TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Acting Finance Director
Emy-Rose Hanna, Budget & Financial Analyst
Marcelo Serrano, Grants & Financial Analyst
Julie Bondarchuk, Financial Controller
SUBJECT:Title
Presentation of the Fiscal Year 2026 Proposed Operating Budget (Acting Finance Director Bretthauer).
(Estimated Time: 45 Mins.)
DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council receive this report on the Proposed Operating Budget for Fiscal Year (FY) 2026, including updated Financial Policies, and provide direction.
FISCAL IMPLICATIONS:
The Proposed Budget for FY 2026 includes revenues and expenditures for all of the City’s Funds. The document includes sufficient funding for ongoing operations as well as scheduled projects in the Capital Improvements Plan (CIP).
The FY 2026 General Fund Proposed Budget has a projected surplus of $19,834,684, which includes anticipated bond proceeds of $13,221,000 to reimburse the General Fund balance for the acquisition of 400 Manhattan Beach Boulevard. Excluding these one-time funds, the revised surplus is estimated to be $6,613,684.
|
Revenue |
$125,398,738 |
|
Expenditures |
$105,564,054 |
|
FY 2026 Proposed Budget Surplus |
$ 19,834,684 |
|
Less Bond Proceeds |
$ (13,221,000) |
|
Revised Surplus |
$ 6,613,684 |
The City’s current Financial Policy reserve is 20% of operating expenditures, or about $21.1 million in FY 2026, 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.” In addition, the City Council has set aside $4.0 million as an “Economic Uncertainty” reserve to use at its discretion.
After taking into account the projected operating surplus of $19,834,684 and net transfers out from the General Fund totaling nearly $8.6 million, the General Fund Unreserved Fund Balance is estimated to be $5.1 million at the end of FY 2026.
The FY 2026 Proposed Budget includes the following transfers out from the General Fund unreserved fund balance:
• $284,539 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 one-time parks and facilities projects, and anticipated debt service to finance the purchase of 400 Manhattan Beach Boulevard (“400 MBB”).
• $500,000 to the Storm Drain Fund for critical stormwater projects.
• $3.2 million to the Section 115 Trust Fund in accordance with the Pension Liability Policy. These funds may be used to make pension payments directly to CalPERS and alleviate pressure on the General Fund in the future. CalPERS’ negative investment return as of June 30, 2022, resulted in an unfunded pension liability payment due in FY 2026. Utilizing the Section 115 Trust Fund for its intended purpose, an expenditure of $1.8 million is budgeted in the Section 115 Trust Fund for the General Fund portion of the payment due. After the transfer from the General Fund and UAL payment to CalPERS, the balance in the Fund is projected to be $6.0 million as of June 30, 2026.
The Pension Liability Policy was approved by the City Council in 2021 to provide guidance on how to reallocate the budgetary savings achieved by the issuance of Pension Obligation Bonds (POBs) in 2021. The FY 2026 Proposed Budget allocates 100% the budgeted transfers for the savings (i.e. the difference between what would have been paid to CalPERS compared to the level-debt service payments of $5.5 million) is currently allocated 100% to the Section 115 Trust Fund to prefund future pension payments.
The General Fund also receives a transfer-in of excess funds from the County Parking Lots Fund annually, which is estimated at $400,149 in FY 2026.
BACKGROUND:
On February 18, 2025, staff presented the FY 2025 Mid-Year Update. Year-end estimates for FY 2025 indicated that expenditures would exceed revenues by about $351,750. This anticipated deficit is primarily due to expenditures being projected higher than expected, largely tied to increased Salaries and Benefits Costs as well as expenditures for Utilities that are projected higher than was budgeted.
|
Revenues |
$101,428,659 |
|
Expenditures |
101,780,409 |
|
FY 2025 Mid-Year Projected Deficit |
$ (351,750) |
Based on the projected deficit for FY 2025, and total net transfers of $17.2 million, including the capital outlay of $13.2 million for the acquisition of property located at 400 Manhattan Beach Boulevard, the General Fund balance on June 30, 2025, is projected to be $18.9 million. This reduction in fund balance is temporary until anticipated bond proceeds reimburse the General Fund in FY 2026. Even with the temporary reduction in General Fund balance, the City is still exceeding the Government Finance Officers’ Association (GFOA) minimum recommendation of 17% of operational expenditures ($17.2 million).
