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 and Financial Analyst
SUBJECT:Title
Fiscal Year 2026 Mid-Year Budget Report Including Funding Appropriations; and Fiscal Year 2027 Budget Development Calendar and Proposed Staffing Change (Partially Budgeted) (Finance Director Bretthauer).
(Estimated Time: 30 Min.)
A) RECEIVE REPORT
B) APPROPRIATE FUNDS
C) APPROVE STAFFING ADJUSTMENT FOR FISCAL YEAR 2027
D) CONSIDER GENERAL FUND TRANSFER TO INSURANCE FUND IN FISCAL YEAR 2026
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council: 1) receive the Mid-Year Budget Report for Fiscal Year (FY) 2026 and FY 2027 budget development calendar; 2) appropriate $11,139,619 along with an increased adjustment to revenues of $2,023,134 for the General Fund; 3) appropriate $1,211,165 in Other Funds along with a decreased adjustment to revenues of $37,350 for Other Funds as identified in Attachment #1; and 4) approve the proposed Police Department staffing adjustment for inclusion in the FY 2027 Proposed Budget.
FISCAL IMPLICATIONS:
Every January, City staff analyzes fiscal year-to-date activity and prepares mid-year projections for revenues and expenditures to evaluate potential budget variances and forecast year-end results. This report focuses on those mid-year projections and explains budget variances to provide a current representation of the City’s fiscal position.
Current trends indicate that General Fund revenues, and Interfund Transfers From Other Funds, are estimated to come in over the adjusted budget by $2,023,134 (1.6%). General Fund expenditures are projected to be $11,139,619 (10.0%) over the adjusted budget, mainly due to the inclusion of Interfund Transfers To Other Funds. Based on these projections, the year-end surplus is estimated at approximately $8,782,541. Attachment # 1 provides detail on the projected General Fund revenues and expenditures through the end of the Fiscal Year (to June 30, 2026).
As described with the presentation of the Annual Comprehensive Financial Report (ACFR) on January 20, 2026, interfund transfers and non-cash transactions are being moved from their historical balance sheet accounts to Revenue and Expenditure accounts to align with best practices and recommendations from the City’s external auditors. Although Interfund Transfers have always impacted the General Fund balance, showing them as Interfund Transfers categories within Revenues and Expenditures also brings greater transparency to these funds.
Accordingly, budgeted year-end transfers now show in the Interfund Transfers section at the bottom of Revenues and Expenditures tables. Totaling approximately $8.6 million, these transfers support operations in the Street Lighting & Landscape Fund, capital projects in the Capital Improvement Program (CIP) Fund and Storm Drain Fund, and future pension obligations in the Pension Stabilization Fund.
Considering year-end revenue and expenditure projections and interfund transfers, the unreserved General Fund balance is projected to be approximately $19.8 million at fiscal year-end.
BACKGROUND:
The City Council adopted the FY 2026 Budget on June 3, 2025, with an estimated General Fund operating budget surplus of $19,839,399. Excluding the $13.2 million in one-time bond proceeds, there was an operating budget surplus of $6,618,399.
During the November 18, 2025, City Council meeting, a Budget Update for the first Quarter of FY 2026 was presented. City Council has the authority to approve additional appropriations throughout the fiscal year. To date, net budget adjustments approved by the City Council and encumbrances carried forward from the prior year resulted in an adjusted General Fund budget surplus of $17,899,025 (a reduction of $1,940,374 from the Adopted Budget).
DISCUSSION:
The City Council and staff respond to the community’s needs through the allocation of resources. The budget is both a spending plan for the City’s available financial resources and the legal authority for City departments to spend these budgeted appropriations on goods and services that align with public priorities and meet the needs of Manhattan Beach residents.
Funding essential operations and capital priorities will be further discussed during the FY 2027 budget process.
In the current fiscal year, General Fund revenues are estimated to come in over the adjusted budget by $2.0 million (1.6%). Expenditures, including significant Transfers Out, are projected to be around $11.1 million (10.0%) over the adjusted budget (the adjusted budget includes City Council-approved amendments during the current year as well as encumbrances carried forward from the prior year).
When comparing estimated year-end revenues and expenditures irrespective of the budget, revenues are expected to exceed expenditures, creating a projected surplus of $8,782,541.
|
General Fund Revenue & Expenditure Summary |
|
|
Total Projected Revenues |
|
$131,368,457 |
|
Total Projected Expenditures |
|
122,585,916 |
|
Projected Surplus/(Deficit) |
|
$8,782,541 |
|
General Fund Surplus Projection |
|
|
Adopted Surplus/(Deficit) |
$19,839,399 |
|
Net Budget Adjustments to Date |
(1,940,374) |
|
Revenues over Budget Including Transfers |
2,023,134 |
|
Expenditures over Budget Including Transfers |
(11,139,619) |
|
Projected Surplus/(Deficit) at Year-End |
$8,782,541 |
FY 2026 Recommended Budget Adjustments
To align the Budget with year-end projections, staff is proposing the City Council authorize the following adjustments to Revenues and Expenditures in FY 2026. These mid-year budget adjustments, which are described in detail in Attachment #1, have been identified by staff as time-sensitive priorities.
