City Lays Out Its Revenue Options. None of Them Are Easy

Hermosa Beach City Council spent the better part of Tuesday night confronting a question the city has been circling for years: how do you pay for the place you've built?

The short answer, delivered by city staff at the May 26 regular meeting, is that there is no single answer. A $3.2 million structural deficit in the upcoming fiscal year (driven by rising labor costs, escalating county contracts for fire, lifeguard, and beach maintenance, and aging infrastructure) has exhausted the city's supply of one-time budget patches. What remains is a menu of revenue tools, each with its own timeline, political difficulty, and ceiling.

Staff has already identified roughly $4 million in expenditure reductions for FY27: approximately $2 million in deferred equipment and fleet replacement, $1.1 million in reduced (but still healthy) reserve contributions, and about $1 million in operational efficiencies across departments. Notably, council had directed staff to avoid layoffs and minimize service impacts — and the proposed cuts reflect that.

But reductions alone don't solve a structural problem. "It won't be about doing more with less," City Manager Steve Napolitano told the council. "We're already doing that every day."

What the Poll Found

Before the revenue discussion, council received results of a feasibility poll that Napolitano commissioned on a potential 1% general sales tax — the kind that requires a simple majority to pass.

The headline number: 56% of likely November voters said they would support the measure before hearing any arguments for or against. After exposure to positive messaging about local infrastructure and public safety, support climbed to 62%. After negative arguments were introduced — including cost-of-living concerns and skepticism about how funds would be spent — support settled at 55%, still theoretically above the threshold needed to pass.

Finance Director Brandon Walker noted that every 0.25% of sales tax generates roughly $1 million in annual revenue, and that a majority of sales tax is typically paid by visitors rather than residents.

Councilmember Francois questioned whether the survey was designed to produce a yes result rather than an objective read of public opinion. The polling consultant pushed back, noting that 93% of measures they have recommended going to ballot have passed — and that the firm's role is to assess feasibility, not to advocate. The exchange reflected a tension that will likely resurface if and when council decides whether to place a measure on the November ballot. Francois opposed Measure HB, the 2024 sales tax ballot measure that failed by a wider margin than its predecessor in 2022 — a relevant piece of history as council weighs whether to try again.

One notable gap: the poll did not test a TOT (hotel tax) increase alongside the sales tax. The reason, staff explained, is that testing both requires a split-sample methodology, and the two measures compete with each other on the ballot — voters who will support one tax increase tend to resist two.

Beyond the sales tax, staff presented six additional revenue strategies. Here's what each involves:

TOT increase. Hermosa's hotel tax currently sits at 14%, near the top of the regional market. Each 1% increase would generate roughly $364,000 annually. Requires voter approval. Staff noted the 2026 World Cup and 2028 Olympics as timing opportunities, and council briefly discussed a seasonal or temporary rate — though no comparable precedent was identified. One prominent local hotel operator used the public comment session to urge caution against overtaxing Hermosa's hotels within a competitive local tourism market.

Short-term rental compliance and enforcement. This is the sleeper on the list. Staff estimated up to $5 million in one-time arrears collections from short-term rental operators who have been operating without paying Transient Occupancy Tax, plus roughly $1 million annually in ongoing revenue once compliance is established. Crucially, this requires no voter approval — it's enforcement of taxes already owed. A member of the public with an STR property argued forcefully that heavily restrictive regulations would undermine the revenue opportunity by pushing operators underground, as has happened elsewhere.

Click Here to access our Hotel and STR tax modeling tool

Parking expansion and dynamic pricing. Parking ranked as the top community concern in the resident survey. Staff outlined several options: dynamic (peak-hour) pricing at beach and downtown lots, expanding meters along Monterey and Manhattan Avenues — currently one-hour unmetered zones — increasing late fees on citations (currently a flat $30, regardless of how long a ticket goes unpaid), and revisiting the holiday free-parking program. Combined, these strategies could generate upward of $2 million annually depending on scope.

Assessment district modernization. The city's Landscaping and Street Lighting District hasn't been updated since 1996, when Proposition 218 froze the assessment rate. The general fund currently subsidizes roughly $400,000 annually to cover the gap between what the district collects and what it costs to operate. Updating the assessment would require a Prop 218 mail-ballot process — cheaper and simpler than a general election, staff noted, pointing to Manhattan Beach as a local precedent.

Stormwater fee. Similarly, the city subsidizes its stormwater fund by about $700,000 annually. A dedicated fee, also subject to Prop 218, would reduce general fund pressure and improve long-term compliance with state coastal and environmental mandates.

City assets and economic development. The most speculative item on the list. Staff described potential lease optimization, public-private partnerships, and strategic development — including possible disposition or development of city-owned parking lots such as Lot A. Long-term, community-process-dependent, and unlikely to produce near-term revenue.

No Decisions Yet — But Direction Was Sought

Staff was not asking for financial commitments Tuesday night. The ask was for policy direction: which options should move forward for deeper analysis, modeling, and legal review?

Council provided general encouragement across most categories without formally prioritizing any. The STR compliance strategy drew the most consensus as a near-term opportunity requiring no ballot measure. Dynamic parking and meter expansion also attracted support, with council members noting the data suggests Hermosa's parking demand is relatively inelastic — people pay.

The sales tax ballot question remains open. The poll gives a green light on feasibility. What council hasn't decided is whether to pull the trigger for November 2026, which would require moving quickly ahead of a July deadline.

The Harder Question

What Tuesday's meeting made visible is the distance between the problem and the solutions.

The $3.2 million deficit is this year's number. Staff was candid that the structural challenge extends well beyond FY27 — that one-time patches are gone, that county contract costs will keep rising, and that the capital backlog (pier, City Yard, infrastructure) represents obligations that don't disappear from the spreadsheet just because they haven't been funded.

The revenue tools on the table are real. But the voter-approved measures require campaigns and a November ballot against a backdrop of tightening household budgets and two recent failed measures. The compliance and enforcement measures on STR's require staff capacity and political will to pursue operators who have been operating outside the system for years. The fee and assessment updates require process.

Napolitano appears prepared to lay out the challenges in a more open way than his City Manager predecessor. Whether that transparency is enough to win the trust of voters in November remains to be seen.