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
Alexis Motonaga, Budget and Financial Analyst
SUBJECT:Title
Conduct Public Hearing and Consideration of Resolutions Adopting the Fiscal Year 2027 Operating Budget and the Gann Appropriations Limit (Finance Director Bretthauer).
(Estimated Time: 1 Hr.)
A) CONDUCT PUBLIC HEARING
B) ADOPT RESOLUTION NOS. 26-0049 AND 26-0050
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council: (1) Conduct a public hearing; (2) Adopt Resolution No. 26-0049 adopting the Fiscal Year (FY) 2027 Operating Budget, including Financial Policies; and (3) Adopt Resolution No. 26-0050 establishing the Gann Appropriations Limit for FY 2027.
FISCAL IMPLICATIONS:
The Fiscal Implications of adopting the FY 2027 Budget are addressed in detail within the Discussion section of this report.
BACKGROUND:
On May 5, 2026, at the Regular City Council Meeting, the initial FY 2027 Proposed Budget was presented in a budget overview outlining revenues, expenditures, and changes in the fund balance resulting from transfer activity. Based on feedback from this meeting, City Council directed staff to explore further cost containment strategies and revenue enhancement measures to mitigate impacts on fund balance.
At the Budget Study Session Meeting on May 12, 2026, the budget presentation focused primarily on the operational budgets of each department, including performance metrics, by-the-numbers, and key objectives for each of the City’s nine departments.
The Budget Presentation was requested to be continued on June 2, 2026, for the City Council to discuss follow-up items.
DISCUSSION:
Proposed Budget Recap
The Proposed Budget is attached and available on the City’s website at www.manhattanbeach.gov/Budget <http://www.manhattanbeach.gov/Budget>. For highlights, read the City Manager’s Budget Message and Budget Overview in 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, City Council Work Plan items and other critical safety and operational needs.
The Proposed Budget reflects a strategic and thoughtful approach to using accumulated General Fund reserves to address current needs and capital improvement goals. The long-term outlook for structural cost pressures warrants continued attention and proactive measures to ensure the City’s outstanding municipal services are maintained while meeting other intensifying funding obligations for pension costs and insurance claims. After years of prudent fiscal decision-making, strong foundational policies, and long-term forecasting practices, Manhattan Beach is well-positioned to navigate these budget challenges and mitigate operational impacts.
The FY 2027 General Fund Proposed Budget has a projected structural budget surplus of $1,971,768 based on ongoing revenues of $118,965,764 exceeding ongoing expenditures of $116,993,996. When non-recurring expenditures (one-time costs and capital purchases) and net transfers to other funds are taken into account, the projected decrease in fund balance is $9,588,758.
|
On-going Revenue |
$118,965,764 |
|
On-going Expenditures |
$116,993,996 |
|
FY 2027 Structural Budget Surplus |
$1,971,768 |
|
|
|
|
Non-recurring Equipment Replacements |
($436,900) |
|
Transfer Out to Street Lighting Fund |
($270,376) |
|
Transfer Out to Capital Improvement Fund |
($5,000,000) |
|
Transfer Out to Insurance Fund |
($6,000,000) |
|
Transfer in from County Lots Fund |
$146,750 |
|
FY 2027 Decrease in Fund Balance |
($9,588,758) |
Reprioritization / Reductions Achieved in FY 2027
In light of the challenging budget year, staff carefully weighed the need and community benefit when considering requested program changes, one-time projects, equipment needs, technological advancements, and staffing adjustments. Due to limited funding availability, departments were asked during the budget development process to reprioritize budget requests by highest need to determine which expenditure line items would move forward in the Proposed Budget and which would be deferred. This practice of reprioritization ensured that expenditures are aligned with current community needs. The results of this reprioritization process achieved operational savings of $1.1 million in the General Fund, which is summarized on slide 10 of the attached PowerPoint Presentation.
Interfund Transfers
The FY 2027 Proposed Budget includes the following transfers out from the General Fund unreserved fund balance:
• $270,376 to the Street Lighting and Landscape Fund to cover ongoing operations and capital expenses. This fund receives revenue from property owner assessments, which have not increased since 1996. Without a successful Prop 218 vote, the Fund will continue to rely on General Fund subsidies to cover ongoing operations and capital expenses.
• $5.0 million to the Capital Improvements Program (CIP) Fund for deferred maintenance and one-time projects, and anticipated debt service to finance the purchase of 400 Manhattan Beach Boulevard (“400 MBB”).
