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
SUBJECT:Title
Fiscal Year 2025-2026 First Quarter Budget Update, Including an Appropriation of $188,144 from the Fleet Fund Balance and Authorization to Upgrade the Purchase of a Replacement Fire Apparatus Approved on May 6, 2025, and One Proposed Staffing Adjustment (Partially Budgeted) (Finance Director Bretthauer).
(Estimated Time: 15 Mins.)
A) RECEIVE REPORT
B) APPROPRIATE FUNDS
C) AUTHORIZE PURCHASE CHANGE ORDER
D) APPROVE STAFFING ADJUSTMENT
Body
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RECOMMENDATION:
Staff recommends that the City Council (1) receive the report, (2) appropriate $188,144 from the Fleet Fund balance to upgrade the replacement Fire Apparatus approved on May 6, 2025, (3) authorize the City Manager to execute the Purchase Change Order, and (4) approve the proposed staffing adjustment.
FISCAL IMPLICATIONS:
Fiscal implications are discussed within this report.
BACKGROUND:
The City Council adopted the fiscal year (FY) 2025-2026 Budget on June 3, 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 financial information to the City Council ahead of the traditional mid-year report that will be presented in February 2026.
DISCUSSION:
The Budget is both a spending plan for the City’s available financial resources and the legal authority for the City’s various departments to spend available resources and meet the needs of Manhattan Beach residents. The City operates on a July 1 to June 30 fiscal year. This report identifies trends and updates after the first quarter of activity (July 1 through September 30).
FY 2026 First Quarter General Fund Activity
General Fund cash flows in the first quarter of each fiscal year are typically negative due to the timing of significant revenue sources such as Property Taxes, which are received in December, January, April, and May. Therefore, expenditure activity in the first quarter often surpasses revenues early in the fiscal year. However, by the end of the fiscal year on June 30, General Fund revenues typically exceed expenditures.
When comparing the first quarter of FY 2026 (Q1 2026) to the prior year FY 2025 (Q1 2025), General Fund revenues, excluding one-time Bond Proceeds and the Unrealized Investment Gain/Loss, totaled $12,866,840, resulting in an increase of $815,574 or 6.8% over the previous fiscal year of $12,051,266. Additionally, one-time bond proceeds totaling $16,649,819 were received in August, which reimbursed the General Fund balance for the acquisition of property at 400 Manhattan Beach Boulevard and the purchase of replacement Public Safety Radios.
General Fund Expenditures, excluding the purchase of public safety radio communications equipment, are higher overall in the first quarter of FY 2026 at $23,311,747 when compared to the previous first quarter of FY 2025 at $22,834,761, which is an increase of $476,985 or 2.1%. The replacement radio communications equipment purchased for the Police and Fire Departments totaled $3,413,377.
Revenues
First-quarter revenues for FY 2026 are $815,574 (6.8%) higher than last year, excluding the net change from unrealized investment gains/losses and the one-time bond proceeds of $16.6 million. The next section will detail key General Fund revenues received from July through September 2025.
Property Tax is a primary source of the City's General Fund revenues. In the first quarter of FY 2026, total receipts increased by $23,051 (2.5%) compared to last year. HdL, the City’s Property Tax consultant, confirmed a 5.3% ($1.4 billion) rise in net taxable assessed values for FY 2026. With the increase in net taxable assessed values, the City’s estimated Secured Property Tax revenues are now projected to be nearly $38.8 million, about $387,000 above budget. Approximately 88.4% of the City’s 2025 assessed values are residential use, and the City continues to see Property Tax revenue increases from strong home sales and the resulting higher assessed values from transfers of ownership.
Sales & Use Tax received in the first quarter amounted to $839,999, which aligns with the sales tax projections provided by HdL. The Q1 2026 amount does reflect a decrease from the prior year of $207,716 (-19.8%) due to the prior year quarter having a larger advance and fuel prices being significantly higher last year, which affect sales tax revenues. However, at the end of the fiscal year, Sales Tax revenues are expected to meet or exceed the budgeted amount of $11.4 million.
Local Transaction and Use Tax includes the City’s one-half cent Measure MMB Local Transaction & Use Tax (TUT) that went into effect on April 1, 2025. At the end of the fiscal year, Measure MMB Local TUT revenues are expected to meet or exceed the budgeted amount of $5.9 million.
