City of Huntington BeachProposed FY 2025/26 Budget Overview 1•General Fund•CIP•Pension Overview•Fiscal Sustainability Strategies FY 2025/26 All Funds Proposed Budget Review $554.9MDepartment / Fund General FundCapital Projects FundsDebt Service FundsEnterprise FundsSpecial Revenue FundsInternal ServiceFundTrust and Agency Funds Other Funds TOTALCity Council 468,951 468,951 City Manager 3,101,687 100,000 35,000 3,236,687 City Attorney 4,223,414 4,223,414 City Clerk 1,196,874 1,196,874 City Treasurer 2,194,073 2,194,073 Community Development 10,618,628 2,334,861 129,000 13,082,489 Community & Library Services 16,663,318 2,615,383 1,334,000 20,612,701 Finance 5,870,337 110,000 7,677,672 13,658,009 Fire 64,520,419 332,916 893,400 466,315 66,213,050 Human Resources 2,516,074 26,955,484 29,471,558 Information Services 8,546,183 549,044 9,095,227 Non-Departmental 58,485,785 8,200,000 25,541,969 104,000 25,916,664 118,248,418 Police 96,249,310 2,304,000 50,000 98,603,310 Public Works 24,339,119 12,249,413 100,508,770 35,862,266 1,644,300 174,603,868 Grand Total 298,994,172 20,449,413 25,541,969 100,841,686 44,872,954 34,633,156 28,027,279 1,548,000 554,908,629 2 FY 2025/26 All Funds Proposed Expenditures - $554.9M
3Property Tax37.9%Sales Tax17.6%Franchises3.2%Transient Occupancy Tax5.7%Utility Users Tax7.8%License & Permits3.3%Fines & Forfeitures1.8%Use of Money & Property7.9%Revenue from Other Agencies1.3%Charges for Current Services11.3%Other Revenue0.6%Non-Operating Revenue1.7% FY 2025/26 General Fund Proposed Budget Review•Proposed FY 2025/26 General Fund Budget is structurally balanced, with a projected $1.1M surplus 4•Portion of Waterfront allocation with the remaining $4.3M set side in reserves.** Includes Debt Service, Capital Expenditures, and Transfers•Continued Infrastructure Investments in FY 2025/26 General Fund transfer to the Infrastructure Fund totals $14.5MCIP budget totals $63.6M (increase from prior year of $28.3M) includes $7.9M in General Funds General Fund (Fund 100)(in thousands)ProposedFY 25/26Revenues (recurring)$295,089Revenues (one-time) * 5,013Total Revenues 300,102Personnel Costs 189,647Operating Costs 54,518Non-Operating Costs ** 54,829Total Expenditures 298,994Surplus / (Deficit)$1,108 FY 2025/26 General Fund Proposed Revenues - $300.1M
5Property Tax37.9%Sales Tax17.6%Franchises3.2%Transient Occupancy Tax5.7%Utility Users Tax7.8%License & Permits3.3%Fines & Forfeitures1.8%Use of Money & Property7.9%Revenue from Other Agencies1.3%Charges for Current Services11.3%Other Revenue0.6%Non-Operating Revenue1.7% FY 2025/26 General Fund Proposed Revenues - $300.1M•Major revenue variances include: Property Tax: $113.9M (5.0% or $5.7M increase)- Higher assessed valuations as of January 1, 2025 versus prior fiscal yearOther Local Taxes: $102.7M (1.19% or $1.2M net decrease)- Sales Taxes: $49.6M (1.4% or $0.7M decrease)• Prop 172: $3.1M (0.7% or 22k decrease)- Utility Users Tax (UUT): $23.3M (1.27% or $0.3M increase)- Franchises: $9.5M (11% or $1.1M decrease)- Others: $17.1M (1.80% or $0.3M increase)Revenue from other Agencies: $1.7M (16.1% or $4.5M decrease)- Expected reimbursement of $1.7M from participation in the Voluntary Rate Range Intergovernmental Transfer (VRRP IGT) Program. These revenues are partially offset by $0.7M of expenditures related to program participation, for anticipated net revenues of approximately $1.0M.6 FY 2025/26 General Fund Proposed Expenditures - $299.0M * Transfers include Infrastructure, Equipment, General Liability & Section 115 Trust Transfers** Other includes City Council, City Manager, City Attorney, City Clerk, and City Treasurer7Personnel63.4%Operating18.2%Debt Service1.1%Transfers *17.3%BY