TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Emy-Rose Hanna, Financial Services Manager
Alexis Motonaga, Budget & Financial Analyst
SUBJECT:Title
Presentation of the Fiscal Year 2027 Proposed Operating Budget and Consideration of CERT Funding Request (Continued) (Not Budgeted) (Finance Director Bretthauer).
(Estimated Time: 1 Hr.)
DISCUSS AND PROVIDE DIRECTION
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council receive this report on the Proposed Operating Budget for Fiscal Year (FY) 2027 and provide direction.
FISCAL IMPLICATIONS:
The Proposed Budget reflects a strategic and thoughtful approach to using accumulated General Fund reserves to address current needs and capital improvement goals. The long-term outlook for structural cost pressures warrants continued attention and proactive measures to ensure the City’s outstanding municipal services are maintained while meeting other intensifying funding obligations for pension costs and insurance claims. After years of prudent fiscal decision-making, strong foundational policies and long-term forecasting practices, Manhattan Beach is well-positioned to navigate these budget challenges and mitigate any operational impacts.
The FY 2027 General Fund Proposed Budget has a projected structural budget surplus of $1,971,768 based on ongoing revenues of $118,965,764 exceeding ongoing expenditures of $116,993,996. When non-recurring expenditures (one-time costs and capital purchases) and net transfers to other funds are taken into account, the projected decrease in fund balance is $9,588,758.
|
On-going Revenue |
$118,965,764 |
|
On-going Expenditures |
$116,993,996 |
|
FY 2027 Structural Budget Surplus |
$1,971,768 |
|
|
|
|
Non-recurring Equipment Replacements |
($436,900) |
|
Transfer Out to Street Lighting Fund |
($270,376) |
|
Transfer Out to Capital Improvement Fund |
($5,000,000) |
|
Transfer Out to Insurance Fund |
($6,000,000) |
|
Transfer in from County Lots Fund |
$146,750 |
|
FY 2027 Decrease in Fund Balance |
($9,588,758) |
The FY 2027 Proposed Budget includes the following transfers out from the General Fund unreserved fund balance:
• $270,376 to the Street Lighting and Landscape Fund to cover ongoing operations and capital expenses. This fund receives revenues from assessments to property owners, which have not increased since 1996. Without a successful Prop 218 vote, the Fund will continue to require subsidies from the General Fund to cover ongoing operations and capital expenses.
• $5.0 million to the Capital Improvements Program (CIP) Fund for deferred maintenance and one-time projects, and anticipated debt service to finance the purchase of 400 Manhattan Beach Boulevard (“400 MBB”).
• $6.0 million to the Insurance Fund to support rising costs in claim liabilities due to an unprecedented increase in litigation and claims, and related defense costs and expenses, which have depleted reserves in the Insurance Fund. The City expects to be reimbursed from its insurance pool for amounts in excess of the applicable self-insured retention amount, but the timing and amount of such reimbursements are currently unknown.
The scheduled transfer of $3.5 million to the Pension Trust Fund was temporarily paused while we focus on funding the one-time $6.0 million cash infusion to the Insurance Reserve Fund and rising CalPERS UAL payments ($2.7 million in FY 2027).
The General Fund also receives a transfer-in of excess funds from the County Parking Lots Fund annually, which is estimated at $146,750 in FY 2027. This amount was partially reduced in FY 2027 to account for the Lot B parking lot closure at Bruce’s Beach due to the staging and construction schedule for the 28th Street Infiltration Project.
At the end of FY 2027, the City’s Financial Policy reserve of 20% of operating expenditures is estimated to be $23.4 million, which is greater than the Government Finance Officers Association (GFOA) recommendation of “no less than two months (17%) of regular general fund operating revenues or regular general fund operating expenditures.” Historically, the City Council has maintained a $4.0 million “Economic Uncertainty” reserve, but with the necessary transfer of $6.0 million to the Insurance Fund, the Economic Uncertainty Reserve has been temporarily depleted. When economic conditions improve, or any unexpected one-time revenues become available, this Economic Uncertainty Reserve may be re-established.
The General Fund’s Unreserved Fund Balance is estimated to be $1.5 million at the end of FY 2027, for a total estimated fund balance of $24.9 million.
BACKGROUND:
On February 17, 2026, staff presented the FY 2026 Mid-Year Update. Year-end estimates for FY 2026 indicated that expenditures would exceed revenues by about $17,425,900. At this meeting, staff discussed changes to the presentation of interfund transfers and the reclassification of Transfers as revenues and expenditures. These changes were recommended in accordance with GFOA standards and best practices to develop a more financially transparent budget. After accounting for the impact of the transfers, the year-end projection for FY 2026 would result in a revised surplus of $8,782,541.