• $6.0 million to the Insurance Fund to support rising costs in claim liabilities due to an unprecedented increase in litigation and claims, and related defense costs and expenses, which have depleted reserves in the Insurance Fund. The City expects to be reimbursed from its insurance pool for amounts in excess of the applicable self-insured retention amount, but the timing and amount of such reimbursements are currently unknown. As of April 2026, expenditures in the fund have exceeded the FY 2026 adjusted budget. Considering the outstanding months of May and June, a year-end budget appropriation will once again be required. Staff will return to City Council with an update and appropriation request after closing FY 2026.
The scheduled transfer of $3.5 million to the Pension Trust Fund was temporarily paused while we focus on funding the one-time $6.0 million cash infusion to the Insurance Reserve Fund and rising CalPERS UAL payments ($2.7 million in FY 2027).
The General Fund also receives an annual transfer-in of excess funds from the County Parking Lots Fund, estimated at $146,750 in FY 2027. This amount was partially reduced in FY 2027 to account for the Lot B parking lot closure at Bruce’s Beach due to the staging and construction schedule for the 28th Street Infiltration Project.
Estimated Ending Fund Balance
At the end of FY 2027, the City’s Financial Policy reserve of 20% of operating expenditures is estimated to be $23.4 million, 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.” Historically, the City Council has maintained a $4.0 million “Economic Uncertainty” reserve, but with the necessary transfer of $6.0 million to the Insurance Fund, the Economic Uncertainty Reserve has been temporarily depleted. When economic conditions improve, or any unexpected one-time revenues become available, this Economic Uncertainty Reserve may be re-established.
Based on the Proposed Budget for FY 2027, the General Fund’s Unreserved Fund Balance is estimated to be $1.5 million at the end of FY 2027, for a total estimated fund balance of $24.9 million.
Personnel Changes in FY 2027
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. The FY 2027 Proposed Budget includes three new full-time positions, which are mostly offset by reductions in part-time salaries and contract services. Additionally, the FY 2027 Proposed Budget factors three position reclassifications to better suit the needs of Departments. As such, the three new full-time positions and reclassification of three positions result in a net increase of $162,399, which consists of the following:
Human Resources Department
1. Add 1.0 FTE Human Resources Assistant ($0 net neutral)
Parks & Recreation Department
2. Convert 1.0 FTE Transportation Services Operator to 1.0 FTE Recreation Coordinator (-$520)
Fire Department
3. Upgrade 1.0 FTE Executive Assistant to 1.0 FTE Administrative Analyst Assistant (+$7,234)
Public Works Department
4. Convert two part-time Office Assistants (both General Fund) to 1.0 FTE Management Analyst allocated to multiple funds (-$22,829 in General Fund, +$37,179 in Water Fund, +$37,179 in Sewer Fund, +$22,465 in Parking Fund, +$14,957 Fleet Fund)
5. Convert one part-time Sewer Maintenance Worker to 1.0 FTE Sewer Maintenance Worker (+$50,893 in Sewer Fund)
Information Technology Department
6. Upgrade 1.0 FTE Office Assistant to 1.0 FTE Administrative Assistant (+$15,839 in IT Fund)
The proposed position changes will enable the City to align with growing organizational needs. A summary of the position recommendations is found on slide 11 of the attached PowerPoint Presentation and listed by department, along with the annual cost associated with each recommendation.
Budget Requests in FY 2027
Other service delivery investments include twenty-nine (29) new budget requests for FY 2027 that support critical needs and community priorities identified in the Budget Survey. These enhancements range from improving City maintenance to upgrading critical IT systems and equipment, maintaining emergency services and equipment, improving park and recreation facilities and programs, monitoring affordable housing, and more. A summary of the budget requests is found on slides 11 and 12 of the attached PowerPoint Presentation and is listed by department, along with the cost associated with each recommendation.
Deferred Requests Not Factored in FY 2027 Budget
Other budget requests totaling $2.7 million were deferred due to budgetary constraints. These results are listed in detail on slides 14 and 15 of the attached PowerPoint Presentation and reflected in the attached List of Deferred Budget Enhancements
Follow-Up Items from May 5, 2026, and May 12, 2026
Based on feedback received during the budget presentations, staff were directed to provide further information on various topics of interest, including:
1. Cost Containment Strategies
2. Revenue Enhancement Options
3. Other Modifications to the Proposed Budget
Cost Containment Strategies
At the May 5, 2026, City Council Meeting, the City Council gave direction to review the following cost containment strategies:
• Review of Contract & Professional Services costs
• Review of Materials & Services costs
• Research an additional $1.0 million of General Fund reductions and associated service level impacts
• Research refinancing existing debt obligations.