Transient Occupancy Tax (TOT) revenues collected by hotels in the first quarter of FY 2026 decreased by $159,804 or -9.7%. Based on insights from HDL, non-essential spending is seeing a downward trend, which could impact the hotel/travel industries. Staff will continue to monitor TOT revenues through additional outreach to hotels and report back updates during the FY 2026 mid-year budget update.
Short-Term Rental (STR) TOT is collected from STRs operating within the Coastal Zone. Compared to Q1 2025, revenue decreased by $26,935 or -10.5% from the prior year, however, Q1 2026 revenues are significantly understated due to delinquent TOT remittances from one major short-term rental operator.
Business License Taxes received in the first quarter amounted to $385,815, which reflects a 19.3% increase compared to the first quarter of the previous year. This increase is attributable to the recent partnership with HDL, which supports a user-friendly online portal for business licensing and provides additional support with business license enforcement and delinquent processing. Staff and HDL also initiated a new “Discovery” program, which identifies unlicensed businesses operating within the City using HDL’s additional resources. Q1 2026 revenues included $123,536 in new business license tax revenue generated by the Discovery program.
Building Permits. The volume of issued building permits and processed plan checks both increased from the same quarter last year. Building permit revenues increased by $69,269 or 12.2%, whereas plan check fees increased by $431,453 or 74.9%. The substantial increase to building permit and plan check revenues result from the recent User Fee Study and updated Fee Schedule that went into effect at the start of this fiscal year. Additional variations in revenues can occur when large projects boost revenues in a particular month. Overall trends indicate that revenues will meet or exceed the projected budget at year-end. The number of demolition permits was slightly lower than the prior year. Once rebuilt, these properties generally have higher assessed values than before. Building record requests were flat with the prior year. However, it is important to note that the number of building record requests remains approximately 19.0% lower than the historical five-year average, reflecting the impact of higher mortgage interest rates and continued low inventory.
Parking Citations revenues rose by $92,820 (22.6%) compared to the same quarter last year due to a combination of factors including increased parking enforcement and new parking citation fines that went into effect on May 1, 2025. Additionally, Section 6 of the City’s Financial Policies were updated during the recent budget process to allow all parking citation revenue to remain in the General Fund, whereas the previous policy diverted $4 of every citation to the CIP Fund.
Interest Earnings decreased by $231,693 or 41.3% compared to the previous year’s first quarter. In FY 2026, less interest earnings were allocated to the General Fund due to its temporary lower fund balance after the purchase of 400 Manhattan Beach Blvd.
The Unrealized Investment Gain/Loss has been identified separately from the Interest and Rents category due to big market swings in the last few years. At the end of every fiscal year, an accounting entry is required to “mark-to-market” the City’s investments. Governmental Accounting Standards Board (GASB) Statement No. 31 states that “all investment income, including changes in the fair value of investments, should be reported as revenue.” As such, on June 30, the City’s investments were “marked-to-market” and a gain on investments of $53,539 was posted in FY 2024-2025. Then, since the City carries investments at cost (“book value”) throughout the year, the June 30 loss was reversed on July 1, which created the negative amount in Fiscal Year 2025-2026. This amount will be adjusted at the end of this fiscal year, when investments are again marked to new market values on June 30, 2026.
The From Other Governments category includes grants and other reimbursements to the General Fund, including funds related to the implementation of State mandates. The amount received in the first quarter of FY 2026 is $108,419 (2,141.0%) higher than the previous year. A majority of this variance stems from the timing of when the payments are received as the two major revenue sources under this category (Vehicle License Fee Penalties and State Mandated Reimbursements) were received much earlier this fiscal year than in the prior fiscal year. These revenues are difficult to predict and can fluctuate year-to-year.
Service Charges (excluding Plan Checks) increased by $58,491 or 1.7% compared to the corresponding quarter last year. This category encompasses service charges related to Parks and Recreation registration fees, as well as other cost recovery fees for ambulance transports, planning and building services, and public safety reimbursements. The City continues to see strong enrollments in recreation classes and activities with increases in Swimming Classes, Enrichment Classes, and Facilities & Parks reservations. An increase in Planning Filing Fees and Ambulance Fees impacted the overall category. In recent years, the City’s new ambulance billing vendor significantly boosted revenues through enhanced efforts to collect delinquent accounts and continues to increase collections year-over year. Additional increases in Service Charges are due to the updated User Fees that went into effect on July 1, 2025.
