Agenda packet — Lake Forest City Council, June 3, 2025 (part 2 of 2)

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3 4
8 SP
#
Strategic
Plan
Goal
Final Name Status New
Initiative
Existing with
Modifications
Existing
Initiative/
Reprogramm
ed
Existing
Initiative with
Anticipated
Completion
FY 25
15 A Hiring a Broker for Retail
Recruitment Upcoming X
16 A Citywide Branding
Implementation Upcoming X
17 A City Branding Entryways Upcoming X
18 A Southwest Lake Forest
Investment Projects
On Track - Substantial
Progress (>50%) X
19 A
Golf Course Request for
Proposal (RFP) with the
County
Upcoming X
20 A Neighborhood Improvement
Task Force
On Track - Substantial
Progress (>50%) X
21 A Community Preservation
Program
On Track - Substantial
Progress (>50%) X
22 A Veteran's Brick Program Upcoming X
23 A Citywide Street Sign Refresh On Track - Substantial Progress (>50%) X
24 A
Asset Management Program
- Asset Management/Work
Order Software
Upcoming X
25 A Park Enhancements On Track - Substantial
Progress (>50%) X
26 A Heroes Park Sports Field
Renovations
On Track - Started
(<50%) X
27 A
Neighborhood Park
Renovations - Phase 4:

Vintage Park
On Track - Substantial
Progress (>50%)
28 A
Neighborhood Park
Renovations - Phase 4:

Cavanaugh Park
Some Disruption - Not
Started X
29 A
Neighborhood Park
Renovations - Phase 4: Lake
Forest Nature Park & Lake
Forest Park
On Track - Substantial
Progress (>50%) X
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298

2025 Strategic Plan Update

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8 SP
#
Strategic
Plan
Goal
Final Name Status New
Initiative
Existing with
Modifications
Existing
Initiative/
Reprogramm
ed
Existing
Initiative with
Anticipated
Completion
FY 25
30 A Pickleball Court Installation
Project
On Track - Started
(<50%) X
31 A Etnies’ Skate Park
Improvement Project
On Track - Started
(<50%) X
32 A
Neighborhood Park
Renovations - Phase 4:

Peachwood Park
On Track - Started
(<50%) X
33 A
Community Services
Programming at the
Performing Arts Center
(PAC)
Upcoming X
34 A Foothill Ranch Box Lacrosse
Installation Project
On Track - Started
(<50%) X
35 A Equestrian Center Lease
Extension On Track - In Transition X
36 A
Analysis of Regulatory
Options for Massage and
Personal Care Services
Upcoming X
37 A Park Security Enhancements Upcoming X
38 A
Emergency Communication
Enhancements at the Sports
Park
Upcoming X
39 B New LF Resident Packet Upcoming X
40 B Business Attraction Marketing Upcoming X
41 B
USA 250: A Celebration of
the United States 250th
Anniversary (Semi
quincentennial)
Upcoming X
42 B Lake Forest Flavors Upcoming X
43 B Realtor Partnerships Upcoming X
44 B Community Service Program
Scholarships Upcoming X
45 B Improve Financial
Transparency and Upcoming X
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2025 Strategic Plan Update

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8 SP
#
Strategic
Plan
Goal
Final Name Status New
Initiative
Existing with
Modifications
Existing
Initiative/
Reprogramm
ed
Existing
Initiative with
Anticipated
Completion
FY 25
Accessibility for the
Community
46 B
Advanced GIS for
Infrastructure & Community
Engagement
Upcoming X
47 B Strategic Planning Software Upcoming X
48 B Develop a 5-Year City-Wide
Technology Master Plan Upcoming X
49 B Online Building Permit
Application Access On Track - In Transition X
50 B
Streamlining Business
Startup Support: Integration
of Planning and Economic
Development
Upcoming X
51 B
Streamline Planning and
Building Division Pre-
Application & Inquiry
Process
Upcoming X
52 B Integrated Redaction
Services Upcoming X
53 C Strategy for "One Time"
Revenue
On Track - Substantial
Progress (>50%) X
54 C Comprehensive Fee Study
and Cost Allocation Plan Upcoming X
55 C Review of Contract Services
vs. In House Services Upcoming X
56 C Procurement Framework
Revamp Upcoming X
57 C Animal Control Operational
Review Upcoming X
58 C Implement a Learning
Management System (LMS) Upcoming X
59 C Managers' Professional
Development Group Upcoming X
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2025 Strategic Plan Update