Staff collaborated on what could be further reduced from the General Fund budget with minimal impact on service levels. Each potential budget reduction was assigned to an impact category of low, medium, or high. Based on these classifications, the total amount of potential reductions was:
• $257,600 - Low Impact (Little to No community/organizational impact)
• $516,378 - Medium Impact (Impact on internal City operations/Staff; Minor to No impact to Services in community)
• $444,600 - High Impact (Noticeable service impacts in community)
Additional details on the Low, Medium and High Impact reductions are detailed on slides 24 through 28 of the attached PowerPoint Presentation.
Staff recommends moving forward with the Low and Medium Impact reductions totaling $773,978. At this time, high-impact reductions are not recommended, given the noticeable service impacts on the community. In the event of a significant economic downturn or other revenue shocks, further cost containment measures will be introduced in future mid-year budget updates.
Additionally, staff researched the existing market conditions to refinance existing debt obligations. Based on the current interest rate environment, the City’s existing debt obligations have lower interest rates than refinancing at current rates. Therefore, staff and the City’s Municipal Advisor, KNN Public Finance, do not recommend refinancing the City’s debt obligations at this time, but will continue to monitor market conditions and apprise the City Council of any changes.
Revenue Enhancement Options
At the May 5, 2026, City Council Meeting, the City Council gave direction to explore revenue enhancement options that could mitigate impacts to the budget. Considering this is also included on the City Council Work Plan, staff was able to bring forward eleven different options that have been in various stages of research. These options take time to fully explore, and many options require separately noticed public hearings, voter approval, and/or further research. The options available to consider include:
1. Credit Card Pass-through fees
2. Parking Meter Citation fines
3. Business License Tax (Community Polling in Progress; Ballot Measure Required)
4. 0.5% Sales Tax Measure to reach maximum potential of 10.75% (Ballot Measure Required)
5. Variable Transient Occupancy Tax rate applicable for Short-Term Rentals (Ballot Measure Required)
6. Utility Users Tax (Ballot Measure Required)
7. Short-Term lease for 400 MBB until construction begins (Requires further research)
8. Bond Measure to support infrastructure (Not recommended)
9. Re-evaluate Special Event Fee Waivers
10. Street Lighting & Landscaping Assessments (Prop 218 Required)
11. Parking Meter Rates
The potential revenue impacts of these options are summarized on slides 29 through 45 of the attached PowerPoint Presentation. Staff will continue to explore potential revenue enhancement options as directed by the City Council.
Modifications to the Proposed Budget
During the May 5th and May 12th meetings, various modifications to the proposed budget have arisen, and staff are providing information on the proposed changes below:
1. Discussion of CERT Funding Request
2. Street Lighting & Landscape Fund Transfer from General Fund Update (May 2026 Engineer’s Report)
3. Gas Tax Fund Revenue Increase (May 2026 Amended California State Fiscal Year 2026-27 Budget)
4. Correction to move Roundhouse Contribution from General Fund to State Pier & Parking Fund
5. Cost Containment Measures (Low & Medium Impact only)
6. Capital Improvement Plan Changes based on Council direction from May 12, 2026, Budget Study Session
The List of Modifications is included in Exhibit “A” of the attached Budget Adoption Resolution No. 26-0049 and on slides 46-48 of the attached PowerPoint Presentation. The List includes increases and decreases in revenues and expenditures across five funds (General Fund, Street Lighting and Landscape Fund, Gas Tax Fund, State Pier and Parking Fund, and CIP Fund).
CERT Funding Request Letter
Similar to prior year funding requests from other 501(c)(3) non-profit organizations, the Manhattan Beach Community Emergency Response Team (CERT) Association has formally requested a budget allotment of $10,200 (Attachment). CERT is an all-volunteer organization dedicated to strengthening disaster preparedness and response within the City. Since its inception, the program has trained over 700 residents, delivering a 20-hour FEMA-approved curriculum that equips participants with the essential skills needed to care for themselves, their families, and their neighbors during emergencies. Staff is seeking direction on whether to include this item in the Budget Adoption.
