Staff Report — Laguna Beach City Council, September 22, 2026

STAFF REPORT
Meeting Date:

September 22, 2026

CONSENT

CALENDAR
21 SUBJECT: CONSIDERATION OF A RESOLUTION AMENDING THE CITY COUNCIL

POLICY AND PROCEDURES MANUAL TO ADD NEW POLICIES RELATING TO (1) CAPITAL ASSETS; (2) FINANCIAL AND ETHICS TRAINING FOR OFFICIALS AND STAFF; (3) CITY TRAVEL REIMBURSEMENT; AND (4) ARTIFICIAL INTELLIGENCE; AND FURTHER RESCINDING PREVIOUS CITY

COUNCIL APPROVALS INCONSISTENT WITH SUCH POLICIES
RECOMMENDATION: It is recommended that the City Council:

1. Adopt the Resolution titled, “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

LAGUNA BEACH, CALIFORNIA, AMENDING THE CITY COUNCIL POLICY AND

PROCEDURES MANUAL BY ADOPTING AND ADDING THERETO CITY COUNCIL POLICY NO. 4.3, CAPITAL ASSET POLICY AND PROCEDURES; POLICY NO. 5.2, AB 1234 AND SB 827 TRAINING POLICY; POLICY NO. 2.5, CITY TRAVEL REIMBURSEMENT POLICY; AND POLICY NO. 5.3, ARTIFICIAL INTELLIGENCE POLICY; AND FINDING

SUCH ACTION EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT UNDER STATE CEQA GUIDELINES SECTION 15378”, amending the City Council Policy and Procedures Manual, as follows:
a. Adding City Council Policy No. 4.3, Capital Asset Policy and Procedures, and rescinding the previously adopted Administrative Policy No. 1-10, Capital Asset Policy and Procedures; and
b. Adding City Council Policy No. 5.2, AB 1234 and SB 827 Training Policy; and c. Adding City Council Policy No. 2.5, City Travel Reimbursement Policy, and rescinding the previously adopted Administrative Policy No. 3-3, Travel Authorizations and Expense Reporting; and
d. Adding City Council Policy No. 5.3, Artificial Intelligence.

2. Find that the recommended actions are not projects under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378.

SUMMARY OF THE MATTER
For much of calendar year 2026, the City has been engaged in an ongoing effort to develop a clear, transparent, and comprehensive City Council Policy and Procedures Manual (“Policy Manual”). The purpose of the Policy Manual is to consolidate in one publicly accessible document the rules and practices that govern how the City Council conducts its business and how the City administers its affairs. Adopting and maintaining such a manual is a recognized best practice in local government: it promotes transparency and public trust, ensures that similar matters are handled consistently rather than on an ad hoc basis,

CONSIDERATION OF A RESOLUTION AMENDING THE CITY COUNCIL POLICY AND PROCEDURES MANUAL TO ADD NEW POLICIES RELATING TO (1) CAPITAL ASSETS; (2) FINANCIAL AND ETHICS TRAINING FOR OFFICIALS AND STAFF; (3) CITY TRAVEL REIMBURSEMENT; AND (4) ARTIFICIAL INTELLIGENCE; AND FURTHER RESCINDING

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preserves institutional knowledge, strengthens internal controls and fiscal accountability, and allows the City Council to address emerging issues deliberately and in advance rather than reactively.1 Earlier this year, the City Council adopted an amended and restated Policy Manual, and has subsequently adopted additional policies into the Policy Manual. To date, those policies are separated into chapters, as follows:

1. City Council Meetings and Conduct

2. City Council Administration

3. City Recognition and Ceremonial Policies

4. Finance

5. City Manager/Administration of the City
(See Attachment 1, Existing Policy Manual Table of Contents.) As part of this ongoing project, this report requests that the City Council add four new policies (including by amending and replacing two existing administrative policies) to its Policy Manual, relating to:

