Op/Ed: Financially Treading Water, But Not Sinking

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Will O’Neill

By Newport Beach Council Member Will O’Neill

I’ve warned against “hashtag policy” like #DefundThePolice or #BackTheBlue because issues as complex as law enforcement’s role in society requires nuance and local considerations.

Additionally, the #DefundThePolice movement is inherently one focused on local budgetary decisions – an arena too few citizens venture due to its own set of complexities and nuance.

But as many cities’ citizens have discovered over this past year, a city council can support a robust police department and still be forced into defunding departments – including the police – absent good fiscal stewardship.

On Tuesday night (May 25), Newport Beach’s city council will review a draft budget that reflects the seemingly conflicting concepts of renewed optimism and sober-minded caution.

As a quick reminder, municipal budgets are generally comprised of general fund, restricted fund, and enterprise fund monies. Restricted funds are legally restricted toward the expenditures of a category (i.e., gas tax dollars for roads). Enterprise funds spend what they bring in (i.e., utilities like water and sewer funds). Generally speaking, Newport Beach’s restricted and enterprise funds are on the whole well and adequately funded.

Our general fund can be spent on anything that we can legally spend money on, which means that the highest and broadest needs compete for the approximately $233.7mm in general fund revenue that our City Manager assumes in the draft budget for this next fiscal year (July 2021-June 2022).

We are fortunate here in Newport Beach to rely heavily on property taxes, which are the most stable revenue source thanks to Prop 13. Slightly more than one of every two general fund dollars comes from our property taxes. This stable source of revenue shielded our city from the extreme reductions COVID-19 and the government lockdowns induced.

A year ago, we simply did not know how our local economy would hold up, so we cut the budget down from $230mm to $199.5mm. Our forecasts were fortunately overly conservative, and we are now projecting the current fiscal year will end around $219.2mm. This improvement has allowed us to restore many of the cuts that we anticipated.

Heading into this next fiscal year, we expect growth in our core tax revenues, including property, sales, and transient occupancy (hotel) taxes. But – and this is a key hedge – we are projecting nearly the same revenue and expenditures in 2021/22 as we did in 2019/20. That means that we are treading water on revenue growth while our expenditures – largely spent on salaries and benefits – increase annually due to bargaining agreements negotiated pre-COVID.

Challenges, therefore, remain in our budget. Challenges such as reducing unfunded pension liabilities and debt, expecting public safety excellence, planning and completing large-scale public works projects, and maintaining family-friendly parks and recreation programs, to name a few.

I encourage you to spend time reviewing our City’s budget to see where our priorities remain and where our short- and long-term focus rest. I thank our City Manager and our City’s Finance Committee for their work getting to this point and look forward to discussing the proposed budget with my fellow City Council members.

Will O’Neill is the Newport Beach Finance Committee Chair, a member of the Newport Beach City Council, and was Mayor in 2020.

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