Operating Service Transfers are reimbursements to the General Fund from other funds. The first quarter of FY 2026 resulted in an increase of $178,415 or 17.1% primarily due to the updated Cost Allocation Plan that was adopted in April 2025 and went into effect in FY 2026.
The Miscellaneous category decreased by $92,518 or -29.7%, which was largely due to decreases in Resubmittal of Returned Checks, Workers Compensation Salary Continuation, City Store Sales and Miscellaneous Revenues, all of which had higher revenues in the first quarter of the prior fiscal year. It is important to note that flat or decreasing Workers Compensation Salary Continuation revenues typically reflects flat or lower Workers Compensation payouts and costs in the Insurance Fund.
Bond Proceeds totaling $16.6 million were received in August 2025 as planned to replenish the General Fund balance for two major purchases. The City issued $12,495,000 of Series 2025A Certificates of Participation to reimburse the General Fund balance for the purchase of property at 400 Manhattan Beach Boulevard. Additionally, $3,275,000 of Series 2025B Certificates of Participation were issued to finance the purchase of public safety radio communications equipment. The proceeds of the Certificates also were applied to pay certain costs of issuance incurred in connection with the Certificates. Reflecting the City’s Triple-A credit rating, the All-In True Interest Cost was 3.48% for the Series 2025A Certificates and 2.76% for the Series 2025B Certificates.
Expenditures
Overall, General Fund expenditures are trending in-line with FY 2026 Budget estimates, and $476,985 or 2.1% higher than the previous year’s quarter.
Salaries and Wages are over the prior year quarter by $179,789 (1.7%) mainly due to salary and wage increases approved via employee labor group Memoranda of Understanding (MOU). Benefits expenses for insurance (Medical, Dental, Vision), Medicare and CalPERS “Normal Cost” contributions for active employees are up by $142,252 (3.6%) as expected.
At the end of September, about 33 General Fund positions remain unfilled, similar to last year. Unfilled positions across departments are expected to result in year-end savings. However, a six percent vacancy factor was included in the FY 2026 budget to account for these savings upfront. If any department remains fully staffed throughout the fiscal year, that department may exceed the budgeted salaries and benefits.
Contract & Professional Services expenditures are down by $292,604, or 7.9%, mainly due to Contract Services, which previously included the MBUSD Joint Use Agreement in Q1 2025. In FY 2026, this Agreement was moved to the Materials & Services category. Other fluctuations in this category were due to the timing of invoices, and the utilization of consultants for projects or temporary staffing while vacant positions are being filled.
Materials & Services expenditures increased overall by $11,048 (1.0%) mainly due to the MBUSD Joint Use Agreement that moved from Contract Services. Offsetting this increase were decreases in Departmental Supplies, Uniforms and Training/Conferences due to the timing of purchases.
Utilities decreased overall by $13,320 (-4.0%) due to lower electricity costs posted in Q1.
Internal Service Charges increased by $580,278, or 19.6%, driven by higher charge-outs budgeted to support internal service funds. This includes support for higher insurance premiums and claims/litigation expenses in the Insurance Fund, essential equipment replacement purchases in the Information Technology Fund, and an increased Fleet Rental Allocation reflecting recent acquisitions. Higher costs for fuel, materials, services, supplies, and other factors have generally led to increased operational costs for Fleet Maintenance and Building Maintenance.
The Property & Equipment category includes the aforementioned public safety radio replacements purchased for $3.4 million in FY 2026, as well as net new vehicle purchases in the prior year.
Staff continues to monitor the potential effects of tariffs on the price of materials and services. With ongoing inflationary pressures, cost containment and efficiency improvements will remain a priority as staff prepares next year’s budget.
Key Enterprise Fund Revenues
Revenues in enterprise funds are being closely monitored for budgetary impacts from changes in recent trends:
Water Fund and Sewer Fund Revenues
Water Fund revenues are up overall by $211,075 (3.8%) from the previous year's quarter as a result of pass-through volumetric rate adjustments approved in May 2025. Sewer Fund revenues, however, are down from the previous year quarter by $255,128 or 15.5%. Water consumption increased approximately 1% in Q1 of FY 2026 compared to Q1 of FY 2025 due to warmer and drier conditions between July and September 2025, relative to the previous year, that supported elevated irrigation demand. In contrast, Sewer Fund revenues did not experience similar growth because sewer rates were unaffected by the pass-through adjustment.
