ANALYSIS 💰 WeHo’s coffers overfloweth but sales are stagnant

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West Hollywood ended Fiscal Year 2023 with an extra $31.3 million in the bank, far surpassing the $22 million budget surplus from the year prior, which at the time was the largest the city had ever seen.

Senior city staffers delivered the good news to City Council at Monday night’s meeting, and Councilmember Sepi Shyne was particularly elated.

“That is absolutely incredible,” Shyne said. “Our city not only recovered from the pandemic, but we have two years of back-to-back surplus in revenue. I don’t know which other city in the region can say that.”

With voters preparing to judge her record as a policymaker at the ballot box next month, Shyne was eager to frame the surplus as vindication for a number of measures unfurled during her term as mayor that critics have accused of hindering the city’s economy.

“That is an absolute success story, and that is with us including the highest minimum wage in the country, with paid time off and sick time for all, and passing a hotel ordinance that protected workers in the city, where we got so much pushback saying that our economy was gonna dive, our economy was gonna tank, the city was gonna lose all of their sales tax revenue, but look at the numbers and numbers, and the data don’t lie,” she said. “This is phenomenal.”

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But budget surpluses are not the sole indicator of a city’s economic health, as Councilmember Lauren Meister pointed out.

The surge in funds last fiscal year was driven by unexpectedly high revenue from the Transient Occupancy Tax paid by hotels ($34.7 million total, $3.4 million more than forecast) and property taxes ($32.2 million total, $2.6 million more than forecast), as well as income derived from money and property investments, parking meters, building rents and billboards. 

Sales tax revenue, however, has not kept up.

The amount the city made in sales taxes was $36.3 million in FY2022.  In FY2023, it was only slightly higher — $36.4 million.

PARADOX

A city’s economy can be in trouble even if city revenues are increasing. This seemingly paradoxical situation can occur due to various factors that affect a city’s economic health beyond just its revenue figures. 

When increases in city revenue are driven by rising property values and gentrification, they might not benefit the entire population. Instead, they could lead to a higher cost of living that pushes long-term residents and lower-income families out of cities, exacerbating economic inequality, as has happened in New York and San Francisco. If these increases are passed on to businesses in the form of higher operational costs, it can strain their financial sustainability, leading to closures, especially for small or marginally profitable businesses — like the restaurants and bars that form the backbone of WeHo’s sales tax revenues.

A city might see increased revenues from a booming sector (e.g. tech or automotive manufacturing), but over-reliance on a single industry can be risky. If the sector faces a downturn, the city’s economy could suffer significantly, despite previous revenue increases. A municipal economy can also be affected by consumer behavior changes, as it did in Seattle as Amazon expanded. 

Cities often carry future liabilities, such as pension obligations. Rising revenues may be offset by these liabilities, which can grow at a rate that outpaces revenue growth, leading to long-term financial challenges.

And a city’s revenue growth might not reflect the employment situation. High unemployment or underemployment rates, especially if concentrated in certain demographics or neighborhoods, indicate economic distress that isn’t mitigated by increased city revenues.

BOAST NO BILLS

“What this says to me,” Meister said, “is that we need to be focusing on filling those vacant storefronts. We need to be diversifying our economy. We cannot rely on billboards to be our primary revenue because, at some point, they will start to cannibalize each other, just as we’ve talked about hotels cannibalizing one another.”

The majority of the surplus will be devoted to the city’s myriad capital projects, as well as to the rainy day and emergency funds. 

In light of the extra revenue, Mayor John M. Erickson requested that the amount set aside for savings be increased from 25 to 30 percent.

Erickson, who is running for re-election in November, also took the opportunity to defend the policies he and Shyne helped usher in to West Hollywood. 

“Even though progressive policies ‘spell doom and gloom,'” Erickson said, referencing a commonly perceived notion about the minimum wage and paid-time-off ordinance, “they actually produce quite a bit of money.”

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West
West
18 days ago

For being a “right wing blog” as the mid wit CC members insist, the economic analysis evidenced in the comments here is highly valuable. Sepi and John would be wise to take notes.

