Ten-year forecast warns of deepening deficits, pension strain
City finance staff project expenditures outpacing revenues over the decade, driven by CalPERS costs and personnel growth, and list revenue options.
City finance staff told the Huntington Beach City Council on Sept. 1 that a ten-year forecast shows recurring expenditures outpacing revenues, driven largely by pension obligations and personnel cost growth. Staff recommended a mix of revenue enhancements and expense controls to avoid structural deficits.
The presentation included a finance commission subcommittee review that flagged a structural imbalance. The model assumes baseline revenue growth around 3 percent for most categories, with personnel and benefit escalation near 6 percent. Staff also ran scenarios isolating single decisions, such as the proposed police memorandum of understanding, to show marginal impacts.
The presentation highlighted the city's CalPERS unfunded actuarial liability, about $279 million in outstanding pension obligation bonds and current reserves of roughly $99 million. The finance team said the police tentative agreement creates an approximately $2.7 million first-year variance versus the baseline that compounds under static assumptions, while cautioning that the results are model outputs dependent on assumptions such as vacancy rates and actuarial returns.
At the same meeting, the council approved the police contract on a 4-3 vote. The Orange County Register reported the city faces a $15.6 million structural deficit, with the police budget comprising 30 percent of the general fund. Forecasts presented at the meeting projected the deficit could reach $90 million within a decade, and said reserves of just under $100 million cover about three and a half months of general fund spending.
Staff emphasized management levers already in use, including managed hiring, fee adjustments, parking and non-tax revenue growth, operational audits and targeted reserve management. They also listed potential voter-approved revenue options, such as a parcel tax, transient occupancy tax adjustments and sales tax measures, as last-resort actions. "A projected structural imbalance is not the same thing as insolvency," staff said, urging the council to use the forecast as a proactive planning tool rather than a short-term liquidity measure.
Mayor Casey McKeon voted against the police contract, saying, "Based on the financial analysis we just went through, we don't have a way to pay for it. Unfortunately, this just increases the velocity of our deficit." Councilmember Andrew Gruel pressed CFO Zach Zithisakthanakul on whether the city needed emergency surgery or just "some Claritin," and the CFO answered, "more of a PCP," referring to a primary care physician. He added that the projected deficits require close monitoring but do not indicate "immediate fiscal distress," and that the city would implement "various countermeasures and corrective measures" before a fiscal emergency.
The Finance Commission proposed options to avoid bankruptcy, including raising parking fees, exploring corporate sponsorships to boost ad revenue and implementing tax increases. A 1 percent local sales tax, which would require voter approval, could generate more than $46 million a year for the city, the commission estimated.
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