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Employee Development and
Engagement
Upcoming X
61 C Employee Newsletter Upcoming X
A Pilot Gap Housing Program On Track - Substantial
Progress (>50%) X
A Shopping Center Study On Track - Substantial
Progress (>50%) X
A Hotel Marketing Campaign Transitioning to SP #16 X A Property Maintenance
Volunteer Program Transitioning to SP #21 X
A Noise Ordinance Update Complete X
A Heavyweight Vehicle Impact
Study Transition to Operations X
A Special Needs Programming Complete X
A Emergency Notification
Strategy
On Track - Substantial
Progress (>50%) X
B Microsoft 365 Full Integration On Track - Substantial Progress (>50%) X
B Modernize Marketing Tools On Track - Substantial
Progress (>50%) X
B Building Services
Modernization Transitioning to SP #49 X
B Digitalization of Community
Services
On Track - Substantial
Progress (>50%) X
C General Fund Risk Reserve
Policy Update
On Track - Substantial
Progress (>50%) X
C Non-Functional Turf Removal
Study Complete X
C Payroll Insourcing Study &
Implementation Complete X
C Evaluate Housing Authority
Elimination
On Track - Substantial
Progress (>50%) X
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2025 Strategic Plan Update

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2 ATTACHMENT 4
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2 2025 GENERAL FUND RISK RESERVE ANALYSIS
June 2025

INTRODUCTION
Prudent fiscal reserves are essential for financial stability and flexibility. The City’s Risk Reserve Policy is a component of the City’s Financial Management and Budgetary Policy, which establishes financial parameters to guide the development of the budget.

The desired policy outcome is that the long-term implications of financial decisions are fully understood and considered in the decision-making process. Accordingly, the General Fund Risk Reserve Analysis provides a funding plan that assesses the risks necessary to determine the level of reserves the City needs to protect itself against uncertainty and loss.

The City’s Risk-Based Reserve Policy accounts for eight key risk factors, such as disasters, unfunded liabilities, emerging issues, liquidity, and community growth.

Reserves are aligned with Lake Forest's actual vulnerabilities to ensure fiscal resilience.

This method enhances fiscal transparency and supports decision-making by aligning reserve levels with current and anticipated risk exposure. A comprehensive Risk Reserve Analysis is conducted every two years as part of the budget development process.

RESERVES DEFINED
Reserves represent the unassigned portion of the City’s General Fund balance and serve as a financial buffer. These reserves support the City’s ability to:
•Maintain uninterrupted public services during economic or fiscal shocks •Cover unforeseen legal or infrastructure obligations
•Ensure liquidity in periods of revenue shortfall
•Avoid reactionary tax increases or service reductions
In the context of municipal finance, "reserves" and "fund balance" are often used interchangeably. For purposes of this policy, reserves are defined as the portion of fund balance not legally restricted and available to address financial risk.

Due to Proposition 13 and Proposition 218, California cities, including Lake Forest, have limited flexibility to raise new revenues. As a result, the City must plan effectively using its existing revenue base, making the establishment of prudent reserves essential for maintaining financial stability.

CURRENT RESERVE LEVELS
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2 As part of the FY 2023–2025 biennial budget process, the City Council established a Target General Fund Reserve Level of $56.6 million and a Minimum Reserve Level of $53.77 million, reflecting a 5% buffer below the target. These thresholds align with the City’s risk-based approach, ensuring the financial stability needed to address potential challenges.

If reserves fall below the
minimum level, a
replenishment plan must be
presented to the City
Council within the next
budget cycle, outlining a
timeline, typically three to
five years, for restoring
reserves to policy
standards.

As of June 30, 2024, the
City’s discretionary General
Fund balance stands at
approximately $113 million,
substantially exceeding the
established reserve targets. This includes $7.8 million in assigned balances above the reserve requirement, offering additional financial flexibility.

