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Second in a series.
The five-year fiscal forecast for Seal Beach projects a 3.3% growth in expenditures and 2.4% growth in revenue, according to a slide from recent budget workshops. However, a Seal Beach City Council member and the finance director reported financial improvement during a recent budget workshop.
Finance Director Arenado gave the council a presentation on Seal Beach’s financial outlook during the May 8 council meeting.
The five-year forecast of 2025-26 projects a surplus of $80,731 at the end of fiscal year 2025-26.
(Last year’s five-year forecast projected a deficit in 2025-26 of more than $1.83 million.)
The forecast for 2026-27 after that was a surplus of $185,939.
Starting in fiscal year 2027-28, the forecast projects a deficit of $212,326, followed the net year with a deficit of more than $1.14 million and in 2029-30 projects a deficit of more than $1.64 million.
First, a look at revenues and expenses.
Then, the five-year forecast.
This article is not a transcript, but a look at the highlights from the roughly two-hour meeting.
Revenues and expenses
Arenado said the budget is guided by a five-year forecast, which she described as best practice.
She said property tax remains the city’s largest and most stable source of General Revenue money.
“Over the past five years, property tax revenue has grown at an average annual rate of 4.5%, which is pretty healthy,” Arenado said.
She said HdL was projecting moderate but steady property tax growth “over the horizon”.
“Despite high interest rates, the Seal Beach real estate market remains strong due to its high demand for housing,” Arenado said.
“The median housing price is in the Seal Beach area is $1.6 million,” Arenado said.
She said sales and use taxes are the city’s second largest revenue source for the General Fund.
The sales tax includes two local sales tax measures, Measure BB and the 2024 Measure GG.
According to Arenado, restaurants and hotels and general goods are the largest sectors in sales tax. (Restaurants and hotels are combined to make one sector.)
Arenado said sales and use tax revenues were projected at $14.6 million for 2025-2026.
“I do anticipate this year’s negative assumptions may be reduced by the tariff purchase panic that has been happening recently,” Arenado said.
“HdL expects flat to moderate growth in 2025 and 2026,” she said.
“According to HdL’s projections, stronger growth is expected in ’27 and ’28 as confidence returns and discretionary spending potentially rebounds,” she said.
“This has been typical after a pullback,” Arenado said.
She said over the five-year period, HdL projects the average annual growth to be 2% to 3%.
“If inflation or interest rates remain high, it could suppress spending with so much of our sales tax tied to just a few sectors,” Arenado said.
She said consumer confidence was at its lowest since 2022.
Arenado also discussed the costs of maintenance and operations. She put the expenditures for maintenance and operations at $22.3 million in the proposed budget. “The largest portion, again we discussed on Tuesday [May 6], is our fire services contract through Orange County Fire Authority,” she said.
Arenado said operational costs continue to rise across all sectors.
“As some of these fixed costs rise, discretionary space narrows, limiting our ability to respond to community needs without additional revenue or reductions elsewhere,” Arenado said.
According to Arenado, CalPERS lowering the discount rate made it necessary for higher employer contributions over the five-year period.
“Retirement costs are expected to grow, influenced by recent CalPERS investments,” Arenado said.
District Five Councilman Nathan Steele said there was a time when costs were going up at 7% and revenues were going up 2%. “So my brain goes, OK, we need to do something about this. And, clearly, we have. It has improved, there’s no question about it,” he said.
“But I still see costs going up too fast and revenues not coming up enough,” Steele said.
District One Council Member Joe Kalmick asked Arenado if she would be able to do any cost projections for organic waste.
Interim City Manager Patrick Gallegos said the city was still in negotiations with Republic Services. He said at this time staff was not ready to speak about it. “But definitely there’ll be an increase,” Gallegos said.
Arenado said unknowns were not built into the projections.
She said that was why the city was setting aside $1.5 million in the economic reserve.
Five year outlook
Arenado then moved to the five-year fiscal forecast. Staff projected a 3.3% growth in expenditures and 2.4% growth in revenue, according to one of the slides from the presentation.
She said most of the costs are ongoing and expensive.
Her next slide showed tables published in the May 8 Sun: The five-year forecasts for 2025-26, 2024-25, and 2023-24.