CATEGORYOther **3.7%Finance2.0%Human Resources0.8%Information Services2.9%Community Development3.6%Community & Library Services5.6%Public Works8.1%Non-Departmental19.6%Fire21.6%Police32.2%BY DEPARTMENT FY 2025/26 General Fund Proposed Expenditures - $299.0M•Major expenditure variances include: Personnel Services: $189.7M (6.88% or $13.1M increase)• Renegotiated Memoranda of Understanding (MOU) during FY 24/25 including Minimum Wage, Base Salaries, Public Safety Overtime and Leave Buyout: $9.0M increase• CalPERS UAL Safety Contribution: $3.5M increase• CalPERS UAL Misc Contribution: $1.6M increase• Increase Vacancy Attrition: $1.0M net expense decrease8 FY 2025/26 General Fund Proposed Expenditures - $299.0M•Major expenditure variances include: Operating Expenses: $54.5M ($2.9M net decrease)• Voluntary Rate Range Intergovernmental Transfer (VRRP IGT) Program: ($2.6M decrease) expenditures related to program participation. • Metro Cities JPA: ($0.6M increase) • Water Purchases: ($0.2M increase)• Contracts for Repairs and Maintenance: ($0.3M decrease)• Other Professional Services: ($0.4M decrease)• Equipment and Supplies: ($0.4M increase)9 FY 2025/26 Budget Balancing Strategy1. Operating Reductions - PersonnelPersonnel: $1.98M- Eliminate 6 positions - $0.96M- Deputy City Manager- Senior Deputy City Attorney- Human Resources Manager- Principal Management Analyst (Fire)- Office Assistant II – Permit Center (Community Development)- Office Assistant II – Maintenance Administration (Public Works)- Downgrade 1 position - $13K- Public Affairs Manager to Public Affairs Officer (City Manager’s Office)- Increase Vacancy Attrition by $1.0M10 FY 2025/26 FTEs by Department
11 DescriptionVariance2025/262024/25Department1.00 1.00 City CouncilEliminate 1.00 Senior Deputy City Attorney(1.00)14.00 15.00 City Attorney6.00 6.00 City Clerk9.50 9.50City TreasurerEliminate 1.00 Deputy City Manager(1.00)15.00 16.00 City ManagerEliminate 1.00 Office Asst II (Permit Center), Transfer 1.50 FTE from Public Works (Real Estate Services).5062.00 61.50 Community DevelopmentTransfer 1.00 Capital Projects Admin from Public Works 1.0063.25 62.25 Comm & Library Services28.50 28.50FinanceEliminate 1.00 Principal Management Analyst, Upgrade 3.00 PT to 4.00 FTE Marine Safety Specialists: 1.00 FTE 202.00 202.00FireEliminate 1.00 Human Resources Manager(1.00)14.00 15.00 Human Resources26.00 26.00Information Services2.00 Police Officers exchanged for 1.0 Police Sergeant(1.00)350.00 351.00 Police Eliminate 1.00 Office Asst II (Maint), Transfer 1.50 to Community Development & 1.00 to Comm & Library Srvs(3.50)208.50 212.00Public Works(6.00)999.75 1005.75 987.25 958.25 980.75 991.75 1,001.75 1,005.75 999.75 950.00 960.00 970.00 980.00 990.00 1,000.00 1,010.00 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 2025/26 Full Time Equivalent – All FundsPre-COVID
12 FY 2025/26 Budget Balancing Strategy2. Operating Reductions–Non-Personnel $2.9M 13 AmountObject Account$2,010,000Professional and Contract Services (includes $1.5M for Mind OC – Be Well)$201,000Conference and Training$150,000Equipment Repairs$150,000Liability Reserves$125,000General Supplies$90,000Clothing/Uniforms$50,000Sales Tax Rebate$46,000Cellular Wireless Data$20,000Overtime$9,000Miscellaneous$2,851,000Total FY 2025/26 Budget Balancing Strategy3. Interfund TransfersWithdrawal from Section 115 Trust for FY2025-26 UAL Expense: $1.5MReduce General Fund transfer to Self Insurance Workers’ Compensation Fund: $2.0MReduce General Fund transfer to Self Insurance General Liability Fund: $2.5MTransfer of $2.4M to the General Fund for second repayment related to the Waterfront Loan Superior Court Judgement4. Use of ReservesEquipment Replacement Reserves - $3.3 M 5. Revenue IncreasesCommunity and Library Services - $0.5 M Fire Department - $0.5 M14 General Fund Reserves
