TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Julie Bondarchuk, Financial Controller
Emy-Rose Hanna, Financial Services Manager
SUBJECT:Title
Fiscal Year 2024-2025 Year-End Financial Results and Year-End Budget Appropriations (Unbudgeted) (Finance Director Bretthauer).
A) RECEIVE REPORT
B) APPROPRIATE FUNDS
Body
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RECOMMENDATION:
Staff recommends that the City Council receive this report and appropriate $679,833 from the Insurance Reserve Fund and $3,123 from the Pension Trust Fund in fiscal year (FY) 2024-2025.
FISCAL IMPLICATIONS:
Fiscal implications are discussed throughout this report.
BACKGROUND:
The City Council adopted the fiscal year (FY) 2024-2025 Budget on June 4, 2024. A first quarter budget update was presented on November 19, 2024, and a mid-year budget update was presented on February 18, 2025. In an effort to keep the City Council and community fully informed of the City's fiscal performance, staff is providing a presentation of year-end financial performance and explanation of the need for year-end budget appropriations.
DISCUSSION:
The City of Manhattan Beach Finance Department is committed to accuracy, compliance, and transparency in financial reporting. Recurring monthly financial reports are intended to provide timely fiscal information and improve general awareness of the City’s overall fiscal health. Each year after the conclusion of the year-end audit, staff and the City’s external audit firm begin preparing financial statements and the Annual Comprehensive Financial Report (ACFR).
Field work of the FY 2024-2025 audit was recently completed and the ACFR will be presented and discussed with the Finance Subcommittee in December before being presented to the City Council in early 2026.
To finalize the fiscal year-end closing, two budget appropriations are necessary to maintain compliance with the City’s Financial Policies. Budget-to-Actual Financial Reports are attached presenting a snapshot of budget performance at year-end. Reports highlighting the performance of key General Fund revenue sources are also included.
FY 2024-2025 Budget Appropriations
The City’s Financial Policies state in Section 9 - Operating Budget Policies that “in no case may total expenditures of a particular fund exceed that which is appropriated by the City Council without a budget amendment.” From time to time, extraordinary events cause total fund expenditures to exceed budgeted appropriations. Per the City’s Financial Policies, City Council approval is required if the expenditures exceed the total appropriation in a fund. After the conclusion of FY 2024-2025, expenditures in two funds exceeded appropriations requiring year-end budget adjustments.
An appropriation of $679,833 is needed in the Insurance Reserve Fund, which is an internal service fund that is funded through charge-outs to other funds, mainly the General Fund. Expenditures have risen over the years, primarily driven by inflation, the increased cost of insurance, and the amount paid out in claims and litigation expenses.
The Insurance Reserve Fund had sufficient fund balance for year-end appropriations required in FY 2023 ($1,998,952) and FY 2024 ($771,804) attributable to recoveries from the City’s insurance pool. However, with expenditures exceeding revenues in FY 2025 by $1,257,165, and rising insurance reserves due to an increase in litigation claims, the Insurance Fund does not currently meet financial policy reserves by $1,711,200.
At this time, staff is recommending addressing the FY 2025 budget appropriation to comply with Financial Policies. At a future date, staff will return to the City Council to discuss budget and financial policies related to funding the Insurance Reserve Fund. While liability claims and associated expenses (and recoveries) have inherent fluctuations over time and are not possible to budget with surety, the City’s historic process for budgeting and funding workers’ compensation and liability claims expenses based on historical averages has not been adequate. The future agenda item will present options for City Council consideration to utilize actuarial valuations to budget for projected future liabilities, related fiscal implications, and updating the City’s budget and financial policies accordingly.
In the Pension Trust Fund, an appropriation of $3,123 is needed for increased retiree medical costs caused by a higher than anticipated number of employee retirements. All retiree medical costs are reimbursed by the City’s California Employers’ Retiree Benefit Trust (CERBT) plan.
FY 2024-2025 General Fund Highlights
The FY 2024-2025 General Fund Budget was adopted with an estimated year-end surplus of $508,264. Taking into account encumbrance carryforwards and other budget appropriations approved by the City Council throughout the year, the anticipated year-end deficit was estimated at -$351,750 at the time of the FY 2024-2025 mid-year budget update on February 18, 2025.
Based on year-end actuals for FY 2024-2025, several revenues exceeded conservative budget estimates to result in total revenues exceeding total expenditures by $6,331,184. However, this surplus was offset by budgeted net transfers of $4,003,449, resulting in an increase to General Fund balance of approximately $2.3 million.
General Fund
Revenues $106,005,663
Expenditures 100,482,139
$6,331,184
Net Transfers (Excluding 400 MBB) -4,003,449
Increase to Fund Balance $2,327,735
Although the year end surplus and increase to the General Fund balance is significant, it is important to note there were unspent encumbrances totaling $1,854,972 in FY 2025 that were carried forward to the current Fiscal Year 2025-2026.
Excluded from net transfers above is the transfer to the CIP Fund of $13.2 million for the purchase of 400 Manhattan Beach Blvd in April 2025. The City subsequently issued tax-exempt Certificates of Participation in August 2025 to reimburse the General Fund for this purchase and replenish General Fund reserves, which will reflect in FY 2025-2026.
Overall, General Fund revenues exceeded budget by $5,463,814 primarily due to strong Property Tax, Sales Tax, Transient Occupancy Taxes (TOT) and other major revenues. Substantial increases resulted from Short-Term Rental TOT payments and from the new Measure MMB 0.50% Transaction & Use Tax measure, which recently went into effect on April 1, 2025. Building Permits, Plan Check Service Charges, Fire Reimbursements, Ambulance Fees and Investment Gains also exceeded budget.
General Fund expenditures were under budget by $1.2 million, mainly due to savings in the categories of Contract & Professional Services, Materials & Services, Internal Service Charges, and Property & Equipment. Salaries and benefits make up the largest expenditure categories, which came in over budget by nearly $1.1 million due to vacancy savings that was budgeted, mutual aid overtime, and unpredictable employee accrued leave cashouts. The Transfers Out category was over budget due to transfers to the Fleet Fund for vehicle purchases, however, this increase was entirely offset by savings in the Property and Equipment category. Overall, cost increases were offset by savings in other categories, which allowed General Fund expenditures to stay under budget by roughly 1.2%.
As of June 30, 2025, the ending General Fund balance totals $25,581,509 after all activities and transfers. Within this amount, the Financial Policy designation of 20% of General Fund expenditures totals $19.5 million, the Economic Uncertainty Reserve totals $4.0 million, and the balance is unreserved.
PUBLIC OUTREACH:
After analysis, staff determined that public outreach was not required for this issue.
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.
ATTACHMENT:
1. Fiscal Year 2025 Year-End Budget-to-Actual Financial Reports