Table 1 – Discretionary Reserves Summary
(IN MILLIONS)
Reserve Amount
per Policy
Target Minimum
Available
Discretionary
Fund Balance
Percentage
of Policy
Percentage of
General Fund
Revenues
June 30, 2024 $56.6 $53.77 $113 200% 164%

RISK FACTORS AND RESERVE CALCULATIONS
The Government Finance Officers Association (GFOA) advises that general-purpose governments maintain unrestricted General Fund reserves equivalent to at least two months of revenues or expenditures. For Lake Forest, this equates to a minimum reserve of $12.0 million.

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2 GFOA best practices identify several risk factors that should be considered when calculating reserves. Each factor is assessed to determine an appropriate funding level, considering the degree of risk associated with uncertainty, such as economic downturns, natural disasters, and other major events that could impact City finances.

Maintaining revenue stability is crucial to the City’s ability to sustain essential services and support long-term growth.

If expenditures exceed revenue growth, the City may struggle to maintain current service levels. The City’s primary revenue sources—property tax, sales tax, and transient occupancy tax (TOT)—offer greater spending flexibility than restricted funds, such as federal grants or user fees, which are earmarked for specific programs or services. However, because these key revenue streams are vulnerable to economic fluctuations, a significant downturn could directly affect the City’s ability to fund vital public services. The City’s reserve analysis considers eight risk factors that influence its financial stability, as follows:

RESERVE RISK FACTORS

OPERATING RISK FACTORS

1.Revenue Source Stability – Fluctuation of primary revenue streams (taxes, fees)

2.Vulnerability to Extreme Events - Natural disasters, political changes, economic crises, or other major disruptions

3.Expenditure Volatility - cost spikes, such as rising contract expenses or emergency repairs

4.Leverage - debt obligations and unfunded liabilities

5.Liquidity – Cash flow disruption due to the timing of revenue inflows vs. expense outflows

6.Other Fund Dependency - Reliance on external or restricted funding (grants, subsidies)

7.Community Growth - Rapid population or economic growth

CAPITAL RISK FACTORS

8.Capital Projects Infrastructure & Replacement - Capital assets requiring maintenance and replacement.

Table 2: Historical vs. Targeted Reserve Levels
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2 Table 3: City of Lake Forest Risk Factors
Tax Based Revenues
Lake Forest’s General Fund is highly dependent on three primary tax sources:

Property Tax Revenues – $28.1M (41%)
From 2020 through 2025, property tax revenues have steadily increased due to ongoing residential development. While new construction is expected to continue over the next two years, growth is anticipated to slow as major residential projects are completed. Over the past decade, the median price of single-family homes in Lake Forest has risen by 60%, reinforcing the strength and stability of this revenue stream.

In 2025, following catastrophic wildfires in Los Angeles County, the Governor issued an executive order allowing affected properties to be reassessed at land value only, with property taxes deferred until rebuilding is complete. Although Lake Forest was not directly impacted, this action underscores a critical vulnerability: if a similar event occurred locally, a shift to land-only assessments RISK FACTOR #1 – REVENUE SOURCE STABILITY
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2 would cause a significant and immediate drop in property tax revenues. Given that property tax is the City’s largest and most stable revenue source, such an event would place substantial strain on the General Fund and highlight the importance of maintaining strong reserves.

Despite its overall reliability, property tax growth is capped by Proposition 13, which limits annual increases in assessed valuation, making the City’s ability to recover from a revenue shock slower and more constrained.

Sales Tax Revenues – $17.9M (26%)
Sales tax accounts for over one-quarter of General Fund revenue and are tied directly to consumer activity. Prolonged economic downturns, shifts in spending habits, or local business closures could quickly reduce this revenue stream. The City receives 1% of taxable sales generated within city limits, or one cent for every dollar spent.

Transient Occupancy Tax (TOT) Revenues – $6.3M (9%)
Lake Forest’s TOT revenues come primarily from business travelers rather than leisure tourism. Local hotels serve the weekday business community and are especially sensitive to economic shifts and changes in corporate travel behavior.