15 Nonspendable$148$148PrepaidsRestricted$364Underground$317Restitution$777Donations$21,670$20,212Section 115 Trust FundedCommitted$49,090Economic Uncertainties$1,379Other Capital Projects$52,023$1,554Other Purposes Sub TotalAmount ThousandsDescriptionTypeSub Total(Thousands)As of 6/30/2024GF Fund ReservesSub TotalAmount ThousandsDescriptionTypeSub Total(Thousands)As of 6/30/2024GF Fund ReservesAssigned$3,650Litigation Reserves$9,425Capital Improvement Reserve$8,295Equipment Replacement$1,651General Plan Maintenance$10,886HB Recovery Fund$641Oceanview Estates$2,801General Liability Plan Migration$5,517Pension Rate Stabilization$4,211Section 115 Trust Reserves$3,025Year-end Fair Value$58,478$8,376Other Purposes$132,319Total$4,370Waterfront Settlement FY 2025/26: $136,689Revised Total FY 2025/2026 Capital Improvement Program (CIP)
16 FY 2025/26 CIP BUDGETBudgetNew Appropriations: $ 63.6 Million Continuing Appropriations: $ 7.3 MillionTotal $ 70.9 MillionFunding sources proposed:General/Infrastructure Fund ($38M requested - $7.9M recommended)Enterprise Funds (Water and Sewer)Special Revenue Funds (Measure M, Gas Tax, Prop 42, RMRA, Park/PD DIF, Quimby, TIF)Grants/Other (CDBG, OCTA)17 2025/26 PROJECT SUMMARY• Drainage and Stormwater 1 projects $600K• Facilities 10 projects $3.6M• Neighborhood 3 projects $6.8M• Parks and Beaches 10 projects $3.3M• Sewer 3 projects $7M• Streets and Transportation 17 projects $28.6M• Water 6 projects $13.7MCIP 25/26 PROJECTS TOTAL $63.6M18 DRAINAGE $600,000Local Storm Channel Repair C6-SC1 (INFR & DRAINAGE FUND) 19 FACILITIES $3.6M• City Gym & Pool Flooring Replacement $155k (INFR FUND)• HB Art Center Electrical & Lighting Rehabilitation $270k (INFR FUND)• Helen Murphy Branch Foundation Design $80k (INFR FUND) • Main Promenade Parking Structure Anti-Slip Tile $80k (INFR FUND)• Fire Department Remodel at City Hall $100k (INFR FUND)• Fuel Station Canopies $500k (INFR FUND)• Partial Re-Roof City Gym and Pool $385k (INFR FUND)• City Yard Admin Building Roof $187k (INFR FUND)• Replace R22 Air Conditioning $150k (INFR FUND) • PD South Sub Station $1.7M (PD DIF) 20 NEIGHBORHOOD $6.8M• Residential Curb Ramps$750k (Measure M, CDBG FUND)• Residential Overlay/Slurry$5.45M (Gas, Measure M, Prop 42, Sewer and Water Fund)• Residential Alley Rehab$600k (Measure M) 21 PARKS AND BEACHES $3.3M • Arevalos Park Playground $190k (Park)• Drew Park Playground $467k (Park)• Edison Park Reconfiguration $1M (Park)• South Beach Lots Booth Roof & Rehab $121k (INF)• Bluff Top Park Irrigation Controller Replacement $100k (INF)• Central Park Electrical Switchgear Replacement $525k (INF)• Sunset Beach Restroom Restoration $85k (INFR FUND)• Beach Restroom Renovations $300k (INFR FUND)• Bluff Top Slope Stabilization Repair $310k (INFR FUND)• Harbour Bulkhead $250k (INFR FUND) 22 SEWER IMPROVEMENTS $7M • Sewer Lining – Various Locations $2.5M (Sewer Fund)• Gilbert Sewer Lift Station Improvements (Design) $500k (Sewer Fund)• Davenport Sewer Lift Station Improvements $4M (Sewer Fund) 23 STREETS & TRANSPORTATION $28.6M• Arterial Rehabilitation $6.6M (RMRA, Prop 42)• ADA Improvement Program $250k (Measure M)• Banning Roundabout and SE Corridor Improvements $5.6M (OCTA/AES)• Hamilton Avenue Corridor Improvements $4.5M (OCTA/AES)• Magnolia Street Corridor Improvements (Design) $416K (OCTA/AES)• Humboldt Bridge Rehabilitation $5.3M (Caltrans HBP/Measure M)• Bridge Preventative Maintenance (Bolsa) $655k (MEAS M)• Driveway Sports Complex $400k (INFR FUND)• Traffic Signal Mod Bolsa at Amazon (Design) $40k (TIF)• Bushard Fire Station Signal and Fiber Optics (Design) $40k (TIF)• Traffic Signal Goldenwest and Norma/Lydia (Design) $40k (TIF)• Traffic Signal Goldenwest and Rio Vista (Design) $30k (TIF)• CCTV Camera Installation $90k (TIF)• Downtown Street Lighting $3.8M (INFR FUND/GRANT)• Citywide Safe Route to School Evaluation $625k (Measure M/TIF)• Citywide Mobility and Corridor Improvements $150k (TIF)• Graham and Springdale Street Reconfiguration $70k (TIF)24
