The Necessity for a Diversified Economy

BY COUNCILMAN MICHAEL POSEY, CITY OF HUNTINGTON BEACH

Diversity has many definitions with the least of which explored is a diversified economy.

My city of Huntington Beach has long been recognized as a global tourism destination. We are known as Surf City and host many events annually to attract tourism. The US Open of Surfing, Great Pacific Air Show and our Independence Day celebration and parade are just a few of the many events hosted by the city.

These events, along with many others, coupled with our world-famous beach draw an estimated 15 million visitors per year. We count on the visitor spending for sales tax and hotel transient occupancy tax income to replenish our General Fund.

The COVID-19 global crisis caused tourism to come to a virtual halt resulting in a concomitant halting of sales tax and transit occupancy tax revenue. The crisis also caused a severe slow down in local spending resulting in the need to trim the city’s budget by about $20 million.

I am of the opinion that trimming the budget so severely was largely avoidable had we maintained a diversity of economy. Huntington Beach missed out on potentially earning about $44 million in revenue had we not adopted a de-facto building moratorium in May of 2015.

Economic development usually means job growth. Job growth requires housing growth if you want to sustain job growth. Simply put, the creation of housing must go hand in hand with job growth as local spending is driven by local residents.

In 2010, the Beach Edinger Corridor Specific Plan was approved, paving the way for up to 4,500 new housing units. This zoning overlay would revitalize obsolete strip malls by replacing them with mixed-use development. Mixeduse is usually commercial and retail with residential in the same building.

In May 2015, the city council majority voted to reduce the approved zoning from 4,500 to 2,100 dwelling units. This reduction in units caused the city of Huntington Beach to lose its Housing Element compliance. The city also lost the revenue and new resident spending from the lost 2,400 units. Those lost 2,400 units were built in other cities.

All of this could have been avoided and our General Fund would have the necessary financial cushion to weather the current storm had we kept the zoning in place for the previously approved 4,500 units.

To wit; 1. 2,400 new attached housing units valued at an average of $500,000 each (conservative) would have a value of $1.2 billion. Annual property taxes net to the city is about $1.5MM. Property tax is

Huntington Beach’s largest source of income. $80MM in 2018 and $89MM in 2019 with $92MM projected for 2020. Five years of lost property tax revenue cost the city about $7.5MM. 2. 2,400 units would have generated $35,267,544 in builder fees. Builder fees, like Park Impact Fees are restricted funds for specific purposes but these funds free up

General Fund dollars for other discretionary spending. 3. 2,400 households generate an average of $10,000 per year in local spending. $24 million in local spending into Huntington Beach’s retail and restaurant economy would result in $240,000 net sales tax revenue for the General Fund.

Five years of lost sale tax revenue cost the city about $1.25MM. 4. The city of Huntington Beach also did not qualify for many grants including the lost SB 2 planning grant of $625,000. Those funds would have been used for planning purposes for our Navigation Center (homeless shelter). Thankfully, the city now has a complaint Housing

Element and qualifies for operational expenses for our Navigation

Center

This is a conservative calculus that excludes speculative losses that could include lost sales tax and transit occupancy tax revenue from additional hotel nights due to increased visitors and workers, local spending and jobs during construction, costs associated with staff time on Housing Element compliance challenges and staff time on budget

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