STAFF REPORT
Meeting Date:
March 24, 2026
STUDY SESSION
1 SUBJECT: PRESENTATION ON PROPOSED AMENDMENTS TO CHAPTER 3.24 OF THE LAGUNA BEACH MUNICIPAL CODE REGARDING THE CITY’S FINANCIAL
GUIDELINES AND BUDGETING PROCEDURES AND PROPOSED NEW
POLICY ON BUDGET CHANGE REQUESTS
RECOMMENDATIONS: It is recommended that the City Council:
1. Receive a presentation from staff on proposed amendments to Laguna Beach Municipal Code Chapter 3.24 and a proposed new City Council Policy for Budget Change Requests; and
2. Find that the recommended action is not a project under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378.
SUMMARY OF THE MATTER
Chapter 3.24 of the Laguna Beach Municipal Code (LBMC) has not been updated since 1985. Staff is recommending proposed changes to the City’s LBMC primarily to improve the effectiveness of staff to monitor (and timely amend) the operating budget administratively as needed. The proposed red-line changes are presented in Attachment 1 and the draft Ordinance to implement these changes is presented in Attachment 2.
The most significant changes being proposed include modifying the City’s budgetary control level from the “fund” level to the “department level” and to remove the requirement for the City Council to approve the creation and elimination of funds in the City’s finance system. In addition, staff is recommending approval for a new City Council Policy regarding the Budget Change Request Process (Attachment 3).
Staff is seeking City Council feedback on the proposed changes to bring the proposed policy and first reading of the Ordinance to amend LBMC Chapter 3.24 for consideration at the April 14, 2026, City Council meeting.
DISCUSSION
The City Council adopts the City’s annual operating and capital budget in June of each year. Throughout the fiscal year, it is common practice that changes to the budget are needed to address unexpected events or new issues that arise post budget adoption. The best practice is for staff to be able to timely address budgetary changes to effectively monitor the City’s budget.
PRESENTATION ON PROPOSED AMENDMENTS TO CHAPTER 3.24 OF THE LAGUNA BEACH MUNICIPAL CODE REGARDING THE CITY’S FINANCIAL GUIDELINES AND
BUDGETING PROCEDURES AND PROPOSED NEW POLICY ON BUDGET CHANGE
REQUESTS
March 24, 2026
Currently, Chapter 3.24 of the Laguna Beach Municipal Code requires City Council approval to transfer funds between departments within the same fund. Staff is recommending the City Council delegate the authority to approve budget transfers between departments within the same fund to the City Manager provided that total appropriations for the fund are not changed. For example, the proposed change would allow the City Manager to approve a budget transfer of $10,000 from the Fire Department’s General Fund (110) budget to the Public Works Department’s General Fund (110) budget.
The proposed change to the Ordinance would not allow the City Manager to approve a budget transfer of $10,000 from the Fire Department’s Wildfire Mitigation & Fire Safety Fund (141) to the Public Works Department’s General Fund (110) budget. This change would allow staff to address budget changes involving the same fund in a more timely manner instead of current practice, which is waiting until the midyear budget process to request this type of adjustment.
The proposed change only relates to the City’s operating budget. Budget changes related to capital items and capital improvement projects would still require City Council approval. In addition, staff memorialized this in a proposed City Council Policy to document the City’s budget change process (Attachment 3).
The other significant change to Chapter 3.24 of the City’s Municipal Code is to remove Section 3.24.060 “Creation and Elimination of Funds” completely. Currently, City Council approval is required for the creation and elimination of funds. A fund is how the City records the activity of a particular program or revenue source. Arguably, the determination of how the City records its day-to-day accounting - as long as doing so reflects modern practices and within Generally Accepted Accounting Principles (GAAP) - should be something guided by the Finance Director versus the governing body.
