STAFF REPORT
Meeting Date:
April 14, 2026
BUSINESS
20 SUBJECT: FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS,
AND ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
RECOMMENDATIONS: It is recommended that the City Council:
1. Approve the proposed Fiscal Year 2025-26 mid-year budget adjustments summarized in Attachment 1;
2. Approve an increase to the General Fund Contingency Reserve from $17,300,000 to $18,500,000, to maintain the City Council’s 20% target balance;
3. Approve the creation of three new Special Revenue Funds (Measure M; Road Rehabilitation Account, and Senior Mobility Transportation Program);
4. Approve the purchase (instead of leasing) of four vehicles included in the City’s current vehicle replacement plan;
5. Adopt the amended salary schedules for Fiscal Year 2025-26 by adopting the Resolution titled, "A
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAGUNA BEACH, CALIFORNIA, SETTING PAY RANGES FOR CITY EMPLOYEES," which updated the compensation for employees;
6. Adopt the Resolution titled, "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
LAGUNA BEACH, CALIFORNIA, RELATING TO CONDITIONS OF EMPLOYMENT
POLICIES AND BENEFITS FOR UNREPRESENTED EXECUTIVE MANAGEMENT AND MANAGEMENT EMPLOYEES;" and
7. 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
This report presents the Fiscal Year 2025/26 Mid-Year Budget Update and recommends that the City Council approve a series of budget adjustments and related actions to address updated revenue projections and maintain the City’s fiscal stability. We acknowledge that April 14, 2026 is not “mid-year.” With a full team in our Finance Department, we hope that mid-year FY 2026-27 is in January or February 2027.
Following the close of Fiscal Year 2024/25, the General Fund available balance was $959,773, approximately $462,159 lower than originally projected, primarily due to lower-than-anticipated sales and transient occupancy tax (TOT) revenues during FY 2024-25. In addition, updated projections for Fiscal Year 2025/26 reflect continued softness in sales tax revenues due to ongoing commercial vacancies.
FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
April 14, 2026
To address these conditions, staff is recommending targeted budget adjustments, including updated revenue estimates and expenditure changes, resulting in an overall increase of approximately $4.5 million in revenues and a decrease of approximately $5.8 million in expenditure across all City funds. Within the General Fund, these adjustments produce a net positive impact and support maintaining fiscal balance.
The report also recommends increasing the General Fund contingency reserve to $18,500,000 to maintain the City Council’s 20% reserve policy, establishing three new Special Revenue Funds, and approving the purchase of replacement vehicles and two wave runners. Additionally, the City Council is asked to adopt resolutions that update the Fiscal Year 2025/26 salary schedule and formalize existing employment policies and benefits for unrepresented executive management and management employees. The proposed resolution does not modify existing compensation or benefits; instead, it incorporates previously referenced provisions into a single document to improve clarity and transparency.
DISCUSSION
The information included in Attachments 1-6 to this staff report includes revenue, expenditure, and fund balance information for all City funds. Attachment 1 provides a detailed explanation for each budget adjustment that is proposed.
General Fund (110/#112)
When the City’s budget was adopted in June 2025, the General Fund’s fund balance, was projected to be $1.4 million as of June 30, 2025. Based on final audit results, the actual available fund balance was $959,773, which is $462,159 less than we anticipated, primarily based on lower-than-anticipated transient occupancy tax (TOT) and sales tax revenues.
The Revenue Side. The General Fund collects approximately 72% of total General Fund revenues from its three primary sources: property taxes, sales taxes, and transient occupancy taxes. Sales tax revenues have declined due to multiple things, including commercial vacancies in 24/25. While increased occupancy of downtown commercial spaces has occurred since then and is expected to support higher in-person spending, overall sales tax performance continues to be impacted by broader trends of changes to how and where consumers spend. Based on updated estimates from the City’s consultant HdL Companies, sales tax revenues are recommended to be reduced by $145,665.
In contrast, TOT revenue is trending upward compared to Fiscal Year 2024/25, reflecting the reopening of hotels and increased revenue from short-term lodging businesses. As a result, staff is recommending increasing the estimated TOT revenue of $510,000 within FY 2025/26. The outlook for transient occupancy tax revenue is expected to increase next fiscal year as well, although the increase will be more modest as another hotel is expected to close for renovations as soon as September 2026. Property tax revenue remains stable and is projected to increase by 5% from the Fiscal Year 2024/25 actual revenue. An adjustment is proposed to increase the City’s estimated property tax revenue by $139,015.
In total, the staff is recommending increasing estimated General Fund revenues by $870,742, including a transfer of $200,000 from the Capital Improvement Fund.
FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
April 14, 2026
A summary of all the General Fund revenue adjustments is presented below.
The Expenditure Side. Staff is requesting additional appropriations in the General Fund of $170,635.