Impact of Modifications
Should City Council accept the modifications as recommended by staff, the FY 2027 Budget would include Citywide revenues of $199,714,438 and Citywide expenditures totaling $210,077,051 across all funds.
The FY 2027 General Fund Proposed Budget would project a structural budget surplus of $2,735,234 based on ongoing revenues of $118,965,764 exceeding ongoing expenditures of $116,230,530. When non-recurring expenditures (one-time costs and capital purchases) and net transfers to other funds are taken into account, the projected decrease in fund balance would be $8,825,604.
|
On-going Revenue |
$118,965,764 |
|
On-going Expenditures |
116,230,530 |
|
FY 2027 Structural Budget Surplus |
$2,735,234 |
|
|
|
|
Non-recurring Equipment Replacements |
($436,900) |
|
Transfer Out to Street Lighting Fund |
($270,688) |
|
Transfer Out to Capital Improvement Fund |
($5,000,000) |
|
Transfer Out to Insurance Fund |
($6,000,000) |
|
Transfer in from County Lots Fund |
$146,750 |
|
FY 2027 Decrease in Fund Balance |
($8,825,604) |
Based on the Proposed Budget for FY 2027, the General Fund’s Unreserved Fund Balance is estimated to be $2.4 million at the end of FY 2027, for a total estimated fund balance of $25.6 million.
FIFA's World Cup Revenues and Expenditures Not Factored into Budget
As of June 2, 2026, the City of Manhattan Beach has been awarded a grant of up to $2.8 million through FIFA's World Cup Grant Program. The grant is based on eligible costs for the FIFA Special Event, Public Safety and Security, with actual grant reimbursement dependent on costs incurred during the dates of the FIFA events. Both revenues and expenditures will be impacted as the grant is received after expenditures are incurred. Once the event concludes and costs are known, staff will bring the necessary revenue and expenditure adjustments to City Council in a future staff report.
At the conclusion of the presentation, staff recommends that, after providing an opportunity for public comment, the City Council discuss and provide direction to:
1. Incorporate Cost Containment Measures for additional budgetary savings of $773,978 based on low- and medium-impact to service levels;
2. Move forward with any potential Revenue Enhancement options;
3. Confirm modifications to FY 2027 Budget;
4. Adopt Resolution No. 26-0049 adopting the FY 2027 Operating Budget as Proposed and Amended in Exhibit “A”; and
5. Adopt Resolution No. 26-0050 establishing the Gann Appropriation Limit for FY 2027.
With the passage of Resolution No. 26-0049, the FY 2027 Budget will be adopted, as presented on May 5, 2026, and May 12, 2026, and as amended through Exhibit A, for the fiscal year commencing on July 1, 2026. As proposed and amended, the FY 2027 Budget includes Citywide revenues of $199,714,438 and Citywide expenditures totaling $210,077,051 across all funds.
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 approved by California voters and became law. Among other provisions, Proposition 111 provided for changes in the calculation of the Gann Appropriation Limit. The annual adjustments to the spending limit were 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 population change within the City or the 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 2027 Gann Limit to be $114,799,772. The City’s tax proceeds subject to the FY 2027 Gann Limit equal $86,299,349. Therefore, the City is under the Gann limitation by $28,500,424 and in compliance with State law. Resolution No. 26-0050 adopting the Gann Appropriations Limit and the Gann limit calculation is attached. These numbers are subject to change should the City Council approve any modifications to the proposed budget.
PUBLIC OUTREACH:
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) placing multiple ads in The Beach Reporter regarding the Budget Survey and Budget Calendar, 2) sending multiple email notifications and social media postings, 3) promoting the Survey during community announcements at City Council Meetings, and 4) attending various in-person community group meetings for targeted outreach 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 <mailto:budget@manhattanbeach.gov> email address is once again available for community input.
The Beach Reporter recently included an advertisement announcing this FY 2027 Proposed Budget discussion agenda item, along with the past and upcoming budget schedule, as follows:
Tuesday, May 5 Regular City Council Meeting Proposed Budget - 6:00 p.m.
Tuesday, May 12 City Council Meeting Budget Study Session - 6:00 p.m.
Tuesday, June 2 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.
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. 26-0049 (Budget Adoption and Exhibit “A”)
2. Resolution No. 26-0050 (Gann Appropriations Limit and Calculation)
3. Fiscal Year 2027 Proposed Budget (Web-Link Provided)
4. List of Fiscal Year 2027 Deferred Budget Enhancements
5. CERT Funding Request
6. PowerPoint Presentation