However, if this change is approved and if the Finance Department creates a new fund, City Council approval will still be required to appropriate any expenditure on that fund. As a result, the City Council would be aware as new funds are created. This change would allow the Finance Department to create a new fund when a new restricted revenue source is received without first receiving City Council approval (i.e., a new grant that may require the revenues to be recorded in a separate fund).
The last three proposed changes to the Municipal Code are to align the Code with current City practices.
Currently, the Municipal Code requires the City’s budget to be provided to the City Council in physical form by May 1. While providing the proposed operating and capital budget by May 1st is the best practice and a prudent goal to have, staff is recommending that this date not be specifically documented in the City’s Municipal Code.
Instead, the Council can set clear expectations of the City Manager and of the Finance Team as to when it first should see the proposed budget in its bound form. This allows for flexibility (violating the Code is never our goal) in the event that the City experiences staff turnover in key positions that may be involved in the budget preparation process.
PRESENTATION ON PROPOSED AMENDMENTS TO CHAPTER 3.24 OF THE LAGUNA BEACH MUNICIPAL CODE REGARDING THE CITY’S FINANCIAL GUIDELINES AND
BUDGETING PROCEDURES AND PROPOSED NEW POLICY ON BUDGET CHANGE
REQUESTS
March 24, 2026
Next, the Municipal Code quantifies that ten percent (10%) of the General Fund (an amount set up as a reserve) is four hundred thousand dollars ($400,000). It’s clearly not anymore. Utilizing the Fiscal Year 2025/26 adopted budget, 10% of the City’s General Fund expenditures is approximately $8,000,000.
Lastly, there is a requirement in the Municipal Code (Section 3.24.040) that the Finance Director prepare a monthly report of the current year revenues, expenditures, and fund balances to the City Council. We have not been doing this in recent times. To correct this and to reflect staffing constraints, we recommend retaining this provision but changing the financial reporting to the City Council from a monthly basis to a quarterly basis.
It is the intent that staff begin providing quarterly financial reports to the City Council beginning with the quarter ending September 30, 2026. The quarterly financial report will include a budget vs. actual comparison for the City’s major funds (General Fund, Measure LL Fund, Wastewater Fund, Capital Improvement Fund, etc.).
A proposed new policy regarding Budget Change Request Process (Attachment 3) would support the implementation of these Code changes.
We welcome the Council‘s and community‘s suggestions as to these possible changes.
FINANCIAL ANALYSIS
The recommended action affects aspects of the budget‘s presentation and funds, but does not have a significant cost impact to the budget.
ENVIRONMENTAL ANALYSIS
The requirements of the California Environmental Quality Act ("CEQA") do not apply to the proposed action as it is not a "project" because there is no substantial evidence to show that the proposed action has the potential to result in a direct or reasonably foreseeable indirect physical change to the environment. (State CEQA Guidelines, section 15378(a). Further, this Ordinance does not qualify as a project pursuant to State CEQA Guidelines, section 15378 (b)(4) and (b)(5) as an amendment to the City’s Financia Guidelines and Budgeting Procedures is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment and it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment.
ATTACHMENTS
PRESENTATION ON PROPOSED AMENDMENTS TO CHAPTER 3.24 OF THE LAGUNA BEACH MUNICIPAL CODE REGARDING THE CITY’S FINANCIAL GUIDELINES AND
BUDGETING PROCEDURES AND PROPOSED NEW POLICY ON BUDGET CHANGE
REQUESTS
March 24, 2026
1. Proposed Red-Lined Changes to Municipal Code Chapter 3.24 (Pgs. 4-5)
2. Draft Ordinance to Amend Municipal Code Chapter 3.24 (Pgs. 6-9)
3. Proposed City Council Policy for Budget Change Request Process (Pgs. 10-11) Submitted By: .Michelle Bannigan Approved: .David A Kiff Michelle Bannigan, Finance
Director
Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Michelle Bannigan, Finance Director Patrick Donegan, Assistant City Attorney Dave Kiff, City Manager