City Tightens Budget, Incentivizes Auto Dealers, Attracts New Retail

August 17-30, 2010
FOCUS ON THE CITY OF SIGNAL HILL
City Tightens Budget, Incentivizes Auto Dealers, Attracts New Retail
A new Fresh & Easy Neighborhood Market is slated to open September 8 at Cherry Avenue and 25th Street. The market was brought to
the area through a deal involving Signal Hill Petroleum and Signal Hill City Manager Ken Farfsing. (Photograph by the Business Journal’s
Thomas McConville)
■ By TIFFANY RIDER And AMY DEMPSEY
Staff Writers
he City of Signal Hill – the enclave of Long Beach –
stretches 2.2 square miles with a population of 11,465.
Founded in 1924 shortly after the discovery of oil, Signal Hill
is now divided between industrial and residential properties.
The city offers one of the lowest business taxes in the county
and has no utility users tax.
Since the economic meltdown began in 2007, this small town
has been facing major budget issues. City Manager Ken
Farfsing said two years ago, when the recession started to take
hold, he sat down with the Signal Hill City Council to talk
about what was happening.
“We basically started very quickly developing a structural deficit
with revenues dropping dramatically, and our expenses pretty much
straight lined, with about 80 percent of expenses falling on personnel compensation,” he said. Seventy percent of the city’s General
Fund is supported by sales tax, and the city has faced a nearly $2.4
million drop in sales tax over the two-year period.
T
Economic uncertainty has hit the city’s reserve fund hard. With
the anticipation of a car dealership leaving, the city decided to
set up a reserve fund. The fund began three years ago with about
$5 million, and at the beginning of fiscal year 2009-10, the fund
was at $4 million. The fund closed out on June 30 at $2.2 million, and the city plans to take another $1 million out of it.
“This time next year we’ll be at $1.2 million,” Farfsing said.
“If we drop 2.4 percent in sales tax, we’ve got a big hole to
climb out of.”
The council adopted its budget for fiscal year 2010-11 on
June 30, and the city’s fiscal year began on July 1. “It’s hard to
believe starting in January and February we’ll start planning on
our budget cuts,” Farfsing said.
The final budget for 2010-11 includes cuts to employee compensation by 3 percent across the board, following 3 percent
cuts last year and the year before. The plan, Farfsing said, was
to cut 2-3 percent each year for a 3-4 year period. These pay
reductions include cuts to the city council and all management
salaries as well.
“Unfortunately, I think we’re in a world where basically the
expectations need to change,” Farfsing said. “We may be in a
position of deflation in this country. I don’t know. But watching the economy, we’re not typically seeing the large cost of living increases year-over-year we were seeing 10 years ago. So I
think we’re in a mindset that employees need to keep receiving
pay increase where, obviously, with our revenues falling, we
can’t do that. I feel that everybody in the organization needs to
step up and help.”
In addition to salary cuts, the city has imposed a hiring
freeze. Farfsing said they are down two positions in the department of public works that the city won’t fill – reducing the
number of employees from the budgeted 109 to 107.
Farfsing said the City of Signal Hill has always been hesitant
to hire more employees than necessary. He started working for
the city when it had 102 employees and it now employs 107
people, even though the city population has since tripled in
size. “We’re hesitant to hire new employees because that’s a big
expense,” he said. “I particularly don’t like to lay people off.”
The city is also evaluating if it should contract out or reduce
positions when an employee retires or a position turns over.
“Recently one of our building inspectors retired,” Farfsing said.
“We’re looking at not filling the position but contracting out to
save money.” Reducing positions to part-time, especially in
construction with the industry still slow, is also on the table.
Another city effort is to reduce contract terms with its two
employee groups – the Police Officers Association and Signal
Hill Employees Association – from multi-year to one-year
labor agreements. This began with a council vote in 2007. “We
wanted employees to start paying for a portion of their PERS
[Public Employees’ Retirement System] retirement, so we basically put that into our negotiations,” Farfsing said. “The other
was we wanted the employees to start paying for the retirement
medical plan.” Private business and most municipalities don’t
offer PERS medical, Farfsing said.