Any slowdown in economic activity or increased reliance on virtual meetings could materially affect this revenue source.

Revenue Diversification
The City does not levy utility user taxes (UUTs), parking fees, or business license taxes, unlike many neighboring jurisdictions. This narrower revenue base increases reliance on a few sources, reducing flexibility during economic downturns. Moreover, Proposition 218 restricts the City’s ability to introduce or increase local taxes without voter approval, further limiting options for offsetting revenue losses.

RISK FACTOR #1 Reserve Allocation: $10.0 million
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2 This risk factor addresses the City’s exposure to unpredictable but potentially severe disruptions, such as government funding takebacks, natural disasters, cyber threats, and legal challenges, which could significantly impact the City’s financial position.

Political Vulnerability
California cities face ongoing revenue risks stemming from legislative and policy actions at the state and federal levels. The most significant threats include:

State revenue takebacks (e.g., ERAF shifts): Since the 1990s, the State has redirected local revenues through mechanisms like the Educational Revenue Augmentation Fund (ERAF) I and II shifts. These revenue shifts remain in place today and continue to erode local control over tax revenues.

Housing Redevelopment: In 2012, redevelopment agencies were dissolved, eliminating a major funding source for local infrastructure and economic development. In 2019, the Governor also threatened to withhold SB1 gas tax revenue from cities not meeting housing targets—an indication that local funding streams may be leveraged for broader policy compliance.

Federal Funding Reductions: In addition to economic fluctuations, the City also faces a risk of revenue dependency related to the potential loss of federal grant funding. Many critical programs, infrastructure projects, and operational initiatives rely on federal grants, which may be reduced or discontinued due to federal budgetary changes, policy shifts, or economic downturns. Budget cuts and hiring freezes at the federal level have raised concerns among local governments.

Nonprofit Sector Instability: Federal policy changes have destabilized nonprofit service providers, particularly during times of executive action or grant freezes. This forces local governments to absorb greater responsibility for community support services.

Potential Tax Reform: Although the 2020 Proposition 15, which sought to reassess commercial properties, did not pass, its emergence underscores the possibility of future proposals that could disrupt the City’s tax base.

RISK FACTOR #2 – VULNERABILITY TO EXTREME EVENTS
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2 Natural Disaster Vulnerability
While Lake Forest has avoided significant disaster-related losses in recent years, the risks posed by wildfire, earthquake, and severe storms are increasing:

Wildfire Risk: The 2020 Silverado and Bond Fires prompted mandatory evacuations in Lake Forest. More recent fires in neighboring counties (e.g., the 2024 Post and Bridge Fires) show a growing frequency and intensity of wildfire events. Extended fire seasons raise the potential for large-scale disruption and response costs.

Earthquake Risk: Although it has not been recently impacted, the city remains vulnerable to seismic events. Earthquake insurance is in place through CJPIA, but deductibles may exceed $700,000 for a single facility. Reserves provide critical support to manage costs not covered by insurance.

Storm and Flooding Risk: Severe winter storms have already cost the city over $500,000 (2019 event). While flood risk is generally low, weather events can still impact infrastructure and emergency operations.

Cybersecurity Threats:

As municipalities become more dependent on technology for essential services, the risk of cyber incidents continues to grow. These events can result in serious operational disruptions and financial impacts.

Cyberattack Risk: A successful cyberattack, such as a ransomware incident or data breach, could lead to identity theft, service outages, and costly system recovery. While the City has implemented strong cybersecurity protocols and carries insurance coverage, the deductible alone could impose a significant financial burden. Maintaining reserves to cover these potential costs ensures the City can respond swiftly and maintain continuity of operations.

Legal Vulnerability
Litigation Risks: Lake Forest, like all public agencies, faces potential legal claims from personal injury, environmental regulation, or contractual disputes.

Because litigation costs can be unpredictable and large in scale, reserves are necessary to ensure the City can respond without jeopardizing operations.

RISK FACTOR #2 Reserve Allocation: $5 million
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2 This risk factor addresses the City’s exposure to unexpected increases in costs that can disrupt the budget or require the sudden use of reserves. This includes one-time, non- recurring obligations as well as ongoing service delivery pressures. Unfunded liabilities are addressed separately under Risk Factor #4.