General Fund Revenues
|
# |
Description |
Amount |
|
1 |
Plan Check Revenues Based on Year-to-Date Trends |
$1,500,000 |
|
2 |
CPA Reach Code Program Grant Revenue Removal |
-12,500 |
|
3 |
Reimbursement of Fire Ops Mutual Aid Overtime |
50,000 |
|
4 |
Property Tax |
358,113 |
|
5 |
Transactions and Use Tax (Measure MMB) |
505,000 |
|
6 |
Interfund Transfers In |
246,227 |
|
7 |
Engineering Operating Service Transfer In |
-500,000 |
|
8 |
Parking Citations and Other Fines |
-123,706 |
|
|
Total GF Revenue Adjustments |
$2,023,134 |
General Fund Expenditures
|
# |
Description |
Amount |
|
1 |
Building Plan Check Consultants |
1,000,000 |
|
2 |
Building Inspection services |
100,000 |
|
3 |
Business License Code Update Including Fiscal Analysis, Consulting, Polling and Legal Services |
202,400 |
|
4 |
Cost of Issuance for Debt Financing 2025 COPs |
19,868 |
|
5 |
Interfund Transfers Out |
8,889,586 |
|
6 |
Bank Service Charges |
64,882 |
|
7 |
Fire Operations Overtime Sworn Employees |
190,000 |
|
8 |
Fire Ops Mutual Aid Overtime |
50,000 |
|
9 |
EMS Overtime Sworn Employees |
305,000 |
|
10 |
Legal Services |
100,000 |
|
11 |
Contract Services |
250,000 |
|
12 |
Chamber of Commerce Annual Agreement |
35,000 |
|
13 |
City Attorney Legal Services to Account for Balance Sheet Costs from Past Fiscal Years |
332,000 |
|
14 |
Utilities |
-298,011 |
|
15 |
Overtime Special Events |
-101,106 |
|
|
Total GF Expenditure Adjustments |
$11,139,619 |
Other Fund Revenues
|
# |
Fund |
Description |
Amount |
|
1 |
Measure R |
Adjustment to CIP ST16014 Aviation @Artesia |
-$100,000 |
|
2 |
Gas Tax |
Adjustment to CIP ST16014 Aviation @Artesia |
100,000 |
|
3 |
Measure W |
Adjustment to CIP 28th St. Storm Drain Project |
-8,535,000 |
|
4 |
Grants |
Adjustment to CIP 28th St. Storm Drain Project |
8,535,000 |
|
5 |
Measure W |
Adjustment to Dominguez Channel Trash TMDL |
-4,936,566 |
|
6 |
Grants |
Adjustment to Dominguez Channel Trash TMDL |
4,936,566 |
|
7 |
Measure W |
Reduce TMDL Trash Treatment Project Grant |
-37,350 |
|
|
Total Other Fund Revenue Adjustments |
$(37,350) |
Other Fund Expenditures
|
# |
Fund |
Description |
Amount |
|
1 |
CIP |
Cost of Issuance and Debt Service 2025 COPs |
$136,165 |
|
2 |
Insurance |
Unemployment Claims |
25,000 |
|
3 |
Insurance |
Claims Paid |
1,000,000 |
|
4 |
Measure R |
Adjustment to CIP ST16014 Aviation @Artesia |
-100,000 |
|
5 |
Gas Tax |
Adjustment to CIP ST16014 Aviation @Artesia |
100,000 |
|
6 |
Measure W |
Adjustment to CIP 28th St. Storm Drain Project |
-13,471,566 |
|
7 |
Grants |
Adjustment to CIP 28th St. Storm Drain Project |
13,471,566 |
|
8 |
Storm Drain |
Adjustment to Dominguez Channel Trash TMDL |
-258,337 |
|
9 |
Measure W |
Adjustment to Dominguez Channel Trash TMDL |
258,337 |
|
10 |
CIP |
Fire Station #2 HVAC |
50,000 |
|
|
Total Other Fund Expenditure Adjustments |
$1,211,165 |
Roundhouse Aquarium Funding Request for FYs 2026, 2027 and 2028
On June 3, 2025, the City Council voted to discuss support for the Roundhouse Aquarium. In July, Oceanographic Teaching Stations, Inc (OTS) submitted a letter requesting $110,000 for the next three years to support the Roundhouse Aquarium with equipment repairs, maintenance, and replacement. On September 2, 2025, the City Council received a presentation and voted to reconsider the request as part of the mid- year budget process. Attached to this report is the original request for $110,000, a revised request for $80,000, and a financial report as requested by City Council at the September 2, 2025, meeting.