Before these labor agreement changes, Signal Hill employees
weren’t paying anything into their retirement fund; the city was
footing the bill. Employees officially began to pay into PERS
in April.
The council approved the setup of a trust fund last year to
help pay employees’ PERS health coverage in a 50/50 deal
between employees and the city. This labor agreement was
imposed by the city council.
“We didn’t really reach an agreement with the employees, so
the council had to go to what is called an impasse,” Farfsing
said. “They had to impose a labor agreement on our bargaining
unit here. We’re basically in mediation with our police officers
association and there’s similar request from the city that every
employee needs to step up and help the city out.” Farfsing said
he was unsure whether the city has ever imposed a labor agreement but thinks that it’s important for employees to help with a
problem that affects everyone.
Other budget balancing efforts have included cuts to community events in all city parks. All have been eliminated except the
annual tree lighting ceremony and Easter holiday event. Farfsing
also noted the city is sending fewer employees to conferences.
Dave Houck, sales and leasing consultant at Long Beach Honda,
explains to a client some of the features of Honda’s new hybrid
vehicle. The dealership, located at 1500 E. Spring St., is part of the
Signal Hill Auto Center, the biggest sales tax generator in the city.
For more information on the dealership, call 562/426-4444 or visit
www.longbeachhonda.com. (Photograph by the Business Journal’s
Thomas McConville)
tax revenue in the next fiscal year, possibly jumping back up to
$9.3 million.
Farfsing said he and the auto dealers remain guardedly optimistic. To help alleviate some of the burden left by the recession, the city’s redevelopment agency (RDA) picked up operation and maintenance of dealership signage about two years
ago. “We’re trying in our own way to help the dealers through
a difficult period,” he said.
The expansion of Boulevard Buick, Pontiac and GMC Truck
is good to see, Farfsing said. The dealership has utilized the
empty lot left by Long Beach Chrysler Jeep last summer for
used car sales, and it relocated its collision center from Long
Beach back to Signal Hill. Boulevard took out a $700,000 loan
from the RDA to accomplish its expansion. Farfsing says sales
are good and that Boulevard is the number-one GMC dealer in
the Western region.
Auto Industry
The Signal Hill auto industry provides the city with 20 percent of its total sales tax revenue. According to Farfsing, total
sales tax earnings dropped from an estimated $12 million in
2007 to $10.3 million in 2008 and down to $8.9 million in the
2009-10 fiscal year.
“Just like every other city, we’ve had to deal with dramatic
drops,” he said. However, the city estimates an uptick in sales
Tom Benson, president of Bud’s Auto Upholstery and Convertible
Tops, said business has been unpredictable, although August is
showing positive numbers. The business, located at 2637 St. Louis
Ave. in Signal Hill, has been around for 63 years. For more information on Bud’s Auto, call 562/595-6370. (Photograph by the
Business Journal’s Thomas McConville)
Ross Dress For Less is the latest addition to the Signal Hill Gateway Center, located at Spring Street and Atlantic Avenue. The store, which
opened July 15, neighbors Home Depot, Petco and Dollar Tree. The developer of the retail center, Signal Hill Petroleum, reports the two
vacant pads in the area will likely become restaurants to accompany the retailers. (Photograph by the Business Journal’s Thomas
McConville)
Ron Charron, part owner of Boulevard Buick, said business
has been good and the economy is slowly coming back. “It’s too
bad that unemployment is still as high as it is, but the last two
years have been tough for our industry,” he said. “[Fortunately]
clients still need cars. That’s the problem in California; you just
can’t do without it.”
Charron said Boulevard has seen an increase in business over
the last few months in used and new cars. “Last month both our
new car department and our used cars improved tremendously,”
he said. “We’ve seen more growth in the used cars now that
we’ve taken over that empty facility next door. It just makes us
look bigger. We have more inventory to offer. We see more traffic, more people.”