WATER IMPROVEMENTS $13.6M• Annual Water Main Replacement $1.5M (WATER)• Well 14 Drilling and Casing Project $2M (WATER) • Well 14 Storm Drain $2M (WATER)• Well 9 GAC Replacement $400k (WATER)• On Site Gas Generation Wells 4,7, and 13 $7.1M (WATER)• Well 15 Drilling and Casing Project $650k (WATER)25
City of Huntington BeachPension Overview
26 City of Huntington Beach Unfunded Accrued Liability
27 •UAL is the difference between estimated value cost of retirement benefits earned & expected to be paid to current employees and retirees in the future, and the market value of investments held by CalPERS. • The City’s most recent CalPERS report of assets, liabilities and funded status are measured as of the valuation date of June 30, 2023. • Employer contributions determined by the 6/30/23 valuation are imposed in FY 2025-26. • This 2-year lag is due to the time needed by CalPERS to extract and test the membership and financial data. • The UAL must be rolled forward two years from the valuation date. $ millions 28 How Are Pension Costs Determined?
What drives PERS Costs?
29 • Change in mortality assumptions (increased life expectancy)• Increases in number of employees • Increases in “PERS-able” salaries & wages • PERS amortization policy (20 years)• Changes by CalPERS in the assumed investment earnings/discount rate – currently 6.8%Assumed discount rate assessed against UALInvestment earnings below assumed 6.8% rate increases the UAL• Any action by City to pay down the UAL results in savings City of Huntington Beach – Annual CalPERS Pension Costs 30 Options to reduce UAL status
31 •Timely Payments: Make required monthly contributions in full and on time.•Pre-pay Annual Contributions: Make each year’s full payment/contribution in July to reduce interest cost (3% discount)•Additional Discretionary Payments (ADP): Employers can make additional payments above the required contributions to reduce their unfunded liabilities.•Understand Impact of Interest Costs: Make ADPs when investment returns are stable or growing and in advance of when payments are due to avoid negative amortization.•Establish a UAL Funding Target: Targeting anywhere from 90%-95% allows room for investment performance or pension trust assets to make up the 5%-10% difference. •Use Section 115 Pension Trust: Established by Council policy for use in offsetting pension cost volatility (Increases).•Cost Sharing with Employees: Increasing employee contributions to share the burden of funding the employees own pension cost. Employees investment in their own future Accelerated UAL Payment ScheduleFunding Schedule Options (millions) 32$0.0$5.0$10.0$15.0$20.0$25.0$30.0
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049Current Amortization20 Year Amortization15 Year AmortizationCurrent20 Yr 15 Yr
Proposed Financial Policy Amendments
33 Need for Policy Changes
34 • Current financial policies constrain ability to use surplus and other available funds to balance the budget during economic downturns.• Proposed changes allow for the allocation of surplus funds on a case-by-case basis by the City Council, with input from the City Manager each year.• Commitments to Economic Uncertainties Reserve and annual transfer of $1 million to the Section 1115 Pension Trust are maintained.
