South Gate reviews $7.5M structural budget gap; council weighs utility users tax and other options

South Gate city leaders presented a budget workshop that mapped a growing structural deficit and discussed a range of remedies, including a voter‑approved utility users tax (UUT), permit and fee updates, targeted cuts and workforce development programs.

Administrative Services Director Louis (Louis) and City Manager Rob Houston told the council the general fund has been propped up in recent years by about $18 million in one‑time federal ARPA funds, and with those onetime resources ending the forecast shows the general fund could become insolvent by fiscal year 2026‑27 unless the city takes corrective action. The forecast in the presentation projected a cumulative negative balance of $21.8 million by fiscal year 2028‑29 under current assumptions.

"The city has operated with a structural deficit since at least fiscal year 2019‑20," Louis said. He presented major cost drivers: unfunded pension liabilities (CalPERS) rising from roughly $6.1 million in FY 2019‑20 to $10.3 million in the FY 2025‑26 proposed budget; health insurance increases (from $3.3 million to $5.5 million); and general liability insurance increases that staff said more than doubled over the same period. Street lighting and landscape maintenance costs also rose, from roughly $627,000 in 2019 to about $1.58 million in the proposed budget.

Officials outlined revenue limits that constrain local options: only about 6.15% of a typical property tax dollar returns to the city and South Gate retains 2% of local sales tax receipts (Measure P). To create flexible, locally controlled revenue, staff described the utility users tax, a voter‑approved percentage applied to utility bills that 163 California jurisdictions use.

Using a preliminary analysis of local utility gross receipts staff estimated a UUT could generate roughly $6.6 million at 5%, about $8 million at 6%, and up to $13 million at 10% (ballpark figures staff said would require more detailed billing data and legal drafting). Staff also presented an illustrative household impact: a medium‑usage South Gate household paying the bundled utilities in the sample would see an estimated monthly increase of about $39 at a 7% UUT; low usage around $26; high usage about $52 annually multiplied by the chosen tax rate. Staff emphasized these were illustrative examples requiring further analysis.

The workshop included process considerations: the city must put a UUT on the ballot for voter approval and, if a special standalone election is used, the county’s cost estimate for a November special election was given as approximately $1.2 million; attaching the measure to an already scheduled county primary would cost substantially less (one estimate cited about $275,000 for a June election). Council members and staff discussed timing tradeoffs — an election could be many months away and revenues would not begin until months after votes were certified.

City Manager Houston and other staff described other revenue and expense options that would be pursued or analyzed: updating fees and the master fee schedule, assessing impact fees for new development, seeking additional economic development, reviewing special assessment district rates (landscape and lighting districts would require a Prop 218 vote to change), and evaluating contracting out services where legally feasible. Staff warned that contracting opportunities have narrowed because of prevailing wage rules, CalPERS scrutiny and limited savings compared to past decades.

On the expenditure side, staff presented two levels of cuts that had been developed as scenarios: a smaller package with limited community impacts and a larger package approaching $4.5 million that would reduce services. Examples discussed in the larger scenario included freezing or eliminating certain positions (including police hires and forensic positions), cutting special events and community programs (Azalea Festival, some recreation seasons), reducing training and professional memberships, and postponing capital projects. Staff said the $4.5 million scenario already cuts to "bone" and a $7.5 million scenario would require more sweeping reductions.

Public commenters and emailed submissions included a range of views. City Treasurer Jose Dela Paz sent a written statement saying he is generally opposed to new taxes, urged transparency and multilingual outreach, and recommended exemptions or protections for low‑income households and seniors if a UUT is considered. Multiple residents (including Maria Chavez, Roberto Sanchez and Mario Dominguez in written comments) opposed a UUT on principle and urged more aggressive cuts, accountability and staffing changes before asking voters to raise revenue. Unions and staff urged the council to consider workforce development and retention; union representatives and staff noted training/apprenticeship strategies, internal promotion, and partnerships with ELAC and regional workforce programs as ways to grow pipelines.

After the workshop presentation the council moved to receive and file the materials for the record; members voted in favor. Councilmembers and staff said more analysis would be needed before any decision to put a tax measure before voters, including more detailed utility billing data, legal review of ballot language, community education and outreach and timing considerations.

City staff outlined possible next steps if the council wished to pursue a UUT: (1) declare a fiscal emergency (required in some calendar options) to place a measure on a near‑term ballot; (2) choose ballot language and the list of covered utilities and exemptions; (3) determine which election to use (and accept the county election cost); and (4) perform targeted outreach and scenario modeling to show household impacts and revenue uses for voters to consider. If the council declines a UUT, staff said the city still faces near‑term choices between deeper spending cuts, fee increases, special‑assessment adjustments subject to Prop 218, or seeking new development and other revenues.