CITY OF HERMOSA BEACH
CITY COUNCIL
Adjourned Regular Meeting Agenda - Addendum
Tuesday, April 28, 2026
(5:00 PM)
Council Chambers
1315 Valley Drive
Hermosa Beach, CA 90254
CITY COUNCIL
Mike Detoy, Mayor
Michael D. Keegan, Mayor Pro Tem
Ray Jackson, Councilmember
Dean Francois, Councilmember
Rob Saemann, Councilmember
David Pedersen, City Treasurer
APPOINTED OFFICIALS
Steve Napolitano, City Manager
Jason Baltimore, Interim City Attorney
EXECUTIVE TEAM
Brandon Walker, Administrative Services Director
Martha Alvarez, City Clerk
Alison Becker, Community Development Director
Lisa Nichols, Parks and Recreation Director
Landon Phillips, Police Chief
Joe SanClemente, Public Works Director
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Pages
*6. OVERVIEW OF 2026-27 BUDGET 4
(Administrative Services Director Brandon Walker)
• Purpose and outlook
• Fiscal Year 2026-27 status
• Revenue and expenditure trends
• Forecast and challenges
• Revenue options and department strategies
• Budget calendar and process
FY 27 BUDGET STUDY SESSION:
FISCAL OUTLOOK
APRIL 28, 2026
FY27 Budget Outlook & Strategy
FY27 General Fund outlook
Structural imbalance between revenues and
expenditures
Objectives: projection, drivers, solutions
Executive Summary & Strategy Shift
FY27 Structural Deficit: ~$3.2M
Balancing with one-time funds (not sustainable)
Costs outpacing revenues
Shift to structural balance
How Did We Get Here?
• Post-COVID budgets balanced with surpluses
• ARPA ~$4.6M, vacancy savings, CIP delays
• Used for Insurance, Fleet, CIP deficiencies
• Temporary balance masked structural issues
• ~$1.3M–$1.5M in ongoing vacancy
savings reflects a structural budget
gap
• Savings are unreliable and declining in
impact
• Small staff size amplifies risk—vacancies
affect service delivery
• Retention is critical to maintain
capacity and institutional knowledge
How Did We Get Here?
Fiscal Year $ Variance %
Variance
FY2021 -$1.3M -6.3%
FY2022 -$1.5M -6.5%
FY2023 -$1.5M -5.9%
FY2024 -$1.3M -4.7%
FY2025 -$1.4M -4.8%
How Did We Get Here?
Fiscal Year Unspent Funds ($) Primary Allocation Uses
2019–20 1,751,688 General Fund (temporary holding; later to CIP/reserves)
2020–21 5,828,197 CIP, Insurance Fund, some GF assignment 2021–22 3,835,617 GF assigned; later to CIP and equipment/reserves 2022–23 2,700,989 CIP, Equipment Replacement, Insurance Fund 2023–24 3,128,722 Primarily CIP, plus Insurance stabilization 2024–25 2,239,276 Expected: CIP, Equipment, Insurance
2025–26 0 None
What This Was Covering Up
• Rising costs: labor, fire/lifeguard/beach
maintenance contracts, inflation, infrastructure
• Revenue gap: fees lag cost recovery
• Ongoing subsidies: Lighting and Landscaping,
Stormwater, programs
• Structural imbalance persists
Economic Context
Tourism-driven, beach/downtown focused
Built-out with limited development
Revenue tied to visitors (Sales Tax, TOT)
Stable but constrained economy
Budget Status
FY 25: ~$2.24M carryforward
FY26 shortfall: ~$548K covered by one-time solutions
FY27 supported by one-time funds not sustainable
Five-Year Forecast
Trends & Outlook
Growth ~2–4% annually
Property: ~3–4%, Sales Tax/TOT: ~1–3%
Below cost growth (~4–6%+)
Insufficient to match costs
EXPENDITURE TRENDS & OUTLOOK
Costs growing 4–6%+
annually vs. flat $1.3M–
$1.5M vacancy savings
Labor & pensions rising
3% / 4.9%
Fixed costs: Fire
contract 5–8% and
non-personnel 3–5%+
ARPA funds exhausted
Upside risk: inflation,
CalPERS, labor
agreements
CIP not included: City
Yard, Pier, other needs
Bottom line: Structural
growth exceeds
offsets—vacancy
savings not sustainable
Upcoming Cost Challenges
LA County Fire Contract
• +26% increase (~$1.8M over 3 years)
• Ongoing pressure on General Fund
LA County Lifeguard & Beach Maintenance Services
• Additional ~$3.4M annual cost for lifeguard
• Additional ~$1.5M annual for beach maintenance
• Currently funded via parking structure revenue share
• Exposure if revenues decline or costs increase
Major Unfunded Capital Needs
City Yard: ~$20M (no identified funding source)
Pier Project: $50M+ (significant long-term obligation) Page 16 of 31 Fund Balance
• FY 2023–24: Reserve target increased 16% → 20%
• Current reserves: ~$10.6 million Policy & Current Status •One-time uses only (not ongoing operations)
•Supports financial stability, not budget balancing Purpose of Reserves •Typical city reserve: 15%–25%
•Hermosa Beach’s 20% target aligns with best practices Benchmark Alignment • Buffers economic volatility (tourism, sales tax)
• Funds emergencies & coastal risks
• Supports infrastructure repairs
• Helps avoid service cuts
Why It Matters
Overtime
Overtime
• Cost growth reflects compensation increases: Year-over-year increases primarily reflect negotiated salary and benefit increases • Police overtime is structural: Driven by 24/7 minimum staffing and response time requirements, requiring backfill.