ProposedAdopted Policy•Approximately 50% used to address long-term obligations pension, liabilities, other post-employment benefits, bonded debt, lease obligations and other long-term needs.•Approximately 50% used to address infrastructure or neighborhood capital improvements.Allocation to be made on a case-by-case basis by the CC, with input from the CM after all discretionary fund reserve balances and one-time monies reviewed by Staff.Based on budgetary constraints or needs, an assessment shall be coordinated to determine the cost/benefit of utilizing methodology described. •50% of Economic Uncertainties Reserve commitment•25% for Infrastructure Fund•25% to Capital Improvement Reserve (CIR) commitmentAfter Economic Uncertainties Reserve commitment, unassigned fund balance to allocated as follows:•50% for Infrastructure Fund•25% to Capital improvement Reserve (CIR) Commitment•25% to Equipment Replacement commitmentUnassigned revenues received during the FY added to GF fund balanceMinimum of 25% of the unrestricted one-time transferred to Section 115 Trust General Fund Surplus Utilization
35 ProposedAdopted Policy•Annual $1M contribution to the Section 115 Trust. Allow to be used for discretionary purposes based on funding availability.•Annual Prepayment of UAL Payment. (currently doing)•Allocation of Liabilities Across Funds. (currently doing)•Cost Sharing & Contract/MOU Provisions.•Examine Medical Benefit Levels and Eligibility Criteria. •Use and Allocation of One-Time Monies.•Synthetic Fresh Start.•Annual assessment of Additional Discretionary Payments (“ADP”) to be made to CalPERS. •Annual $1M contributed to Section 115 Trust.•Perpetual set aside of 50% of Pension Refinance Savings.•Annual set-aside of an additional 50% of General Fund surplus at year-end.•Establishment of accelerated UAL payment schedule.•Annual assessment of Additional Discretionary Payments (“ADP”) to be made to CalPERS.Unfunded Accrued Liability Pension Funding Policy 36 City of Huntington BeachFiscal Sustainability Planning 37 Baseline Forecast – Revenue & Expenses TrendsAnnual Operating Deficits Until FY 2032Debt Obligations (lease financings for vehicles, equip., and lighting) Expire38 Baseline Forecast – Annual Surplus/(Deficit)
39 Scenario Forecast – Potential Bridge SolutionsExpenditures1. Continue increased vacancy savings by $1 million (representing increase in vacant positions from 40 to 45).2. With Reserve Policy revisions, suspend annual transfer of $1.5 million from General Fund to Section 115 Trust between 2026 and 2030 (current trust balance = $25 million, investment returns will largely make up the difference).3. Department Efficiencies: Procure America; Increased Collections through program audits (STRs, TOT, UUT)40 Scenario Forecast – Potential Bridge SolutionsRevenues1. Annual transfer in of $1.2 million from Section 115 Trust funds to General Fund between 2026 and 2030 to offset pension expense, as per Council policy. 2. Adopt new Business License Tax (change from flat tax to tax on gross receipts and CPI escalation every year) on the November 2026 ballot. Approximate impact = $1 million per year, but could likely be much higher (~$2 to $3 million per year).3. Adopt new ¼ cent Transaction & Use Tax (TUT) on the November 2026 ballot.4. Continue event pricing for enhanced Parking Revenue5. Expand Short Term Vacation Rental Program41 42 Long Term Fiscal Sustainability StrategiesControl Personnel Costs • Wage freeze• Hiring freeze• Increase part-time labor• Reduce hours and pay• Close facilities• Layoffs or reductions in force• Offer early retirement• Increase employee contributions to pensions or OPEBReduce Near-Term Capital Spending, Equipment Costs, and Annual Debt Costs • Defer or cancel capital projects, maintenance, and/or replacement• Defer noncapital special projects• Use short term debt to pay for vehicles• Reduce general fund support to other funds (reduce interfund transfers out)Organizational Strategies • Small and/or temporary across the board budget cuts• Reorganization – centralize financial management• Contract or implement shared services model for select programs• Divest (eliminate programs)Sourcing Strategies • Outsource • Insource• Increase Taxes• Create special district with its own taxing authority• Audit tax revenue sources• Improve billing and collection methods• Examine fees for service• Audit routine expenditures (zero based budget)42
Fiscal Sustainability Planning Steps (12-24 months)Conduct analysis on budget strategiesEstimate fiscal impactsFocus on those strategies with High or Medium fiscal impactAssess feasibility and implementation difficulty factorsDevelop budget scenario packages for considerationDraft project reportPresent project report to TaskforcePresent project report to City CouncilSupport Council deliberation and selection of budget strategiesDevelop implementation action planSupport staff in implementation43 FY 2025/26 Budget Next Steps
44 • Based on City Council feedback tonight, staff will make requisite adjustments to the proposed FY 2025-26 Budget• Revised budget will be brought back for formal City Council consideration/adoption on June 3rd Questions?
45