FOCUS ON THE CITY OF SIGNAL HILL City Tightens Budget, Incentivizes Auto Dealers, Attracts New Retail

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1 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 The 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. 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 , 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 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 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

2 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 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. 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 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 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/ or visit (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. 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/ (Photograph by the Business Journal s Thomas McConville)

3 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 Jose Sanchez, general manager of

4 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 (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 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

5 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.