TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Acting Finance Director
Julie Bondarchuk, Financial Controller
Emy-Rose Hanna, Budget & Financial Analyst
Marcelo Serrano, Grants & Financial Analyst
SUBJECT:Title
Conduct Public Hearing and Consideration of Resolutions Adopting the Fiscal Year 2026 Operating Budget and the Gann Appropriations Limit (Acting Finance Director Bretthauer).
(Estimated Time: 45 Mins.)
A) CONDUCT PUBLIC HEARING
B) ADOPT RESOLUTION NOS. 25-0074 AND 25-0075
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_________________________________________________________
Recommended Action
RECOMMENDATION:
Staff recommends that the City Council: (1) Conduct a public hearing; (2) Adopt Resolution No. 25-0074 adopting the Fiscal Year (FY) 2026 Operating Budget, including updated Financial Policies; and (3) Adopt Resolution No. 25-0075 establishing the Gann Appropriations Limit for FY 2026.
FISCAL IMPLICATIONS:
With the passage of Resolution No. 25-0074, the FY 2026 Budget will be adopted, as presented on May 6, 2025, and as amended during subsequent meetings, for the fiscal year commencing on July 1, 2025. As proposed and amended, the FY 2026 Budget includes Citywide revenues of $196,573,797 and Citywide expenditures totaling $193,168,297 across all funds.
The General Fund is structurally balanced with revenues of $125,419,718 and expenditures of $105,614,054, resulting in a projected year-end surplus of $19,805,664. However, this surplus 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 $6,584,664. This amount also includes the new 0.50% local transaction and use tax Measure MMB revenue, which is expected to generate $5.9 million annually. If this general tax measure had not been approved by voters, the operating surplus would be $641,664.
|
Revenue |
$125,419,718 |
|
Expenditures |
$105,614,054 |
|
FY 2026 Proposed Budget Surplus |
$ 19,805,664 |
|
|
|
|
Includes: |
|
|
Bond Proceeds |
$ 13,221,000 |
|
Measure MMB Local Transactions and Use Tax |
$ 5,943,000 |
|
Operating Surplus |
$ 641,664 |
The FY 2026 Budget projects a General Fund balance of $30.1 million on June 30, 2026, after transfers to and from other funds. Within this total fund balance, the City’s Financial Policy reserve is 20% of operating expenditures, or $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.” Additionally, the City Council has set aside $4.0 million as an “Economic Uncertainty” reserve. The balance of $5.0 million is unreserved.
The FY 2026 Budget includes the following transfers out from the General Fund unreserved fund balance:
• $284,462 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 did not meet its investment return target in FY 2022 or FY 2023, which resulted in an unfunded pension liability of approximately $30 million. Utilizing the Section 115 Trust Fund for its intended purpose, an expenditure of $1.8 million was 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 allocate the budgetary savings achieved by the issuance of Pension Obligation Bonds (POBs) in 2021. The FY 2026 Proposed Budget allocates 100% of 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) to the Section 115 Pension Trust Fund.
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:
At the May 6, 2025, Regular City Council Meeting, the initial FY 2026 Proposed Budget was presented through a budget overview that outlined revenues, expenditures, and changes in the fund balance due to transfer activity.
At the Budget Study Session Meeting on May 13, 2025, the budget presentation mainly focused on the operational budgets of each department, including information on performance metrics, by the numbers and key objectives for each of the City’s nine departments.
At the CIP Study Session Meeting on May 20, 2025, the Five-Year Capital Improvement Plan (CIP) was presented and included a listing of funded capital projects for the FY 2026 capital budget as well as future fiscal years 2027 through 2030.
A subsequent budget and CIP discussion occurred during the Regular City Council Meeting on May 20, which provided a recap on the FY 2026 Proposed Budget and CIP.
DISCUSSION:
Proposed Budget Recap
The Proposed Budget is attached and available on the City’s website at www.manhattanbeach.gov/Budget. For highlights, it is recommended to read the City Manager’s Budget Message and Budget Overview within the Budget document. The Proposed Budget was developed as a conservative spending plan that maintains City Council and community priorities. Where appropriate, service level investments were added in response to feedback received from the online Budget Survey, as well as for City Council Work Plan items.
The FY 2026 Proposed Budget was presented at City Council Meetings on May 6, 2025, May 13, 2025, and May 20, 2025. During these Budget meetings, staff highlighted the various enhancements proposed in the FY 2026 Budget including investments in service delivery, maintenance and infrastructure. Several service delivery investments are recommended to adapt to changing operational needs and service requests to address community priorities.
Personnel Changes in FY 2026
As we have seen over the past few years, the City’s ability to quickly adapt to changing service level demands and dynamic shifts in employee attraction and retention patterns is critical to our success in serving our community. Although no new full-time positions were included in the Proposed Budget due to budgetary constraints, seven existing full-time positions are recommended to be upgraded or downgraded to meet current operational needs. As such, the reclassification of seven full-time positions result in a net increase of $162,858, which consists of the following:
Management Services Department
1. Upgrade one Assistant to the City Manager to Assistant City Manager (+$129,753)
2. Downgrade Policy & Management Analyst to Senior Management Analyst (-$6,277)
Finance Department
3. Upgrade one Lead Account Specialist to Management Analyst (+$10,275)
Parks & Recreation Department
4. Downgrade Cultural Arts Manager to Senior Recreation Supervisor ($0)
Police Department
5. Upgrade one Office Assistant Position to Administrative Assistant (+$616)
Public Works Department
6. Upgrade one Utilities Technician to Cross-Connection Control Specialist (+$9,434)
Information Technology Department
7. Upgrade Technology Systems Engineer to Senior Technology Systems Engineer (+$19,057)
The proposed full-time position reclassifications will enable the City to align with growing organizational needs. A summary of the position recommendations are found on slide 4 of the attached PowerPoint Presentation and listed by department along with the annual cost associated with each recommendation.