• Public Works overtime reflects higher demand: Increased OT tied to greater infrastructure, service response, and special events needs. • Community Services reflects increased activity: OT driven by increased enforcement activities
• Not discretionary spending: Overtime tied to core safety, service delivery, and community activity levels.
CIP Overview
Structural Need
• ~$8M–$12M annually (low-end) for
basic CIP
• Ongoing investment required for core
infrastructure
Funding Risk
• Reliance on state/county special funds
vs. General Fund
• Unpredictable and not scalable →
increasing exposure
Cost Pressure
• Deferred maintenance increasing
lifecycle costs
• Inflation (~3–5%+) in construction,
materials, labor
Unfunded Liabilities
• City Yard, Pier rebuild/rehab, and other
CIP not fully reflected
Bottom Line: CIP needs are structurally underfunded and growing—sustainable funding required
Current Measures
Revenue Enhancements (Implemented / In Progress)
• Parking (rates & programs) → ~$1.5–$2.0M
• Parking citation increases → ~$0.4–$0.6M
• Fees/Cost Recovery (discussion later tonight) → ~$1.0M • Business License Enforcement → ~$100K
Operational Efficiency (Technology Investments)
• Core Systems Modernization (ERP upgrade and recreation software implementation) • Revenue & Enforcement Tools (Parking citation system and collections improvements)
• Data & Performance Management (Enhanced tracking, monitoring, and reporting) Capital Funding Strategy
• Focus on core needs
• Challenge of grant funding
Current Measures
Expenditure Strategies (FY 27 Budget Process-Primary Focus) • Departments developing up to 10% reduction strategies • Vacancy management: evaluating each position
Service Trade-Offs
Reduced service levels
Delayed programs and capital projects Workforce impacts and capacity constraints
Total Potential Impact:
~$2–7M+ (revenue + reductions combined)
Future Revenue Options (Policy)
Short-Term Rental (STR) Revenue
• TOT & business license enforcement for STRs
Potential retro collections-Up to $5M
On-Going Collections-~$1m annually
Sales Tax Measure
• Local sales tax increase
• Each ¼ cent increment generates ~$1M annually
• Requires voter approval
Future Revenue Options (Policy)
Parking & Mobility Revenue (Locally Controlled,
Scalable)
• Dynamic parking pricing (beach/downtown) and
peak pricing (weekends/summer)
• Requires upfront capital investment (technology,
meters, systems)
• Can generate meaningful revenue with minimal new
taxes
Future Revenue Options (Policy)
City Assets & Other Local Revenue
• Development and leases on City-owned property (optimize use and pricing) • Opportunity to generate ongoing, locally controlled revenue Assessment Modernization (Landscaping & Street Lighting District)
• Assessment outdated (~since 1996) → ~$400K/year General Fund subsidy
• Costs rising faster than assessment revenues
• Increase requires Prop 218 vote (majority protest) → legally constrained and politically sensitive
Future Revenue Options (Policy)
Stormwater Funding
• Outdated fee → ongoing General Fund subsidy
(~$700K/year)
• Costs increasing due to regulatory requirements and
infrastructure needs
• Revenues not keeping pace → structural funding gap
• Fee updated requires Proposition 218 process and
potentially voter approval
• Policy considerations: maintain subsidy vs. pursue
sustainable, dedicated funding
Future Revenue Options (Long-Term)
Unlock development through targeted upzoning: Relax height and density limits in key corridors to enable mixed-use, hotel, and redevelopment projects, unlocking viable housing and increasing long-term revenue.
Align land use with revenue growth: Prioritize high-value uses, invest in public realm, and reinforce Hermosa Beach’s premium coastal economy to grow property, sales, and tourism taxes.
Maximize sales tax per square foot: Focus on high-performing retail, dining, and experiential uses to ensure prime areas generate the highest
Budget Process
• Tonight: Fiscal Outlook
• May 5th: Joint PW/PR Commission-CIP Review
• May 12th: Department FY 27 Budget Presentations
• May 26th: Budget Hearing
• May 28th: CIP Special Study Session
• June 9th:
Budget Hearing
• June 23rd: Final Budget Hearing/Adoption
Budget Process
Municipal Code requires the preliminary budget be presented to Council by May 15
• Council approved an extension to May 30 last year
• Request: Approve extension to May 30
Why This Matters:
Better budget accuracy & completeness
More time for Council review & public input
Enables a more informed, transparent discussion
Next Steps: Staff will return to evaluate potential updates to this requirement
Discussion & Policy Direction
REVENUE VS
REDUCTIONS
USE OF ONE-TIME
FUNDS
GOAL: STRUCTURAL
BALANCE
FY 27 BUDGET STUDY SESSION:
FISCAL OUTLOOK
APRIL 28, 2026