1. Capital Assets (Policy 4.3);

2. Financial and Ethics Training for Officials and Staff (Policy 5.2);

3. City Travel and Expense Reimbursement (Policy 2.5); and

4. Artificial Intelligence (Policy 5.3).

These policies are proposed to be adopted and incorporated into the Policy Manual through the approval of the attached Resolution. (See Attachment 2.)
1 The Institute for Local Government (“ILG”) identifies as a "better practice" that a local agency "adopts a Governance Handbook or Manual and regularly reviews and updates the included policies.” (ILG, Good Governance Checklist: Good and Better Practices, available at https://www.ca-ilg.org/sites/main/files/fileattachments/ilg_good_gov_checklist_final.pdf?1654062809.) The Government Finance Officers Association (“GFOA”) similarly recommends that agencies "formally adopt financial policies," and that those policies be written, monitored, and periodically updated. (GFOA, Adopting Financial Policies, available at https://www.gfoa.org/best-practices/financial-policy-best-practices.) In some instances, written policies are a statutory requirement: AB 1234 (Gov. Code § 53232.2(b)), for example, requires a local agency that reimburses members of its legislative body for expenses to "adopt a written policy, in a public meeting, specifying the types of occurrences that qualify a member of the legislative body to receive reimbursement of expenses relating to travel, meals, lodging, and other actual and necessary expenses."

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DISCUSSION
The draft policies proposed to be adopted into the Policy Manual are intended to be included the following chapters and are added for the following reasons:

1. Finance: Capital Assets (Proposed Policy No. 4.3)
The City’s Capital Asset Policy establishes the processes for budgeting, purchasing, using, transferring, disposing of, depreciating, and financially reporting on the City’s capital assets. The Capital Assets Policy was most recently updated adopted by the City Council as Administrative Policy No. 1-10, on October 28, 2025, to align the equipment capitalization threshold with the Office of Management and Budget’s (“OMB”) Uniform Guidance. Since adoption of Administrative Policy No. 1-10, staff undertook a more comprehensive review of the Policy and identified the additional revisions described below, including opportunities to improve clarity and ensure consistency with Governmental Accounting Standards Board (“GASB”) terminology.

In addition to so updating the policy, staff recommend moving the existing Capital Asset Policy and Procedures from the Administrative Policy Manual to the City Council Policy and Procedure Manual. This recommendation is consistent with the City's ongoing effort to establish a clear and comprehensive City Council Policy and Procedures Manual, including by distinguishing between policies that establish legislative direction that require City Council approval (and are therefore included in the City Council Policy and Procedures Manual), and administrative policies that govern the day-to-day management and operation of City functions that are appropriately adopted by the City Manager (and therefore included in the City’s Administrative Policy Manual).3 Adoption of the proposed City Council Policy No. 4.3 will supersede and replace Administrative Policy No. 1-10 and establish the policy in the City Council Policies and Procedures Manual.

Useful-Life Criterion for Capitalization
The Policy previously required capitalization for assets with a cost of $10,000 or more and a useful life of “three or more” years. That standard did not fully align with the federal Uniform Guidance definition of “equipment” under 2 CFR §200.1, which defines equipment as tangible personal property with a useful life of more than one year and a per-unit cost of $10,000 or more. The revised Policy corrects this inconsistency by requiring capitalization for assets with a cost of $10,000 or more and a useful life of more than one year. 3 Historically, certain policies contained within the Administrative Policy Manual have been adopted by the City Council, while others have been adopted administratively through the City Manager's Office. This has created uncertainty regarding the authority required to amend particular policies and has made it difficult to determine from the face of a policy whether City Council approval is required. Reclassifying policies as either City Council Policies or Administrative Policies promotes consistency, clarifies administrative authority, and improves the City's ability to efficiently maintain and update procedures.

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New Capitalization Threshold for Infrastructure and Sewer Plant Assets The revised Policy establishes a separate capitalization threshold of $100,000 for infrastructure and sewer plant and line assets, applied at the individual project or asset level, rather than the general $10,000 threshold that otherwise applies. A higher threshold for infrastructure assets is consistent with common practice among municipalities, reduces the administrative burden of tracking and depreciating a large volume of relatively low-cost infrastructure components individually, and better reflects the scale of the City’s infrastructure capital program.

Removal of the Computer Equipment Inventory Exception
The current Policy provides that all computer and computer-related equipment be recorded and controlled as inventory, rather than capitalized and depreciated, due to the rapid pace of technological change. The revised Policy removes this exception. Going forward, computer equipment that meets the general capitalization threshold will be capitalized and depreciated in the same manner as other office equipment, improving consistency in the City’s financial reporting.