Their collision center is stable, he said, and things will
improve as the collision center settles into its new home.
“Moving is always painful because a lot of your old customers
don’t know where you moved to,” he said. “But that’s OK.
Other than growing pain now moving into this new facility,
business is good.”
Farfsing points out how fortunate the Glen E. Thomas Dodge
dealership was to have picked up the Jeep and Chrysler brands
from the dealership vacancy. “Just picking up those two franchises helped with sales,” he says. Chrysler products halted for
a while, he said, but now with new products, sales are good.
“Each month I think it’s getting a little better,” said Glen E.
Thomas Dodge General Manager Bob Davis. “I think for
Chrysler and for us, we’ve got our expenses in line and we’ve
kind of adjusted to the marketplace so we’re able to be profitable and provide a good experience for our customers.”
Although Farfsing said the city doesn’t earn as much sales tax
off of the combined dealership as it did with the two locations,
he said it’s a good sign to have the vehicle brands still in town.
The Signal Hill auto mall lost Schaier’s Nissan, in May, and
the lot at 1800 E. Spring St. remains empty. Farfsing said the
city is trying to find another dealership with no luck thus far.
Although Carmax was once considering a Signal Hill location,
post-recession has left California off the dealer’s radar screen,
Farfsing said. “They could have started the project and it would
have been up and running a year ago,” he said.
Retail And Restaurants
The city has a significant auto industry beyond the dealerships, with numerous repair shops and other automotive retailers speckled around the hill. One of those businesses is Bud’s
Auto Upholstery and Convertible Tops, which has been in business for 63 years. President Tom Benson said the long-standing
shop has had a great deal of experience in the market over the
last six decades, but he still doesn’t know what’s going to happen next in his market.
“We’re either busy or dead. There isn’t any average anymore,
and I can’t figure out how that occurs,” he said. “Most of the
businesses around us are the same way.”
Benson said first quarter reports for his business were strong,
the second quarter showed minor growth, but May and June
were down. Business picked up in July and August is showing
some strength.
Even with business picking up now, Benson said the fluctuations are all against historical experience. “Fasten your seatbelts,” he said. “It’s going to be a bumpy ride.”
Other retail establishments like Home Depot expect a sales
increase at the end of 2010. Jose Sanchez, general manager of
About 80 percent of Signal
Hill Petroleum’s business is in
oil production, with the
remainder predominantly in
real estate development. The
company produces about
one million barrels of oil
annually and, in 2010, has
increased production for the
first time in five years. At left,
Harold Hurtado and Franklin
Linares test a blowout preventer at Signal Hill Petroleum’s
north drill site. The company
hired new field operators and
engineering technicians this
year after layoffs in 2009.
(Photographs by the Business
Journal’s Thomas McConville)
Home Depot at 2450 Cherry Ave., said the home improvement
goods retailer currently has higher sales now than it did at this
time last year. He expects a 2-4 percent increase by the end of
the year. “We’re forecasting to have a growth in business,
which we have not had in the last three years. Multiple departments are seeing sales increases,” he said.
As a whole, Sanchez added, the entire Home Depot company
anticipates a rise in sales this year.
Signal Hill restaurants are predicting business to go in the
opposite direction however. Kathi Wieser, co-owner of Curley’s
Café, located at 1999 E Willow St., said sales are down about
30 percent. Curley’s Café also has a check-cashing business,
which Wieser said has also suffered in the down economy.
“We are a ‘working man’s’ restaurant and bar. If customers
are not working, they’re not eating out or cashing checks with
us. Everything goes hand in hand,” she said.
In order to attract more business from the Signal Hill community, the restaurant now has live music Tuesday, Wednesday and
Friday nights and Saturday afternoons, as well as karaoke Thursday
nights, which Wieser said is helping with bottom line sales.