This anticipated surplus is primarily due to one-time bond proceeds received in August 2025 and the effect of reclassifying interfund transfers as revenues/expenditures. Other cost increases were largely tied to public safety overtime, contract services and plan check consultants that were projected higher than budget.
|
Revenues |
$131,122,230 |
|
Expenditures |
$113,696,330 |
|
FY 2026 Mid-Year Projected Deficit |
$ 17,425,900 |
|
Net Transfers In/Out to Other Funds |
$ (8,643,359) |
|
FY 2026 Mid-Year Projected Surplus After Transfers |
$ 8,782,541 |
Based on the projected surplus for FY 2026, the General Fund balance on June 30, 2026, is projected to be $34.5 million.
DISCUSSION:
The FY 2027 Proposed Budget was developed as a comprehensive spending plan that supports both City Council and community priorities. Where appropriate, service level investments were added in response to feedback received from the online Budget Survey, as well as for City Council Work Plan items.
The Proposed Budget also factors funding availability when considering budget proposals for program changes, one-time projects, equipment needs, technological advancements, and staffing adjustments. In any case where a Proposed Budget did not have adequate funding availability, Departments were asked to reprioritize all budget requests based on the highest need to determine which expenditure line items would move forward in the Proposed Budget versus which items would be deferred. This practice of reprioritization leads to budget savings and ensures that expenditures are aligned with current community needs. The results of this prioritization are reflected in the attached List of Deferred Budget Enhancements.
Following these steps, the Finance Department worked closely with all operating departments to prepare the Proposed Budget for City Council consideration beginning with the initial presentation on May 5, 2026.
The attached PowerPoint presentation includes various data points of interest to address questions that arose during the May 5, 2026, City Council meeting, including:
• Cost Containment options such as:
o Review of Contract & Professional Services costs
o Review of Materials & Services costs
o General Fund reduction of $1 million and its associated service level impacts
o Research refinancing existing debt obligations
• Revenue enhancements such as:
General Fund
o Credit Card Pass-through fees
o Parking Meter Citation fines
o Business License Tax (Ballot Measure Required)
o 0.5% Sales Tax Measure to reach maximum potential of 10.75% (Ballot Measure Required)
o Variable Transient Occupancy Tax rate applicable for Short-Term Rentals (Ballot Measure Required)
o Utility Users Tax (Ballot Measure Required)
o Short-Term lease for 400 MBB until construction begins (Requires further research)
o Bond Measure to support infrastructure (Not recommended)
Other Funds
o Street Lighting & Landscaping Assessments (Prop 218 Required)
o Parking Meter Rates
• Discussion of CERT funding request
• Discussion of Roundhouse Aquarium Contribution (General Fund to State Pier Fund)
Staff collaborated on what could be further reduced from the General Fund budget with minimal impact on service levels. Each potential budget reduction was assigned an impact category of low, medium or high. Based on these classifications, the total amount of potential reductions were:
• $257,600 - Low Impact (Little to No community/organizational impact)
• $516,378 - Medium Impact (Impact on internal City operations/Staff; Minor to No impact to Services in community)
• $444,600 - High Impact (Noticeable service impacts in community)
Staff recommends moving forward with the low- and medium-impact reductions totaling $773,978. At this time, the high-impact reductions are not recommended, given the effect of noticeable service impacts on the community. In the event of a significant economic downturn or other revenue shocks, further cost containment measures will be introduced in future mid-year budget updates.
Following the discussion of these follow-up items, Departments will present operating budget highlights, Performance Measures and Metrics, Key Objectives for FY 2027 and proposed budget requests for FY 2027.
At the conclusion of the presentation, staff recommends the City Council discuss and provide direction to:
1. Confirm any desired modifications to the FY 2027 Budget;
2. Incorporate recommended low- and medium-impact Cost Containment Measures for additional budgetary savings of $773,978;
3. Move forward with any potential Revenue Enhancements options; and
4. Conduct a Public Hearing for Budget Adoption and Gann Limit Appropriations on June 2, 2026.
PUBLIC OUTREACH:
To encourage additional community input and participation, the City engaged in various activities to get gain feedback through the budget survey and get the word out on the budget meetings by 1) placing multiple ads in The Beach Reporter regarding the Budget Survey and Budget Calendar, 2) sending multiple email notifications and social media postings, 3) promoting the Survey during community announcements at City Council Meetings, and 4) attending various in-person community group meetings for targeted outreach regarding the budget survey.
Additionally, the City’s website (www.manhattanbeach.gov/budget <http://www.manhattanbeach.gov/budget>) is periodically updated with the latest information on the upcoming budget, and the budget@manhattanbeach.gov email address is once again available for input from the community.
The Beach Reporter recently included an advertisement announcing this FY 2027 Proposed Budget discussion agenda item along with the past and upcoming budget schedule, as follows:
Tuesday, May 5 Regular City Council Meeting Proposed Budget - 6:00 p.m.
Tuesday, May 12 City Council Meeting Budget Study Session - 6:00 p.m.
Tuesday, June 2 Regular City Council Meeting - Public Hearing and Budget/CIP Adoption - 6:00 p.m.
All meetings are held in-person at City Council Chambers and via Zoom.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. May 5, 2026, City Council Staff Report (Web-Link Provided)
2. Parks & Recreation Profit and Loss Statement
3. City Council Work Plan Items by Department
4. PowerPoint Presentation