Streamlined Disposal and Surplus Property Procedures
The revised Policy substantially reorganizes and streamlines the Disposal/Surplus Property section, which previously contained several overlapping and, in places, redundant provisions. Key changes include:
● A new standardized “Surplus Property/Capital Asset Disposition” form that the operating department must complete and submit to the Finance Department prior to disposal, documenting a description of the property, the reason for disposal, the proposed method of disposition, and the estimated value or expected proceeds.
● Updated approval authority: routine disposal of surplus property is approved by the Department Head or an authorized designee, rather than requiring Finance Director approval as under the current Policy. City Manager approval is retained specifically for scrapping surplus items with an estimated value greater than $1,000.
● A clarified disposal hierarchy: scrapping (recycling, salvage, or other disposal of an item with little or no remaining useful value) is to be used only after determining that other methods – sale, auction, trade-in, or donation – are not feasible.
● Retention of the existing requirement that surplus property with an estimated fair market value or expected proceeds of $10,000 or more be disposed of through advertisement to the general public or auction companies.

Terminology and Other Technical Corrections
The revised Policy also makes a number of non-substantive corrections to improve clarity and internal consistency, including replacing the term “fixed asset” with “capital asset” throughout, consistent with GASB terminology used elsewhere in the Policy, and various minor wording and grammatical corrections.

Proposed City Council Policy No. 4.3 is attached hereto as Attachment 2.A. A redline of the proposed policy to the existing policy (Administrative Policy No. 1-10) is attached hereto as Attachment 3.

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2. City Manager/Administration: AB 1234 Ethics Training and SB 827 Financial Training (Proposed Policy No. 5.2)
Assembly Bill (“AB”) 1234, originally adopted in 2005 and codified at Government Code section 53243 et seq., among other things, establishes certain training requirements for local officials and employees on general ethics principles and ethics laws applicable to public service (this is generally referred to as “AB 1234 training”). Individuals subject to this AB 1234 training must complete at least two hours of ethics training on a biennial basis.

State law specifies which officials must receive such training and provides that cities may further designate additional officials and employees that are also required to receive AB 1234 training. Historically, the City has relied on its Appendix of Designated Employees in its Conflict-Of-Interest Code as a list of those required to complete AB 1234 training. The proposed Policy No. 5.2 is merely intended to formally codify this list into a policy that explicitly identifies AB 1234 ethics training as required training.5 Similarly, Senate Bill (“SB”) 827, effective January 1, 2026 and codified at Government Code section 53234 et seq., establishes new fiscal and financial training requirements for certain local government officials and staff whose roles involve fiscal oversight or financial decision-making. The required training addresses core areas of local government fiscal administration, which may include budgeting and financial reporting, public funds management, debt and capital financing, pensions and other post-employment benefits, procurement and contracting, and the stewardship of public resources. The law requires covered officials to complete a minimum of two hours of fiscal and financial training on a biennial basis.

SB 827 applies to members of a local agency’s legislative body and to certain appointed officials and staff whose positions involve fiscal oversight or responsibility for the administration, review, or recommendation of financial matters. The statute allows the City some discretion on identifying which officials and staff are subject to the training requirement based on the nature of their duties. While department heads are specifically referenced as requiring SB 827 training, Government Code section 53238(d) also includes “any employee designated by a local agency governing body to receive the training. . .” Proposed Policy 5.2 thus identifies such individuals; it lists both the statutorily mandated individuals as well as the employees City staff believes should be required to take the fiscal and financial training.

Finally, the proposed Policy 5.2, for both AB 1234 and SB 827 trainings, allows the City Manager to identify additional City employees required to take one or both of these trainings, at his or her discretion.

Proposed City Council Policy No. 5.2 is attached hereto as Attachment 2.B. 5 Consistent with AB 1234, the City has had an existing process for many years to ensure the requisite persons are provided the opportunity for such training.

