Long Beach Faces Projected $20 Million Shortfall in 2026 Amid Fiscal Uncertainty

LONG BEACH, Calif. — Facing a looming budget deficit, Long Beach City Manager Tom Modica has directed municipal departments to cut $7 million in spending for the remainder of the 2025 Fiscal Year (FY 25). The directive, outlined in a May 6 memo, responds to declining oil revenues, potential reductions in federal grants, and national economic instability. But why is the city moving away from offshore oil drilling revenues, why are federal funds at risk, and what does this mean for Long Beach’s financial future?

Why the $7 Million Cut?

Long Beach’s $3.6 billion FY 25 budget is under strain from multiple fronts, prompting a “cost-savings strategy” to generate $7 million in one-time savings. The city faces a projected $20 million shortfall in FY 26 and a cumulative $61.5 million deficit over the next five years. Key drivers include:

1.  Declining Oil Revenues: Historically, Long Beach has relied heavily on oil production for revenue. A June 2024 report by City Auditor Laura Doud projects a 54% drop in oil revenue by 2035, valued at $278 million to $301 million, with an additional $80 million cost for oil well abandonment and plugging. This decline is a major factor in the city’s fiscal challenges.

2.  Potential Loss of Federal Grants: Federal funding, which contributed $315 million to city spending last fiscal year, is jeopard to be at risk. The uncertainty stems from 147 executive orders signed by President Donald Trump since his January 2025 inauguration, which could reduce direct funding to Long Beach or funds disbursed through the state. These grants support over 80% of the Health Department, parts of the Police and Fire departments, welfare programs, and infrastructure projects at the airport and seaport.

3.  Economic Slowdown and Rising Costs: Slower growth in General Fund revenues—such as franchise fees, sales tax, property tax, and interest on pooled cash—combined with rising personnel costs, has created a structural budget deficit. National economic policies and local economic trends exacerbate these challenges.

The $7 million cut aims to bolster reserves and mitigate a more disruptive FY 26, buying time for alternative revenue sources like Measure LB ($15 million expected) and the Grow Long Beach Initiative to stabilize finances.

Why Is the City Canceling Offshore Oil Drilling Revenues?

Long Beach’s decision to phase out offshore oil drilling revenues is driven by a combination of environmental, economic, and regulatory factors:

•  Environmental Pressures and State Policies: California’s aggressive climate goals, including a transition to renewable energy, have pushed cities to reduce reliance on fossil fuels. State regulations, such as those from the California Coastal Commission, impose stricter oversight on offshore drilling, increasing operational costs and limiting new permits. Long Beach, aligning with these priorities, is moving away from oil production to avoid long-term environmental liabilities, such as the costly cleanup of abandoned wells.

•  Declining Production and Market Trends: Offshore oil wells in Long Beach are aging, with production naturally declining. Global shifts toward renewable energy and reduced demand for oil have lowered prices, making extraction less profitable. The Doud report highlights that maintaining aging infrastructure is increasingly costly, with well abandonment expenses looming large.

•  Local Advocacy and Public Sentiment: Community advocacy for cleaner energy and reduced environmental risks has influenced city policy. Residents and environmental groups have pushed for a transition away from oil, citing health risks from pollution and the need to protect coastal ecosystems. This aligns with Long Beach’s sustainability goals but accelerates the revenue decline.

These factors have led the city to accept a gradual phase-out of oil revenues, prioritizing long-term fiscal and environmental sustainability over short-term gains. The projected 54% revenue drop by 2035 underscores the urgency of diversifying income streams.

Why Is Long Beach Losing Federal Funding?

The potential loss of federal funding is tied to recent policy changes and legal battles:

•  Trump Administration’s Executive Orders: Since January 2025, President Trump’s 147 executive orders have targeted federal spending, including grants to states and municipalities. These orders aim to reduce domestic spending, prioritizing certain federal initiatives over local programs. Long Beach’s $315 million in federal funds last year, covering health, public safety, housing, and infrastructure, is vulnerable to these cuts. Modica’s memo notes a “direct loss of funding” risk, though specifics remain unclear.

•  Legal and Political Uncertainty: A federal appeals court in March 2025 blocked the Trump administration’s attempt to freeze payments to states, offering temporary relief. However, the White House has successfully reduced funding in other areas, creating uncertainty for Long Beach. The city’s reliance on federal grants for core services like the Health Department (over 80% federally funded) and welfare programs heightens the stakes.

•  Broader Federal Budget Priorities: National debates over budget deficits and competing priorities, such as defense or infrastructure, may reduce discretionary grants to cities. Long Beach’s funding for education, affordable housing, and port improvements could face cuts as federal priorities shift, forcing the city to seek alternative revenue or scale back programs.

This uncertainty has prompted Long Beach to adopt a cautious approach, trimming budgets now to prepare for potential funding disruptions.

How Will the City Achieve These Savings?

Modica’s directive impacts 18 of Long Beach’s 23 departments, including fire, police, parks, health, public works, and library services. Departments with budgets under $10 million must cut 0.5%, while those over $10 million face a 1% reduction. By May 15, departments must submit proposed cuts, focusing on non-essential spending such as:

•  Deferring non-essential purchases

•  Postponing or canceling non-critical contracts and projects

•  Reducing travel and conference expenses

•  Delaying new hires or holding vacancies

The city is also mandating a 3% reduction in its 950-vehicle General Fund fleet to lower costs for parts, labor, fuel, and capital collections. Departments can justify retaining low-usage vehicles or turn them in to offset future replacement costs.

Modica assured that cuts will not “compromise critical public services,” and a city spokesperson confirmed no layoffs, demotions, early retirements, or furloughs are planned, preserving workforce stability.

Community Priorities and Next What About High Salaries?

City Manager Tom Modica’s salary is a hot topic. In 2020, he started at $290,656, with automatic raises tied to the Consumer Price Index (CPI). By 2023, his pay hit $336,307 after CPI spikes (6.57% in 2022, 4.96% in 2023). Modica donated portions of his raises in 2022 and 2023 to homelessness programs, citing fairness since most city workers got 2% raises.

Other top earners include the Police Chief ($284,573 in 2023) and Fire Chief ($274,526), managing large teams, compared to smaller departments like Civil Service ($275,002 proposed, blocked in 2024). The city’s “$100,000 Club” has 1,776 employees, with 2022’s highest earner, Harbor Executive Director Mario Cordero, at $399,562.

Could Cutting High Salaries Help?

Trimming top salaries could save money but has trade-offs. Modica’s $336,307 is a fraction of the $7 million target, and cutting it entirely wouldn’t close the gap. Reducing pay for dozens of high earners (e.g., department heads at $200,000-$300,000) might save $1-2 million but risks losing talent to other cities offering better pay. In 2019, Modica noted Long Beach’s salaries are lower than some smaller cities, contributing to turnover. A 2011 reorganization saved $1 million by cutting management roles, not salaries, showing other options.

How Are Cuts Happening?

Eighteen departments (police, fire, parks, etc.) must cut 0.5% (under $10 million budgets) or 1% (over $10 million) by May 15, focusing on:

•  Delaying purchases

•  Canceling projects or travel

•  Pausing hires

•  Cutting 3% of the 950-vehicle fleet

Modica says core services won’t suffer, and no layoffs are planned.

What’s Next?

Long Beach must finalize its 2026 budget by September, with public hearings ongoing. Visit longbeach.gov/fy25 for details. Balancing cuts, spending, and salaries is like juggling tuition, rent, and groceries, tough but critical for the city’s future.