These adjustments are limited to increased revenues resulting in increased contract costs and additional requests that were missed, and therefore not included in the adopted budget. In addition, the personnel costs for a Records Coordinator position is being transferred from the Community Development Department to the City Clerk’s Office, an adjustment of $112,000. Finally, an adjustment is proposed to reallocate $510,000 of funding from the General Fund to the Cultural Environmental Stewardship Fund (#149) pursuant to the Laguna Beach Tourism Marketing District (LBTMD) Management Plan approved in June 2025.
As an example of some of these changes, the proposed adjustments include a revenue increase for business license taxes revenue, resulting in corresponding increases in contract costs. The City contracts the business license administration process with HdL with fees based on the volume of applications and renewals processed. As a result, contract costs increase as revenue increase and would similarly decrease if business license activity declines.
A summary of the General Fund expenditures, including the impact of proposed budget adjustments, is presented in the table below:
Description
FY 2025/26
Current
Budget
Proposed
Adjustments
FY 2025/26 MidYear Budget% of
Total
Property Taxes 55,850,200$ 139,015$ 55,989,215$ 55.9%
Sales Taxes 6,620,000 (145,665) 6,474,335 6.5%
Transient Occupancy Taxes 9,830,000 470,000 10,300,000 10.3% Other Taxes 2,910,000 488,000 3,398,000 3.4%
Licenses and Permits 3,545,000 (241,500) 3,303,500 3.3% Charges for Services 11,146,600 217,092 11,363,692 11.4% Use of Money & Property 3,858,000 (60,100) 3,797,900 3.8% Other Revenue 3,182,305 (196,100) 2,986,205 3.0%
Transfers from Other Funds 2,300,000 200,000 2,500,000 2.5% Total General Fund Revenues 99,242,105$ 870,742$ 100,112,847$ 100.0% FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
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April 14, 2026
The net impact of the proposed adjustments is an increase in General Fund available fund balance of $700,107.
We note in the above exhibits that the City’s General Fund expenditures (now at $104.7 M) show as roughly $4.6M higher than our General Fund revenues (proposed now at $100.1 M). This is because the $104.7 M in General Fund expenditures includes $5.1 M in budget carryovers from the Fiscal Year 2024/25 budget that were approved by the City Council on November 18, 2025. These items represent amounts that were included in last year’s budget for projects that were not complete by June 30, 2025 but later were finished.
Therefore, funding was set aside for this amount in last year’s budget – these carryovers are not funded from the $100.1 M in General Fund revenue expected this year. More simply, the $100.1 M in General Fund revenues will be used to fund $99.6 M in General Fund expenditures as shown in the chart below.
That noted, we still are concerned about the overall trend, with costs rising and two major revenue sources remaining flat or turning downward. Layer upon that the economic uncertainty triggered last year by tariffs and this year by the war in Iran and its effect on fuel prices (which can affect everything from TOT when international air travel falls, or direct costs of fueling our police and transit vehicles), makes us Description
FY 2025/26
Current
Budget *
Proposed
Adjustments
FY 2025/26 MidYear Budget% of
Total
General Government 2,889,200$ 112,000$ 3,001,200$ 2.9%
City Manager 15,078,550 (473,365) 14,605,185 13.9%
Administrative Services 4,584,050 114,000 4,698,050 4.5% Police 24,732,750 20,000 24,752,750 23.6%
Fire 19,894,305 - 19,894,305 19.0%
Marine Safety 4,741,850 - 4,741,850 4.5%
Public Works 17,256,850 - 17,256,850 16.5%
Transit & Community Services 3,450,500 - 3,450,500 3.3% Community Development 11,777,850 (112,000) 11,665,850 11.1% Transfers to Other Funds 150,000 510,000 660,000 0.6%
Total General Fund Expenditures 104,555,905$ 170,635$ 104,726,540$ 100.0% * Includes $5,084,750 in carryover appropriations from Fiscal Year 2024/25.
Description
FY 2025/26 MidYear Budget
General Fund Expenditures 104,726,540$
Less: Fiscal Year 2024/25 Carryover Funding (5,084,750) Expenditures funded with Fiscal Year 2025/26 revenues 99,641,790$ FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
April 14, 2026
even more concerned. This necessitates a significant change in how the City needs to approach its shortand medium-term expenditures in FY 2026-27 and beyond, regardless of whether new revenues are made available by the voters.
General Fund Reserve Target. Laguna Beach Municipal Code Section 3.24.030 sets a General Fund contingency reserve of 10% of General Fund expenditures. In addition, City Council has made the policy decision through the budget adoption process to set aside an additional 10% of General Fund expenditures, increasing the total target reserve balance to 20% of General Fund expenditures.
The General Fund contingency reserve was $17,300,000 when the budget was adopted on June 24, 2025.