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3. City Council Administration: City Travel and Expense Reimbursement (AB 1234) (Proposed Policy No. 2.5)
In addition to mandating local government ethics training, as described above, AB 1234 requires cities to adopt a written policy for reimbursement of "actual and necessary" expenses incurred by City Council members, as well as other elected officials and members of legislative bodies created by the City Council, such as Planning Commission or Design Review Board, when traveling for official City business—for example, when attending a conference relevant to the subject matter jurisdiction of that body. (Gov. Code § 53232.2.) This policy is often referred to as an “AB 1234 Travel Policy.” The policy is required to address reimbursement of expenses relating to travel and official duties, meals and lodging, and the filing of expense reports.

The City’s existing AB 1234 Travel Policy was last updated in 2012 and is currently part of the City’s Administrative Policy Manual as Policy 3-3. Given the time since the policy was last reviewed, the policy has not kept pace with the statute, reimbursement rates or practices, or how officials actually travel. Thus, staff proposes as Policy No. 2.5 an updated travel reimbursement policy for City Councilmembers, other elected City officials, and members of legislative bodies, that will supersede and replace Administrative Policy No. 3-3 and establish this policy in the City Council Policies and Procedures Manual.

The principal proposed changes in the policy are as follows:
• Extended to all elected officials and legislative bodies. Policy 3-3 currently covers City Council members only. AB 1234 reaches any legislative body whose members the City reimburses, so the policy is extended to members of the City’s boards, commissions, and committees. If the City reimburses a commissioner, board member, or committee member for travel expenses, such as a conference or for mileage, an adopted policy is required to cover them. The updated policy is also drafted to include the elected City Clerk and City Treasurer. • AB 1234 updates. Expenses that fall outside the policy, or exceed its rates, must be approved by the City Council in a public meeting before they are incurred, per AB 1234 (Gov. Code § 53232.2(f)).

The current policy is silent on this, as well as AB 1234’s recognition that an official may pay the difference personally. These are added to the proposed policy so it is more comprehensive and reflective of AB 1234.
• Self-updating reimbursement rates. The existing policy sets a flat $65 per day for meals, a figure fixed in 2012 that requires City Council action to change it. In the proposed policy, meals and lodging now follow the General Services Administration (“GSA”) per diem rate for the destination and mileage follows the Internal Revenue Service (“IRS”) standard rate, so the policy keeps pace with external changes without requiring further Council action. • Updated types of travel expenses. The existing policy primarily addresses meals, lodging and mileage. The proposed policy now addresses air travel and class of service, rental cars and insurance,

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rideshare and shuttles, electric vehicle charging, parking and tolls, baggage fees, and virtual registration.
• More detailed documentation and approvals. The existing policy’s two-month expense report deadline has been re-written in the proposed policy as a thirty-day target and sixty-day limit, tied to the statutory “reasonable time” standard and the IRS accountable plan rule. The proposed policy also adds an itemized receipt requirement and a note that travel paid by others may be reportable on FPPC Form 700.
• Clarifications. The proposed policy now includes numbered sections, a definitions section, and a stated order of precedence for lodging rates, so the policy can be cited and applied without guesswork. Further minor clarifications were added throughout.

As with the existing policy, the proposed policy is contingent upon budget appropriations and availability.

The proposed policy does not authorize or recommend an increase in budget appropriations from past fiscal years, which has historically been a relatively minor amount.

Proposed City Council Policy No. 2.5 is attached hereto as Attachment 2.C. The existing travel and expense reporting policy (Administrative Policy 3-3) is attached hereto as Attachment 4.

4. City Manager/Administration: Artificial Intelligence (Proposed Policy No. 5.3) Given the rapid pace of AI advancement, however, the Efficiency and Fiscal Sustainability Ad Hoc Committee, comprised of Councilmembers Kempf and Rounaghi, recommended through the July 7, 2026 Budget Recommendations Memo, the development of a robust, comprehensive AI City Council policy based on the AI policy developed through GovAI Coalition, a coalition of public agencies led by the City of San Jose. The attached policy is based on the GovAI Coalition AI Policy model, tailored to Laguna Beach’s organization, operations, and obligations under California law.

AI features are already appearing in software the City licenses, and staff have access to publicly available generative AI tools. California has also enacted requirements that apply directly to cities, including Penal Code section 13663 (disclosure, draft retention, and audit trails for AI-assisted law enforcement reports) and the Civil Rights Council’s regulations on automated-decision systems in employment. Adopting a policy now sets expectations before AI use becomes more widespread and difficult to govern.