Reserves in the Water Fund and Sewer Fund are not meeting the City’s reserve policy. In May 2025, the City Council approved proceeding with a new Water and Sewer Rate Study to address the reserve shortfalls and funding needs for future infrastructure projects. The study is anticipated to begin in early 2026.
Parking Fund
Parking Fund revenues are up by $392,048 (27.1%) compared to the prior year quarter. This growth is primarily due to the new parking meter rates and updated parking permit fees that went into effect on May 1, 2025. The rate adjustments were designed to better align parking costs with current demand, support turnover in high-traffic areas, and provide additional funding for ongoing maintenance and capital needs within the Parking Fund.
The higher meter rates charged in City parking lots and for street meters have generated increased monthly revenue in the Parking Fund. Additionally, the increased permit fees have resulted in higher collections for the monthly Metlox and six-month permit holders who rely on long-term off-street parking options. Together, these changes have strengthened the financial position of the Parking Fund and will support reinvestment in parking infrastructure, technology upgrades and improved customer service initiatives. Additionally, a Citywide Parking Strategies and Toolkit Report was recently approved by the City Council on November 3, 2025. Twenty-two parking strategies were discussed, and staff will be returning in early 2026 to prioritize the list of approved strategies for implementation.
Proposed Budget Adjustment and Purchase Change Order
On May 6, 2025, the City Council authorized the purchase of a budgeted replacement Fire apparatus, a Pierce Enforcer 75’ Aerial Ladder Truck, from South Coast Fire Equipment in the amount of $1,593,170. This authorization included an additional $406,830 for outfitting the vehicle with required safety, communications equipment, and tools. The current build timeline for this aerial apparatus is approximately 48 months. However, due to recent State regulatory changes to Residential Overlay Districts (ROD), the City of Manhattan Beach has received numerous residential housing proposals currently in plan review or early development discussions, including six buildings that will reach seven stories in height. The approved 75’ Aerial Ladder will be unable to perform effective water or rescue operations for structures exceeding five stories. To address the City’s evolving vertical growth, the Fire Department is proposing a modification to the approved apparatus, upgrading to a 107’ Enforcer Tractor Drawn Aerial Ladder Truck. This configuration provides an additional 32 feet of reach and significant maneuverability and operational advantages, greatly enhancing the Department’s ability to respond to high-rise incidents.
The revised Aerial Ladder Truck specifications increase the total cost to $2,291,000; however, with the available prepayment discount, the final cost would be $1,979,639, requiring an additional $594,974 from the original purchase price to complete the upgrade. With the currently available budget of $406,830, an appropriation of $188,144 is needed in FY 2026 from the Fleet Fund balance to complete the purchase. To ensure funds are available to outfit the apparatus when received, staff will re-appropriate the funds needed for outfitting the vehicle in future budget years and ensure charge-outs/transfers from the General Fund are adequate to replenish the Fleet Fund balance.
The new Aerial Ladder Truck would serve as the primary first-out apparatus at Station 2 for 10 years and then transition to reserve status for an additional 10 years, ensuring long-term operational capability to meet the demands of Manhattan Beach’s growing vertical infrastructure.
Proposed Staffing Adjustment
The City has routinely included staffing adjustments, such as new positions or adjustments to position levels, as part of the quarterly and mid-year budget reports.
Currently, the Human Resources Department is recommending one adjustment to an existing full-time position allocation in the quarterly budget update. Full-time staffing in the Human Resources Department has remained static since 2015. Part-time staffing has been added over time to continue to meet the evolving needs and demands on the Human Resources Department. The upgrade of positions from administrative and clerical to paraprofessional and technical allows for more complex and higher-level duties to be assigned to existing full-time staff and is responsive to career progression and retention considerations. At this time, it is recommended that one full-time Human Resources Assistant (currently budgeted at $134,543 for total salary/benefits) be upgraded to Human Resources Technician ($160,767), utilizing existing funding available in the department’s part-time salaries budget for the differential of $26,224. Therefore, there is no budgetary impact associated with this adjustment in FY 2026.
Further details on the City’s fiscal performance will be shared in February 2026 with the Mid-Year Budget Report.
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.
ATTACHMENTS:
1. FY 2026 First Quarter Comparison to Prior Year - By Category
2. FY 2026 First Quarter Comparison to Prior Year - By Department
3. FY 2026 Q1 Statement of Revenues and Expenditures - All Funds
4. FY 2026 Q1 General Fund Revenue Trends
5. PowerPoint Presentation