During its Tuesday, Jan. 11 meeting, the Signal Hill City Council agreed to save most of the City’s $5.8 million budget surplus from its July 1, 2020 to June 30, 2021 fiscal year.
The council received an audited financial report showing that the City earned more than it expected and spent less than budgeted during a fiscal year shadowed by the COVID-19 pandemic.
The council voted to allocate $5.5 million of the surplus to shore up the City’s reserve funds and spend the remaining $300,000 on small-business grants, a COVID-19 food distribution program and Signal Hill Police Department (SHPD) operations.
Sales-tax revenue exceeds expectations
City Manager Hannah Shin-Heydorn said that with the added surplus, the City’s reserve funds now represent 110% of its operating budget, far exceeding its 50% target.
The City had to budget for its last fiscal year amid COVID-19 health mandates and guidelines that put it in “uncharted territory” regarding fiscal prudence and conservative budgeting, Shin-Heydorn said.
The City thus lowered its revenue expectations from sales taxes, property tax, hotel taxes and franchise fees, she said. Though businesses struggled in 2020, most sectors improved during 2021, aided by government stimulus funds.
“The specific mix of businesses in Signal Hill have proven in the short term to be pandemic-resilient,” Shin-Heydorn said.
Furthermore, the City’s voter-approved Measure R allowed it to increase its local sales tax rate from 9.5% to 10.25% as of April 1, 2021, adding to the City’s revenue, Shin-Heydorn said. Measure R boosted City coffers by $1.1 million between April and June 2021, according to the City staff report.
Finance Director Sharon del Rosario noted that a total of 72% of the City’s $23 million in revenue came from sales taxes. Auto sales, building and construction and general consumer goods showed the strongest gains, she said.
The City also benefited from an uptick in online shopping during the pandemic fiscal year, del Rosario said. Signal Hill’s share of Los Angeles County’s online sales tax pool grew by 23% over the prior year.
However, Shin-Heydorn stressed the short-term nature of the City’s positive revenue trends in light of rising inflation and ongoing supply-chain disruptions. She also said COVID-19 variant infections will continue to impact economic recovery.
Signal Hill’s fuel and service stations and its restaurant and hotel sectors are expected to take longer to recover from COVID-19 impacts, according to the staff report.
City tightened expense belt with furloughs and hiring freezes
All City departments ended the fiscal year with expenses below budget, contributing to the surplus. Most of those savings were due to employee furloughs, hiring freezes and other cost-saving measures, del Rosario said.
In terms of expenses, the City also carries long-term pension and benefits liabilities of $42.5 million, del Rosario said. The City is managing that by adding to pension reserves, offering multi-tiered benefits plans and increasing employee contributions, she added.
The City spent 41% of its budget on policing, its biggest expense, del Rosario said. Public works accounted for about a fifth of total expenses and general government about a quarter.
More than half of the $300,000 in budget surplus that the City will not reserve is going to the police department as well. SHPD plans to spend $160,000 of the surplus to upgrade its shooting range, buy a license plate reading system, add an evidence storage room and conduct an organizational study, del Rosario said.
The Signal Hill Police Department plans to use the $160,000 in surplus funds to upgrade its shooting range, buy a license plate reading system, add an evidence storage room and conduct an organizational study.
The City will also offer $50,000 of its unsaved surplus to small businesses and use $10,000 toward additional COVID-19 brown-bag food distributions. It will spend $30,000 on security software for city hall and the library.
Besides storing the remaining surplus in its reserve funds, the City will specifically save for a police radio system, capital improvement projects planned through 2024 and citywide special events, del Rosario said.
Councilmember Edward Wilson suggested that the City’s reserve funds should always be at least 100% of its operating budget as it is now rather than 50%.
“My goal has always been 100% so I’m glad to see us there,” Wilson said, noting that he helped grow the reserve fund from 5% in 1997, when he was first elected to council.
Wilson said that since the economy fluctuates up and down cyclically—but no one can predict when and how severely—a year’s worth of reserves would ensure the City could operate even without revenue.
“It gives us more time to react and respond,” he noted.
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