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
Julie Bondarchuk, Financial Controller
Alexis Motonaga, Budget & Financial Analyst
SUBJECT:Title
Fiscal Year 2025-2026 Preliminary Year-End Financial Results and Year-End Budget Appropriations (Partially Budgeted) (Finance Director Bretthauer).
A) RECEIVE REPORT
B) APPROPRIATE FUNDS
(Estimated Time: 30 mins.)
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council receive this report and appropriate $2,175,000 from the Insurance Reserve Fund and $43,000 from the County Parking Lots Fund in fiscal year (FY) 2025-2026.
FISCAL IMPLICATIONS:
Fiscal implications are discussed throughout this report.
BACKGROUND:
The City Council adopted the fiscal year (FY) 2025-2026 Budget on June 3, 2025. A first-quarter budget update was presented on November 18, 2025, and a mid-year budget update was presented on February 17, 2026. In an effort to keep the City Council and community fully informed of the City's fiscal performance, staff is providing a presentation of preliminary year-end financial performance and an explanation of the need for year-end budget appropriations in the Insurance Reserve Fund and County Parking Lots Fund.
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 year-end audit concludes, staff and the City’s external audit firm begin preparing financial statements and the Annual Comprehensive Financial Report (ACFR).
Fieldwork for the FY 2025-2026 audit will be completed in October, and the ACFR will be presented and discussed with the Finance Subcommittee in December before being presented to the City Council in early 2027.
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. These reports are considered preliminary and subject to change with any prior-year invoices received late and/or final audit entries.
FY 2025-2026 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 expenditures exceed the total appropriation in a fund. After the conclusion of FY 2025-2026, expenditures in two funds exceeded appropriations, therefore requiring year-end budget adjustments.
Insurance Reserve Fund
In FY 2025-2026, approximately $11.9 million in expenditures were originally budgeted in the Insurance Fund. At the mid-year budget update, $1.025 million was appropriated due to expenditures trending above expected levels. As we close the fiscal year, an appropriation of $2,175,000 is required to align the appropriation with actual expenditures, as insurance claim payments have again exceeded the mid-year projection. Expenditures have risen over the years, primarily driven by the increased cost of insurance premiums and the rising amounts paid out in claims and litigation expenses.
The Insurance Reserve Fund previously required year-end appropriations in FY 2023 ($1,998,952), FY 2024 ($771,804), and FY 2025 ($679,833), which were funded by existing fund balance. Taking into account the FY 2026 results of expenditures exceeding revenues by $4.6 million, the Insurance Fund will end the year with an estimated fund balance of approximately $1.6 million. Staff recognized the projected lower fund balance in early 2026 and proactively included a $6.0 million transfer from the General Fund to the Insurance Reserve Fund in the FY 2027 Adopted Budget to replenish the fund.
At this time, staff is recommending addressing the FY 2026 budget appropriation to comply with Financial Policies. At a future date, staff will return to the City Council to discuss long-term budget and financial policies related to funding the Insurance Reserve Fund. While liability claims and associated expenses (and recoveries) fluctuate over time and cannot be budgeted with certainty, the City’s historic process for budgeting and funding workers’ compensation and liability claim expenses based on historical averages has not been adequate. The future agenda item will present options for City Council consideration to use actuarial valuations to budget for projected liabilities, assess related fiscal implications, and update the City’s budget and financial policies accordingly.
County Parking Lots Fund
In FY 2025-2026, approximately $1.2 million in expenditures was originally budgeted in the County Parking Lots Fund, including a Transfer Out to the General Fund of $246,227 for excess revenues, per the City’s Agreement with the County. Due to the increase in parking meter rates, actual revenues exceeded projections, and the year-end transfer amount to the General Fund was underestimated. As we close the fiscal year, an appropriation of $43,000 is required to align the appropriation with actual expenditures.
FY 2025-2026 General Fund Highlights
Based on preliminary year-end actuals for FY 2025-2026, and several revenue sources exceeding conservative budget estimates, total revenues exceeded total expenditures by $17,625,672. This increase to the General Fund balance includes one-time grants of $229,740 and bond proceeds of $16.6 million.
General Fund
|
Revenues |
$137,552,262 |
|
Expenditures |
119,926,590 |
|
Increase to Fund Balance |
$17,625,672 |
Although the year-end surplus and increase to the General Fund balance is significant, it is important to note there were unspent encumbrances totaling $1,422,104 in FY 2026 that get carried forward to the current Fiscal Year 2026-2027.
Overall, General Fund revenues exceeded budget by $6.1 million primarily due to Sales & Use Tax, Business License Tax, Parking Citations, and Interest Earnings. Business License Tax revenues received a one-time increase of over $864,000 due to the compliance and discovery program that finds unlicensed and overdue businesses within the City. Building Permits and Plan Check cost recovery fees exceeded the budget by a total of $923,630 due to increased building activity within the City. Other key revenues that were higher than estimates include Local Transaction and Use Tax (Measure MMB), Short-term Rental TOT, and Real Estate Transfer Tax.
General Fund expenditures were under budget by $2.6 million, primarily due to savings in Contract & Professional Services, Materials & Services, Internal Service Charges, and Property & Equipment. Salaries and benefits make up the largest expenditure categories and came in over budget by $477,612 due to budgeted vacancy savings, mutual aid overtime, and unpredictable employee accrued leave cashouts. Overall, cost increases were offset by savings in other categories, keeping General Fund expenditures roughly 1.9% under budget.
As of June 30, 2026, the ending General Fund balance totals $43.3 million after all activities and transfers. Within this amount, the Financial Policy designation of 20% of General Fund expenditures totals $21.1 million, the Economic Uncertainty Reserve totals $4.0 million, and the balance is unreserved.
With these positive results in FY 2025-2026, staff recommends replenishing the Economic Uncertainty Reserve at $4.0 million in FY 2026-2027, which will be further discussed during the First Quarter Budget Update presentation on November 17, 2026.
FY 2025-2026 Financial Performance Indicators
To provide greater transparency and context on the City’s current financial position, City staff introduced Financial Performance Indicators at the Finance Subcommittee meeting on September 22, 2026. In developing the Financial Performance Indicators for the City of Manhattan Beach, staff identified 10 key areas of focus for measuring the City's financial health, as well as tracking metrics to objectively benchmark the City’s financial performance. This document will be updated and presented annually during the budget process to inform budget decisions and guide long-term planning.
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 2026 Preliminary Year-End Budget-to-Actual Financial Reports
2. Financial Performance Indicators
3. PowerPoint Presentation