Kevin Cody

Debt-free Hermosa’s okay financially, citizen committee finds

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Hermosa's revenue and spending per resident are both relatively low.

Hermosa’s revenue and spending per resident are both relatively low.

Hermosa Beach’s property taxes, hotel taxes and governmental costs are all relatively low. And contrary to popular belief, Hermosa’s pension costs are not excessive and Hermosa will not go bankrupt if residents fail to approve oil drilling.

Those are some of the findings presented by the Hermosa Beach Community Dialogue finance committee during a public meeting at the Hermosa Beach Community Center on Wednesday, December 3.

The findings were presented by committee members Rick Sowers, an executive vice president of Bank of Manhattan and real estate consultant  Justin Schnuelle. The committee based its findings on comparisons of Hermosa’s 2013-14 budget with those of four other coastal cities with comparable demographics. The other cities were Manhattan Beach, Rancho Palos Verdes, Solana Beach in San Diego County and Sausalito in Northern California.

Hermosa government’s annual revenue- and spending-per-capita, at approximately $2,000  each, is lower than any of the other cities except Rancho Palos Verdes. The comparable figures for Manhattan Beach is approximately $3,300.

Sowers attributed Hermosa’s low per capita revenue  to low sales taxes and low hotel and special taxes.

He characterized the low rates as “opportunity areas,” where the city could increase revenue.

At 20 percent of city revenue, Hermosa’s service charges were the one source of revenue that is relatively high. Sowers attributed this to Hermosa’s bountiful parking enforcement fees.

Like private businesses hurt by the recession, the Hermosa City government has had to scale back its expenses.

Like private businesses hurt by the recession, the Hermosa City government has had to scale back its expenses.

Schnuelle reported that Hermosa’s relatively low property taxes hurt Hermosa’s schools. The percentage of property taxes that goes to Hermosa’s schools is .036 percent, versus .088 for Manhattan Beach schools. Police and fire expenses account for 56 percent of Hermosa’s general fund, which is similar to the percentages of the other cities. Manhattan’s police and fire expenses are 58 percent of city costs, Schnuelle said.

Hermosa’s annual pension obligation is currently $3.7 million, or 12 percent of the city’s budget, which is also in line with other cities, Schunelle said. He dismissed a 2011 Los Angeles Grand Jury grand jury conclusion that Hermosa pension costs were excessive by noting that other cities borrowed money to reduce annual pension costs, which Hermosa didn’t do. In addition, Hermosa lowered its pension costs in 2011 by becoming the first South Bay city to adopt a two tier pension program for its employees.

Next year’s oil vote will cost Hermosa money, at least in the short run, no matter which way it goes, Schnuelle said.

If the measure passes, Hermosa will have to pay $3.5 million to E&B Natural Resources, which hopes to drill from the city maintenance yard. In addition, the city will have to spend $10.8 million to $18.8 million to move the city yard to the city owned property across from city hall. That would require eviction of  the site’s current tenant, a self storge company that generates $180,000 annually for the city.

If the measure fails to pass, the city must pay E&B $17.5 million, which the city has just $6 million in insurance funds set aside for. The city has several options for paying off the remainder of the settlement, Schnuelle said, though he did not specifiy what they are. He added that paying off the $17.5 million could reduce city services.

“Hermosa is not going to go bankrupt if we don’t vote for oil. I’ve heard that over and over and it’s just not true,” Schnuelle said. “There’s no guarantee that oil will be found and if it is, the revenue will be seven years out,” he added.

Schnuelle said the committee did not take a position on whether or not build a new civic center.

But he did note that the civic center, including the police and fire stations,  “is coming to the end of its useful life.”

Nor did the committee explore undergrounding utilities because, he said, “Those costs are typically borne by homeowners.”

Two Hermosa Beach neighborhoods have undergrounded their utilities. But plans for additional undergrounding district were blocked several years ago by residents’ resistance to paying for the undergrounding. Schnuelle said undergrounding costs $1.5 million per mile.

He said the city spends about $4 million a year, or 10 percent of its budget on public works, but has a capital improvements wish list totaling over $100 million .

The list includes $20 million for new civic, police and fire buildings.

“If we want to compete these projects, we need to bridge the [funding] gap,” he said.

Schunelle noted that Hermosa is unusual in that it has no debt.

Two of the most promising new sources of city revenue, Schnuelle said are the 30-room Clash Hotel being built by Raju Chhabia at 14th Street and Hermosa Avenue, and the hotel proposed for the Mermaid restaurant property at Pier and The Strand. The Clash hotel should generate $200,000 annually for the city and the Mermaid development up to $1 million annually, largely from bed taxes.

Another potential revenue generator for the city, Schunelle said, is a retail development on the current site of Hope Chapel  property at the corner Pacific Coast Highway and Artesia Boulevard.

The next  Community Dialogue meetings will be Thursday,  Dec 12 at 7 p.m. and Friday Dec 13 at 9 a.m. in the Second Story Theater at the Hermosa Community Center. The public is encourage to attend. Information related to these meetings can be found at the following Dropbox link:

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