Upon City Council direction, an additional appropriation of $80,000 (or other approved amount) from the Unreserved General Fund balance can be added to the FY 2026 Adjusted Budget and built into the FY 2027 and FY 2028 Proposed Budgets.
FY 2026 Insurance Fund Update
The unpredictable and volatile nature of insurance claims activity can cause significant fluctuations in claims expenses and make budgeting for the Insurance Fund difficult. As of the end of FY 2025, the Insurance Fund balance is $6.3 million, which is about $1.7 million below the current policy reserve of $8.0 million due to prior year increases in claims and litigation expenses.
Historically, staff used a 5-year average to determine claims expenses for the budget. However, with claims expenses significantly rising year-over-year, the current methodology is no longer sufficient to provide adequate funding levels. To bring the Insurance Fund balance up to the FY 2025 policy reserve level, a transfer of $1,711,200 from the General Fund would be needed.
An appropriation of $1.0 million is requested for FY 2026 to meet current year anticipated expenditures. Additional General Fund transfers will likely be required to meet policy reserves in future. Staff is actively engaging an actuarial firm to analyze the Insurance Fund and recommend funding strategies to address this ongoing concern. Current options for City Council consideration are to (1) transfer $1,711,200 in FY 2026 to meet the FY 2025 policy reserve or (2) retain those funds in the General Fund balance until the full actuarial analysis with funding strategies is brought forward to the City Council.
FY 2027 Budget Updates
Budget Development Calendar
After reviewing requests from each Department and input from the City Council Workplan on February 24, 2026, a Proposed Budget for FY 2027 will be prepared and presented to City Council on May 5, 2026. As part of the budget process, staff is also refining a five-year financial forecast and growth factor projections for both revenues and expenditures to estimate long-term fiscal sustainability. The City’s Financial Policies and fund transfers are also being thoroughly reviewed.
Following the initial presentation in May, one or more City Council Budget Study Sessions will be held on May 12 and 26 (tentative dates) with an additional opportunity to discuss the budget at the City Council meeting on May 19. The public hearing and budget adoption is scheduled for June 2, 2026, before the new fiscal year begins on July 1. The FY 2027 budget timeline is attached.
Proposed Staffing Change
The Police Department has requested advance authorization to establish the position of Deputy Police Chief and begin recruiting for the position with the goal of it being filled in early FY 2027. Providing recruitment authority in advance allows the Police Department to establish the classification and corresponding salary range as well as conduct a thorough and competitive selection process while ensuring continuity of leadership and operational stability. The Deputy Chief position is intended to enhance administrative capacity, provide direct supervision of Captains, and support the Chief of Police with the increasing organizational, regulatory, and community engagement demands of the role, and will also enable internal growth and succession planning within the department. Authorizing the creation of the position and recruitment in advance aligns staffing transitions with operational needs while maintaining the Department’s commitment to filling sworn officer positions to ensure uninterrupted service delivery. While the cost of the new position would be offset by the elimination of two sworn officer positions, the Police Department would retain the ability to over-hire as needed to prepare for future vacancies or supplement staffing. There are currently six (6) vacancies at the Police Officer rank, and it is not anticipated that decreasing the sworn vacancy count by two will impact service delivery.
The estimated net budget impact in FY 2027 to add the Deputy Police Chief and eliminate two vacant Police Officers is $91,261.
PUBLIC OUTREACH:
In December 2025, the City launched a community budget online survey. The survey is being communicated through the City website, emails, social media and the upcoming issue of Manhappenings. City staff will also be visiting various community groups to target in-person outreach to these established groups.
Future opportunities for public input include May 5, 2026, when the FY 2027 Proposed Budget is presented to the City Council, and during subsequent City Council Budget Study Sessions. Questions and comments may also be submitted anytime via email to Budget@manhattanbeach.gov <mailto:Budget@manhattanbeach.gov>.
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 because it consists of an administrative activity of government that will not result in direct or indirect physical changes in the environment. 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. Fiscal Year 2026 Mid-Year Budget Report
2. Roundhouse Aquarium Funding Request
3. Fiscal Year 2027 Budget Timeline
4. PowerPoint Presentation (To Be Sent Under Separate Cover)