Based on the revised Fiscal Year 2025/26 expenditures, the reserve requirement should be increased by at least $1.0 million to $18.3 million to maintain the 20% target (Attachment 7). However, staff’s recommendation is to increase the reserve by $1.2 million (resulting in setting the amount at $18.5 million) to provide slightly more additional stability in the General Fund should sales tax revenue continue to flatten or decline.
Staff recommends City Council authority to the transfer of $1.3 million from the General Fund’s available fund balance to the contingency reserve. If approved, the General Fund’s contingency reserve would be $18.4 million and the available fund balance in the General Fund is expected to be $134,895 by June 30, 2026 (Attachment 6).
Capital Improvement Fund (116/616)
Based on actual revenue collected through March, TOT revenue that is collected in the Capital Improvement Fund is 6% less than the revenue collected for the same period last year. An adjustment is proposed to reduce the current year revenue estimate by $240,000. In addition, an adjustment is proposed to reduce revenue from vehicle code fines by $145,000 based on the Fiscal Year 2024/25 actual of $4,041.
These revenue reductions are offset by an increase of $459,000 in revenue from parking citations and other fines. Parking citation revenue is on track to reach at least $1 million in Fiscal Year 2025/26 – which is significant and consistent with our efforts to limit poor parking practices sometimes by our region’s beachgoers. As a result, the net impact of these adjustments is a total revenue increase of $74,000 in this fund.
Insurance and Benefits Internal Service Fund (126)
The Insurance and Benefits Fund reported a deficit fund balance of $6.6 million as of June 30, 2025, primarily due to the significant number of workers compensation and general liability insurance claims.
Actual claims expenditures were $6.5 million, which was $4.2 million more than the estimated amount.
While the Fund has sufficient cash on hand to cover approximately $10 million in outstanding claim reserves as those claims are paid over time, the existing deficit reflects a structural funding imbalance. As a result, cash reserves will need to be replenished via a thoughtful plan. This effort is expected to impact FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
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future General Fund budgets. For the immediate future, we recommend a transfer from the Parking Fund of $1 million to partially offset the deficit.
Vehicle Replacement Fund (128)
The current budget currently reflects leasing certain electric vehicles for four (4) replacements at $7,500 per vehicle per year. However, since the budget was adopted, Public Works staff learned that some vendors do not directly lease vehicles to government agencies. Staff evaluated third-party leasing options through NCL Government Capital, which holds a Sourcewell contract, to offer financing/leasing solutions to municipal entities. NCL provided a Fair Market Value Lease proposal for certain units at $4,181.00/month for 60 months (first payment at commencement) and a Tax-Exempt Municipal Lease (lease-to-own) option at $4,293.62/month for 60 months, or approximately $113/month more to own and retain equity and resale value. Based on these proposals, Public Works staff concluded the third-party leasing approach is not costeffective compared to purchasing replacement hybrid vehicles. The City has sufficient funds available in the current budget to support the purchase of the four (4) replacement hybrid units (including upfitting), and staff is requesting approval to apply these available funding sources to complete the acquisition in lieu of leasing.
In addition, an adjustment of $40,000 is requested to purchase replacements for two wave runners for the Marine Safety Department to have them in preparation for the upcoming summer season.
Disaster Contingency Fund (#140)
On December 9, 2026, the City Council appropriated $115,905.40 from the Disaster Contingency Fund to reimburse the Orange County Fire Authority for costs associated for the Rancho Fire incident that occurred in July 2025. City Council Resolution No. 23.045 requires the City to use its best efforts to replenish the fund within 36 months of the expenditure.
The proposed budget adjustments included in Attachment 1 include a transfer from the Parking Fund to the Disaster Contingency Fund for this replenishment.
Animal Shelter Donation Fund (#142)
On November 18, 2025, the City Council authorized the creation of a new fund to track donations received for the City’s Animal Shelter. In addition, a budget carryover of $1,497,850 was approved to carryover the appropriations related to these donations. The proposed budget adjustments recommend eliminating this budget line item since there is not a spending plan identified in FY 2025-26 for these funds. As a result, these funds will be available for future appropriation by the City Council.
New Special Revenue Funds
The City currently records revenues and expenditures received from the Orange County Transportation Authority (OCTA) for Measure M sales tax and revenues from the State of California for the Road Rehabilitation Maintenance Account (SB-1) in the City’s Gas Tax Fund. In addition, the City records the Senior Mobility Transportation grant funds received from OCTA in the Transit Fund. Staff is recommending that the City Council approve the creation of the following new funds to help streamline FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
April 14, 2026
and improve the reporting process to OCTA and the State: Measure M (#201/601); Road Maintenance and Rehabilitation Account (RMRA) Fund (#202/602); and Senior Mobility Transportation Fund (#203).