DISCUSSION:
The City Council’s priorities of public safety and outstanding City services are the foundation of our budget development. Our City’s history of prudent policy decisions has allowed us to maintain and enhance essential services even in challenging times.
Additionally, the community’s priorities are the cornerstone of our budget process. With our steadfast commitment to open communication, collaboration, and civic engagement, the City launched an online Budget Survey that ran from February 10 through March 31, 2025, and garnered 678 responses from engaged community members. To achieve this, the City engaged in various activities including 1) sending multiple email notifications and social media postings promoting the survey, 2) placing signage around City facilities, parks and at the Farmer’s Market, 3) attending various in-person community group meetings for targeted outreach to established groups regarding the budget survey, and 4) utilizing a user-friendly survey platform through Microsoft Forms that was easily accessible by QR code through any mobile device or desktop computer.
The survey focused on funding priorities for the General Fund and areas requiring most attention and investment from elected officials and City administration. The results revealed that Manhattan Beach residents deeply value their community's character and safety, with strong preferences for enhanced public safety, improved infrastructure, and community-centered development that preserves our small-town feel.
Following this robust community input phase, staff began preparing the Proposed Budget through detailed revenue projections and comprehensive internal reviews of all expenditure line items.
The FY 2026 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 an 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 community needs. The results of this prioritization are reflected in the attached List of Proposed and Deferred Budget Enhancements.
Following these steps, the Finance Department worked closely with all operating departments to prepare the Proposed Budget for City Council consideration.
Proposed Budget
The City’s Proposed Budget Book is comprised of seven key sections as follows:
1) Introduction, Including City Manager’s Budget Message
2) Budget Overview
3) Fund Summaries
4) Department Operating Budgets
5) Five Year Forecast
6) Capital Budget Summary
7) Appendix
To obtain an overview of the Proposed Budget, staff recommends that readers first review the City Manager’s Budget Message and Budget Overview located in the 1) Introduction section of the attached Proposed Budget document. The Message includes an explanation of the City’s current fiscal outlook as well as proposed staffing changes and service delivery investments. The 2) Budget Overview includes updates on key revenue sources as well as a comprehensive summary of each City fund. Following the Budget Overview is the 3) Fund Summaries section, which presents revenues and expenditures by fund and by category.
The next section provides 4) Department Operating Budgets, which include department overviews with narratives on key objectives, service level trends, staffing tables and financial tables. The 5) Five Year Forecast for fiscal years 2026 through 2030 covers all City funds and includes funding for operations as well as the projects identified in the Proposed Five-Year CIP found in the 6) Capital Budget Summary section.
The final 7) Appendix section of the Proposed Budget includes various schedules and tables to provide further context to the Budget as well as the City’s Financial Policies and Budget Policies.
Budget Process and Opportunities for Community Input
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) sending multiple email notifications and social media postings, 2) staging a Farmer’s market booth in February 2025 and March 2025 to promote the survey and budget meetings, 3) placing signage around City facilities, and parks, and 4) attending various in-person community group meetings for targeted outreach to established groups 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 2026 Proposed Budget discussion agenda item along with the upcoming budget schedule, as follows:
Tuesday, May 6 Regular City Council Meeting Proposed Budget - 6:00 p.m.
Tuesday, May 13 City Council Meeting Budget Study Session #1 - 6:00 p.m.
Tuesday, May 20 Regular City Council Meeting - Proposed Budget & CIP - 6:00 p.m.
Tuesday, May 27 City Council Meeting Budget Study Session #2 - 6:00 p.m. (If Needed)
Tuesday, June 3 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.
PUBLIC OUTREACH:
The past and future opportunities for public input are described above.
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. Fiscal Year 2026 Proposed Budget (Web-Link Provided)
2. List of FY 2026 Proposed and Deferred Budget Enhancements
3. PowerPoint Presentation