance and/or departments' expenditure trends do not improve, then the options discussed during the First Quarter budget performance report will likely need to be exercised beginning in the month of May. Those options would be phased in and include:
Soft hiring freeze Hard hiring freeze Halt all non-critical travel Defer non-critical purchases"
The memo added, "These options, if exercised, would be necessary to not only ensure the General Fund ends the year balanced, but to generate funds that could be carried forward to help balance the FY 03 budget."
And city management's conclusion:
"The City finds itself in a situation similar, in some ways, to its situation during the recession of the mid-1990s. An uncertain economy coupled with demands for fewer taxes and more City services make it difficult to plan for the future. Further, there is again concern that the State will turn to City revenues to balance its budget....
Earlier in this report, the potential scenarios for the General Fund budget were illustrated; those scenarios assumed current revenue trends continued for the rest of the year and into FY 03. If so, the outlook is rather bleak. Although of no real consolation, Long Beach is not alone,as cities throughout the State are faced with the same, or worse, outlook....
...Without a dramatic improvement in revenues, strategies to close a potential gap in FY 03 must also be employed. Several strategies are listed below:
1. Exclude enhancements or discretionary budget increases in FY 03 budgets unless a new funding source is identified. 2. Implement carefully selected budget reductions. 3. Employ use of reserves. 4. Optimize revenue collection through audits and aggressive enforcement of the Municipal Code (e.g., TOT, UUT, BLT, Franchise payments, etc.)."
The revelations could help amplify City Hall's spending practices as an issue in the Mayoral runoff and 7th district Council race.
Last year, pursuant to the City Charter, the Manager presented his proposed budget to the Mayor by August 1, who in turn presented it to the Council pursuant to Charter by August 15 with her recommendations.
Despite the events of Sept. 11, and reports detailing LB's thin police levels amid rising crime, neither the Mayor nor the Council have since moved to provide taxpayers with any serious public safety increases or conserve taxpayer resources by making meaningful spending reductions.
The Council has had the power to revise the budget at any time.