Similarly, Scott Jones, general manager of City Mex Grill,
located at 2594 Cherry Ave., said sales are down compared to last
year. According to Jones, in a down economy, the easiest thing for
businesses to eliminate is employee meals, although recently
there has been an increase in catering sales, but fewer employees
are being fed. “A regular customer that used to order lunch once
a month for 20 people is now ordering for 12,” he said.
Oil On The Hill
For Signal Hill Petroleum (SHP), business has been steady in
2010. Kevin Laney, vice president of rig operations, expects the
momentum to stay consistent for the rest of the year. He added,
however, that this is the first year in the last five that the company has seen an increase in oil production, with more oil barrels being produced at the end of the year than the company
produced at the beginning. With the company reworking old oil
wells to make them active again, about 80 percent of SHP’s
business is oil production.
“Oil prices have been steady, and so our business has been
pretty steady. . . We expect it to stay at the same pace for the
rest of the year,” Laney said. “We’re always working on big
projects. We are constantly reworking the really old wells to
enhance our production and keep our production up.”
Each year, SHP produces about one million barrels of oil,
which travel through Chevron’s pipeline to Paramount
Petroleum Corporation’s Paramount refining facility.
After laying off about 10 percent of its workforce in 2009,
SHP has started hiring new field operators and engineering
technicians, he said.
SHP also works in real estate development. The company’s
most recent project is the new Fresh & Easy Neighborhood
Market, which is expected to open September 8 on SHP-owned
property at 25th Street and Cherry Avenue.
Development
According to Debra Russell, real estate development manager for SHP, the Fresh & Easy deal was a co-effort with Farfsing.
The center that houses the grocer has more space for development, and SHP is looking to develop there also.” Across the
Signal Hill City Hall is located at 2175 Cherry Ave. and is the site of the twice monthly meetings of the five-member Signal Hill City
Council. (Photograph by the Business Journal’s Thomas McConville)
way there is a vacant site as well, and we haven’t started negotiations with anyone yet,” Russell said. Well work and site
cleanup began a year ago.
The Gateway Center, located at 3075 California Ave., is coming together, with the recent opening of Ross Dress For Less
that filled the vacancy left by Circuit City. Farfsing said the
Dollar Tree has been very successful. The center also houses a
Home Depot, Petco and a Jack-in-the-Box. The city and SHP
are working on attracting an In-N-Out Burger to the mix.
Russell said there are two available vacant plots of land at the
front of Spring Street for retail development, where SHP would
like to put two food retailers One of them is already approved
for a drive-thru.
Although new retailers are coming into Signal Hill, Farfsing
said it continues to be a very difficult retail market with little
additional expansion in the works.
Meanwhile, the city’s redevelopment agency is getting into
Phase 3 of a property acquisition program at Cherry and St. Louis
avenues. Phase 1 and Phase 2 of the property acquisition program
have been completed except for one property at 2692 Cherry Ave.
“What we’re doing right now is a result of the opportunity
with a fund balance to [find] additional property that we can
purchase, clean up and sell to a developer,” said RDA Manager
Elise McCaleb. Cherry Avenue is the main corridor for Signal
Hill, and the purpose of the program is to help make larger
development sites on that street.
A major project within the city’s redevelopment area is a
large expansion plan of Escondido Disposal (EDCO), a refuse
waste hauling business that Farfsing said plans to move its
headquarters to Signal Hill. The refuse company hauls garbage
to local landfills.
However, these landfills will reach capacity in two to three
years. By then, EDCO will have a transfer station in Signal
Hill, where garbage haulers will consolidate their trash to be
sorted and transported by EDCO to an open pit mine in the
desert left by Kaiser in World War II. Because the transfer station would charge a host fee, the city would gain sales tax revenue.
“We’re very excited to have EDCO and the commitment –
generally millions of dollars of investment in our community
during really a recession,” Farfsing said. “We’re really proud to
have EDCO as a partner.” ■