Budget Enhancements in FY 2026
Other service delivery investments include thirty (30) new budget enhancements for FY 2026 that support critical needs and community priorities identified in the Budget Survey. These enhancements range from improving City maintenance, upgrading critical IT systems and equipment, maintaining emergency services and equipment, supporting environmental programs, improving park and recreation facilities, enhancing customer service by offering more online payment methods, and more. A summary of the Budget Enhancements are found on slides 5 and 6 of the attached PowerPoint Presentation and are listed by department along with the cost associated with each recommendation.
Follow Up Items from May 13, 2025, and May 20, 2025
Based on feedback received during the budget presentations, staff is providing information on various topics of interest, including:
1. Public, Educational, and Governmental (PEG) Fees historical revenues, expenditures, and current balances.
2. Discuss reprioritization process / savings achieved in FY 2026.
3. Discuss Measure MMB and CIP funding options.
4. Provide a redline version of changes to the Financial Policies included within the Budget document.
5. Outline the function of State Pier, County Lots and Parking Funds.
6. Per Council direction, reduce CIP Fund Expenditures by $1 million to facilitate $1.5 million in Reserves in CIP Fund for FY 2026.
7. Provide a complete list of modifications to FY 2026 Proposed Budget.
The summary and detail on these Follow Up Items are found on slides 7-18 of the attached PowerPoint Presentation. Additionally, a Redline Version of the Financial Policies and Unfunded Liability Policy are attached.
Reprioritization Process / Savings Achieved in FY 2026
The Proposed Budget also factors funding availability when considering budget proposals for program changes, one-time projects, equipment needs, technological advancements, and staffing adjustments. During the budget development process, in instances where the Proposed Budget did not have adequate funding available, Departments were asked to reprioritize 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 reprioritization process achieved operational savings in the amount of $458,316 ($404,049 of which is in the General Fund). Other budget enhancement requests totaling $4.3 million were deferred due to budgetary constraints. These results are listed in detail on slides 9-10 of the attached PowerPoint Presentation and reflected in the attached List of Proposed and Deferred Budget Enhancements.
Modifications to the Proposed Budget
The List of Modifications is included within Exhibit “A” of the attached Budget Adoption Resolution No. 25-0074 and are also included on slide 18 of the attached PowerPoint Presentation. The List includes a combination of increased revenues, increased expenditures and decreased expenditures across four funds (General Fund, Street Lighting and Landscape, Gas Tax and CIP).
GANN APPROPRIATIONS LIMIT
In 1980, California voters adopted Article XIIIB of the California State Constitution, commonly referred to as the Gann Initiative or Gann Appropriations Limit, placing limits on the amount of tax proceeds that State and local agencies can appropriate each year. The City’s limit is adjusted each year for inflation, population and other factors.
On June 5, 1990, Proposition 111 was voted into California law. Among other provisions, Proposition 111 provided for changes in the calculation of the Gann Appropriation Limit. The annual adjustments to the spending limit was modified by Proposition 111 to be more closely linked to the rate of economic growth in personal income or the percent increase in the local tax roll due to nonresidential property construction. Additionally, cities can choose to use the rate of change in population either within the City or County, whichever is higher. The City utilized elements of these adjustment factors in calculating this year’s Gann Appropriation Limit. The Gann calculation is reviewed annually by the City’s external audit firm as part of the annual audit process.
Staff has calculated the FY 2026 Gann Limit to be $109,934,879. The City’s tax proceeds subject to the FY 2026 Gann Limit equal $82,375,604. Therefore, the City is under the Gann limitation by $27,559,275 and in compliance with State law. Resolution No. 25-0075 adopting the Gann Appropriations Limit and the Gann limit calculation is attached.
PUBLIC OUTREACH:
To encourage additional community input and participation, the City engaged in various activities to gain feedback through the budget survey and publicize the budget meetings by 1) sending multiple email notifications through the GovDelivery system and social media postings, 2) staging a Farmer’s market booth in February and March 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 and meetings.
Additionally, the City’s website (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.
On April 24, 2025, The Beach Reporter included an advertisement announcing this FY 2026 Proposed Budget public hearing agenda item along with the budget schedule, as follows:
Tuesday, May 6 Regular City Council Meeting - Proposed Budget - 6:00 p.m.
Tuesday, May 13 City Council Meeting Study Session - Budget & CIP - 6:00 p.m.
Tuesday, May 20 City Council Meeting Study Session - CIP Discussion - 4:00 p.m.
Tuesday, May 20 Regular City Council Meeting - Proposed Budget & CIP - 6:00 p.m.
Tuesday, June 3 Regular City Council Meeting - Public Hearing and Budget/CIP Adoption - 6:00 p.m.
Additionally, a public hearing notice was published in The Beach Reporter on May 22, 2025, for the adoption of the Budget and Capital Improvement Plan.
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. Resolution No. 25-0074 (Budget Adoption and Exhibit “A”)
2. Resolution No. 25-0075 (Gann Appropriations Limit and Calculation)
3. Fiscal Year 2026 Proposed Budget (Web-Link Provided)
4. List of Fiscal Year 2026 Proposed and Deferred Budget Enhancements
5. Financial Policies (Red-Line)
6. Pension UAL Policy (Red-Line)
7. PowerPoint Presentation