Jamie Francis
Jamie Francis
18 days ago

As a city we can’t go according to two years of increased income in city revenue surplus, while county and state revenue is unstable! I have to say that everything I see is billboard, transit occupancy, and dine in and shopping tax revenue. However, no one wants to speak about increase rates of crime, robberies and break-ins impacting all residents! This city has really become so gentrified that it’s a tale of 1 city and four income tiers for residents of the haves and have nots! Visitors have more and unlimited access over long term lower income residents where we… Read more »

Last edited 18 days ago by Jamie Francis
West
West
18 days ago
Reply to  Jamie Francis

Great insights, and aligns with so many of our lived experiences struggling to stay in the place we call home. But with two historically unpopular incumbents up for re-election, this is merely a warm up round in a coming marathon of their self congratulatory victory laps.

Mikie Friedman
Mikie Friedman
19 days ago

Sepi’s unbridled and over-the-top, “joyous” comments about the surplus sounded much more like a political campaign speech for higher office than a measured city council member comment. She sounded so phony to me!

Alan Strasburg
Alan Strasburg
19 days ago
Reply to  Mikie Friedman

It also lacks critical analysis and a sound understanding of municipal finance and economic fundamentals. It was a simpleton’s attempt to take credit for things far too complex for a politician to understand. It’s like taking credit for adding salt to water to make it boil. The heat made the water boil, not the salt.

Steve Martin
Steve Martin
19 days ago

I suspect that there is a surge in property tax revenues due to sales and new development. The budget surplus may also reflect that we are under spending on public safety. While residents often see the vacant store fronts along our main street, Santa Monica Blvd., the businesses on Melrose are thriving and the Melrose sales probably far exceed any tax revenue from the businesses along Santa Monica between La Cienega and Fuller. Budget surpluses in and of themselves are not necessarily meaningful unless they enhance the quality of life for the residents.

Alan Strasburg
Alan Strasburg
19 days ago
Reply to  Steve Martin

It’s nice to see someone who understands complexities inherent in any data. West Hollywood is better for Steve Martin’s ongoing commentary and analysis of reality.

West
West
18 days ago
Reply to  Alan Strasburg

🙏🙏🙏

Andrew Solomon
Andrew Solomon
17 days ago
Reply to  Steve Martin

Unless I’m misreading it, spending on public safety is up 10% this year according to the staff report. Steve, please correct me if I’m wrong.

I think a budget surplus is something we should celebrate right? These comments seem pretty doom and gloom for what should otherwise be received as good news and a positive economic outlook.

Peter Buckley
Peter Buckley
19 days ago

Why is this a good thing? Budgets are supposed to be balanced. This actually indicates incompetence. Either there are too many taxes or there is no thought out fiduciary responsibility in preparing and implementing a balanced budget. In some economies, surplus funds cannot be retained and must be returned to tax payers.

Peter D
Peter D
19 days ago

Thursday, April 1, 2021. The sales tax rate in the City of West Hollywood will increase from 9.50 percent to 10.25 percent. (Wehoville)

Here’s a thought – perhaps return to the pre “pandemic deficit emergency” sale tax rate increase approved by Weho Voters.

It adds up for us residents. We know West Hollywood City employees are the highest paid in the State.

Outraged
Outraged
19 days ago

GET SHYNE OUT!!

Alan Strasburg
Alan Strasburg
20 days ago

Shyne and Erickson once again display their lack of analytical skills when it comes to math and the underlying fundamentals that cause swings in markets and revenue. Their naivete on such basics of business and finance render them unfit for public service, but here we are, for now. Thanks for exposing the truth, WEHOonline! We need a check on the bullpucky that spews from the mouths of politicians and bureaucrats.

dario
dario
20 days ago

All this money in their coffers, yet no real plan for affordable housing growth… what’s the point of having a rich city if no one can afford it?

Jamie Francis
Jamie Francis
18 days ago
Reply to  dario

Great points and observation Dario!
Read above, I said the exact same thing elaborated on the topic. It is becoming increasingly unaffordable for existing fixed income tenants and residents of this city!

Todd
Todd
20 days ago

The surplus is certainly a good thing, however it gives me pause that so many small businesses are struggling/closing. I absolutely agree with CM Meister on her point: “…that we need to be focusing on filling those vacant storefronts. We need to be diversifying our economy.” I’m hoping the Council can really help with that.

Weho1
Weho1
20 days ago

It’s hard to fill empty storefronts when the minimum wage is so high, commercial rents are skyrocket high, and safety is a concern. The only businesses that will be filing the empty storefronts on SM blvd will most likely be more bars. I thought Sprouts vacating already had a new tenant lined up..guess that fell through 🙁

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