She said it was the last three years of the five-year forecast.
“What it didn’t have was the story behind it,” Arenado said.
She said that when she came here in 2024 or before that, staff was talking about the forecast and a downturn was coming. “Big deficits were coming and we needed to take action,” Arenado said.
Arenado said the city did $6 million in cuts. Arenado said the city asked residents to vote on Measure GG (a half cent sales tax) and 68% of the community said they wanted to maintain services. “There wasn’t a story behind this and it has an excellent story to tell because it’s showing transparency. We’re being fiscally responsible, we’re looking ahead at what’s coming,” Arenado said.
“Other cities around us are having big difficulties,” Arenado said.
Steele said all the city departments “paid a price” to come in with a balanced budget last year, referring to the $6 million in cuts.
“Measure GG brings back about $3 million only on an annual basis,” Steele said.
“We’re not out of the woods, but we’re a lot better than we were,” Steele said.
He said the council’s job was to find more revenue.
Revenue opportunities
Arenado then showed a slide of potential sources of revenue: paid parking, a cannabis tax (Seal Beach does not currently allow the sale of cannabis), business license fees, billboards, an updated fee study, and hotel transient occupancy tax.
“Our five year forecast shows projected deficits in year three and we can’t look away from that,” Arenado said.
Resident James Jensen said he believed the economy would do better than staff was talking about.
He said when he was in the sporting goods industry, all the great stores that did terrific business knew each other. “They were trading ideas,” Jensen said.
He encouraged the city to reach out to other cities.
“The older the population gets, the closer to home they like to shop and eat,” Jensen said.
“We shouldn’t have 10 empty spots on Main Street,” he said.
He said the council should look at why Seal Beach can’t attract and keep businesses.
Gallegos said Seal Beach had professional associations that were in contact with other cities. “A lot of us came from other cities,” Gallegos said.
“We have a lot of folks in Seal Beach that are professionals. They’re very smart. We’ve had the good fortune to talk to many of them. We’ll continue to do that,” Gallegos said.
Later, in response to a question from District Two Councilman Ben Wong, Finance Director Arenado said revenue opportunities are not included in the five year forecast.
Main Street
Finance Director Arenado said people aren’t shopping at brick and mortar stores. “We’re seeing those impacts on our smaller stores,” she said.
She said when people buy online, it closes brick and mortar stores. She said brick and mortar stores were closing down. Arenado said some stores are doing well and those are the ones that have “amped up the customer experience.”
“If you walk into a store and you’re barely greeted or it’s like there’s not a lot of encouragement, you might as well buy online,” Jensen said.
“Some of that is coming here,” he said.
“The better retail places now are getting strong into the customer service and realizing that’s how they’re getting people back into the stores because they don’t have to come there,” Jensen said.
“I think one of our biggest troubles down here is that people think it’s just difficult to park,” Jensen said.
District Four Councilwoman Patty Senecal said it was about the experience. “It’s about the experience in retail that attracts people back to retail and it’s also the service sector,” Senecal said.
“It’s really trending toward a service economy,” Senecal said.
She said youth want an experience. “They want to have a wine tasting or take a cooking class,” Senecal said.
“I’m just really starting to study this,” she said.
“We’re not the only city out there with that issue,” she said.
District One Councilman Joe Kalmick said the property owners of Main Street businesses have priced businesses out of business. “There’s a 900 square foot store that’s trying to compete,” he said.
He said it would be difficult to stock that store with merchandise that would be valuable enough to cover the rent.
“I happen to know that there was a building for sale on Main Street that the list price was greater than the price that was paid for the Bank of America building,” Kalmick said.
Jensen said you almost have to recreate the whole Main Street.
“Those of us that were on Main Street and are on Main Street never learned customer service skills,” Kalmick said.
He also said Main Street had devolved to where it closes up at 6 p.m. “That’s because the single owner operator can’t afford an employee to keep the store open ’til 9 because of the increases in rent and workers comp and sales tax and all of those items,” Kalmick said.
Jensen said to be effective on Main Street, you have to have customers walking by on their way to the beach but you also have to have destination businesses.
Peter Anninos of Seal Beach TV said Seal Beach was a place where you can be safe and walk around at night.
Next week: Improvement projects.