The proposed policy is organized into multiple sections and principally does four things:
• Assigns responsibilities. The City Council adopts the policy and receives an annual public report.

The City Manager is responsible for AI use and designates an AI Program Administrator, supported by a cross-departmental AI Review Committee. Duties are also assigned to Information Technology, the City Attorney, the City Clerk, Human Resources & Risk, Finance, and the Police Chief.

Implementation details — the approved tools list, the AI FactSheet, the review process, and training

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— are delegated to administrative procedures issued by the City Manager, so the policy remains stable as technology and law change.
• Sets rules for everyday staff use. Staff may use only City-approved AI tools through City accounts; confidential, privileged, and personnel information may not be entered into unapproved tools; AI output is always a draft that a City employee must verify and remains responsible for; and AI may not be the sole basis for decisions affecting permits, enforcement, employment, benefits, or claims. • Addresses public safety. The policy implements Penal Code section 13663 for AI-assisted police reports, limits facial recognition to corroborated investigative leads, prohibits predictive policing, governs automated license plate reader data under Civil Code section 1798.90.5, and requires human verification before any AI wildfire detection results in a public alert or evacuation order. • Provides transparency and oversight. The City will publish an inventory of the AI systems it uses, disclose when the public is interacting with an automated system, and report to the Council annually.

The policy also establishes prohibited uses, incident reporting, sunset procedures, and an emergency exception process.

Because the attached policy applies to employees, and requires the development of further internal-facing procedures, staff recommends this policy does not become effective with respect to represented staff until the City satisfies its obligations under existing memoranda of understanding and the Meyers-Milias-Brown Act to meet-and-confer with the relevant labor groups.

Proposed City Council Policy No. 5.3 is attached hereto as Attachment 2.D.

FINANCIAL ANALYSIS
The recommended City Council Policy 4.3 (Capital Asset Policy and Procedures) will not have any financial impact on the budget. This policy will update and modernize the way the City financially reports on its capital assets. The recommended City Council Policy No. 5.2 (AB 1234 and SB 827 Training) will not have any financial impact on the budget as ethics and fiscal training required under AB 1234 and SB 827 can be completed using existing training resources. The recommended City Council Policy No. 2.5 (Travel Reimbursement) will have no direct fiscal impact as amounts allowed for reimbursement under the policy are established by the annual budget. The recommended City Council Policy No 4.4 (Income Producing Property) will have no financial impact as it is memorializing existing practices for which staff time and resources are already budgeted. The recommended City Council Policy No. 5.3 (AI) has no direct fiscal impact; administration will be absorbed within existing staff resources. Any future purchase of an AI system would come forward through the normal budget and purchasing process.

ENVIRONMENTAL ANALYSIS
The recommended actions are not subject to the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15378, as it involves the approval of an internal administrative policies. The proposed policies are “general policy and procedure making” and “organizational and administrative

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activities” that will not result in direct or indirect physical changes to the environment. (CEQA Guidelines section 15378(b)(2) & (5).)

ATTACHMENTS

1. Policy Manual Table of Contents

2. Resolution Updating Policy Manual
Exhibit A. Capital Asset Policy and Procedures (Council Policy No. 4.3), with Surplus Property/Capital Asset Disposition Form
Exhibit B. AB 1234 and SB 827 Training Policy (City Council Policy No. 5.2) Exhibit C. Travel Reimbursement Policy (City Council Policy No. 2.5) Exhibit D. Artificial Intelligence Policy

3. Capital Asset Policy and Procedures (Administrative Policy No. 1-10) – redlined version

4. Existing Travel Authorization and Expense Reporting (Administrative Policy No. 3-3) Submitted By: Megan Garibaldi Approved: .David A Kiff
Megan Garibaldi, City Attorney Dave Kiff, City Manager
Report Prepared By: Coordinated With:

Patrick Donegan, Assistant City Attorney
Megan Garibaldi, City Attorney
Tiffany Fung, Accounting Manager

Laguna Beach City CouncilSeptember 22, 2026

Laguna Beach City Council
September 22, 2026