Proposed Adjustments to Wastewater Capital Improvement Funds (Attachment 5) The Public Works Department identified five CIP projects that can be closed. In addition, an adjustment is proposed to reduce the funding for the South Orange County Wastewater Authority (SOCWA) from $11.1 million to $4.1 million based on updated information received from SOCWA (Attachment 5). Overall, the revenue received from wastewater service charges has been sufficient to cover operating expenses, but not capital improvement program funding. The City has funded wastewater projects with I-Bank loans. Staff is working with a consultant to develop a wastewater rate study. The project is expected to be completed during Fiscal Year 2026/27.
Revised Salary Schedule for Fiscal Year 2025/26 (Attachment 8) The City’s salary schedule has been amended to reflect labor agreements that the City Council approved after the Fiscal Year 2025/26 salary schedule was approved, as detailed below:
Salary Range Adjustments (per current MOUs):
• 2% salary range adjustment for Laguna Beach Marine Safety Association (LBMSA) (in accordance with current MOU)
• 4% salary range adjustment for Laguna Beach Police Employees Association (LBPEA) for Sworn (in accordance with current MOU)
• 3% salary range adjustment for LBPEA for Professional staff (in accordance with current MOU)
• 3.5% salary range adjustment for LBPEA for Dispatch (in accordance with current MOU) • 3% salary range adjustment for Police Part Time/ Full Time Equivalent for Professional staff
• 3.5% salary range adjustment for Police Part Time/ Full Time Equivalent for Dispatch Classification Updates:
• Update classification title of Supervisor of Support Services to Support Services Supervisor
• Update classification title of Kennel Manager to Animal Shelter Manager and move from Police 84 to MGMT 3040
• Move classification of Wastewater mechanical & Facilities Supervisor from MISC 122 to MISC 128
• Move classification of Senior Community Services Coordinator from HRLY 685 to HRLY 705
• Changes to HR positions:
o Add Director of Administrative Services classification to MGMT 2050 o Add Human Resources & Risk Manager classification to MGMT 2030 o Remove Director of Human Resources & Risk Management classification FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
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April 14, 2026
Position Updates:
• One Planning Technician position was reclassified to an Assistant Planner position. • The Finance Director position was reclassified to Administrative Services Director due to a reorganization of the City which resulted in the consolidation of the Finance and Human Resources Departments into one Administrative Services Department. • The cost impact of both of these reclassifications will be absorbed by the Administrative Services and Community Development Department’s existing personnel budgets.
Unrepresented Executive Management and Management Employees (Attachment 9) The proposed Management Resolution (Attachment) consolidates and incorporates existing employment policies and benefits into a single, comprehensive document to improve transparency and administrative clarity. This approach also facilitates external agency review, including by CalPERS, by providing a centralized reference for compensation elements that may be subject to retirement benefit calculations. The resolution does not modify or add to existing management compensation or benefits.
FINANCIAL ANALYSIS
The fiscal impact of the proposed budget adjustments is summarized in the “Net Impact to Available Fund Balance” column on Attachment 1.
ENVIRONMENTAL ANALYSIS
The recommended action consists of the creation of government funding mechanisms or other government fiscal activities, which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment and therefore does not constitute a “project” within the meaning of the California Environmental Quality Act. (Public Resources Code Section 21065; 14 CCR Section 15378(b)(4).). Here, amendments to the City’s Financial 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.
Therefore, the recommendation action is not a project within the meaning of CEQA.
ATTACHMENTS
1. Proposed Budget Amendments (Pgs. 10-13)
2. Revenue Detail-Major Funds (Pgs. 14-18)
3. Expenditure Detail-Major Funds (Pgs. 19-22)
4. Revenue & Expenditure Summary-Other Funds (Pg. 23)
5. Capital Improvement Program Summary (Pgs. 24-26)
6. Fund Balances by Fund (Pgs. 27-30)
7. General Fund Contingency Reserve Calculation (Pg. 31)
8. Resolution Approving Employee Salary Schedule (Pgs. 32-50)
9. Resolution Approving Employment Policies and Benefits for Unrepresented Executive Management and Management Employees (Pgs. 51-66)
FISCAL YEAR 2025/26 MID YEAR BUDGET UPDATE BUDGET ADJUSTMENTS, AND
ADOPTION OF SALARY AND MANAGEMENT RESOLUTION
April 14, 2026
Submitted By: .Michelle Bannigan Approved: .David A Kiff Michelle Bannigan, Director of
Administrative Services
Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Michelle Bannigan, Director of Administrative
Services
Dave Kiff, City Manager
Gavin Curran, Assistant City Manager
Mark McAvoy, Director of Public Works and Utilities
Brittany Fernandez, Human Resources Analyst
Jane Abzug, Assistant City Attorney