One-Time and Regional Obligations
•Occasionally, the City shares the
cost of regional infrastructure
projects (e.g., animal shelter,
public safety systems)
•Reserves allow the City to pay its
share without incurring debt or
delaying funding.
•While no specific projects are
pending, similar obligations may
arise with limited notice.
•Maintaining reserves ensures the
City can participate without
financial disruption.

Escalating Operating Costs
•Contracted service costs are
increasing faster than inflation,
driven by labor shortages and
material costs.
•Prevailing wage laws also raise
the baseline cost of maintenance
and public works projects.
•These rising costs impact both
daily operations and long-term
projects.
•Reserves help the City avoid mid-
year cutbacks when costs exceed
budgeted amounts.

Together, these factors create budget uncertainty that cannot always be anticipated through annual forecasting. Maintaining a reserve for expenditure volatility gives the City the flexibility to absorb unexpected cost increases and maintain service continuity without relying on reactive budget amendments or service reductions.

RISK FACTOR #3 Reserve Allocation: $4 million
RISK FACTOR #3 – EXPENDITURE VOLATILITY
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2 Financial leverage refers to the use of borrowed funds to acquire assets with the expectation that returns will exceed borrowing costs. Lake Forest currently carries no structured debt obligations, providing a high degree of financial flexibility. However, long-term obligations such as unfunded accrued liabilities (UAL), retiree healthcare benefits, and compensated absences continue to pose potential fiscal risks.

Unfunded liabilities arise when the City’s projected financial obligations exceed the assets available to meet them. This gap may require budgetary adjustments if liabilities increase or if external factors reduce investment performance. The City participates in CalPERS, for its pension and retiree healthcare benefits which calculates annual employer contributions using actuarial assumptions. Investment underperformance, demographic shifts, and assumption changes can all increase these liabilities. •Unfunded Accrued Liabilities (UAL): These include long-term obligations such as retiree healthcare (Other Post-Employment Benefits, or OPEB) and pension costs.
•Employee Paid Leave: Obligations for employee leave balances, such as vacation and sick leave for elective cashout or payment upon separation from employment.

The primary drivers of rising unfunded liabilities include:
•Market Volatility: Lower-than-expected CalPERS investment returns increase pension debt.
•Actuarial Adjustments: Changes in life expectancy, salary growth, or benefit formulas can raise long-term liabilities.
•Contribution Rate Volatility: CalPERS adjusts employer rates in response to funding shortfalls, which can create budgeting challenges. •Legislative & Policy Changes: State mandates may impose new pension funding requirements on local governments.
•Employment demographic factors like retirements, sick leave usage, disability, or separation from employment.

Financial Position & Existing Policy
The City has no General Fund bonded debt, making it one of the least-leveraged municipalities in Orange County. This strengthens its financial flexibility when addressing long-term pension and OPEB obligations.

RISK FACTOR #4 – LEVERAGE
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2 While the required unfunded liability payments do not require action in this budget period, the possibility of future funding shortfalls remains. Factors such as market underperformance, demographic shifts, or changes in actuarial assumptions could increase employer contribution rates over time.

Establishing and maintaining a pension reserve allows the City to adjust gradually to unexpected rate increases, rather than absorbing sudden impacts in a single budget cycle. This reserve is a key component of the City’s long-term financial sustainability strategy.

Calculating the Risk Reserve for Unfunded Liabilities
To address future exposure, the City has established a Pension Trust Fund and OPEB Trust Fund and an Employee Paid Leave Fund with funding targets. This approach allows the City to fund these obligations when earned and respond flexibly to shifts in required contributions. The reserve serves as a safeguard against market declines, actuarial adjustments, or spikes in pension costs that could otherwise disrupt operations. By accelerating payments above minimum contribution levels, the City also reduces its long-term liability and improves its funded status over time.

Although accounting standards do not require the City to fund its pension, OPEB or leave balances at 100%, significant liabilities would be required to be reported in the financial statements. However, the City has proactively chosen to reserve funds to ensure these costs can be met without impacting services or requiring mid-year budget adjustments.

The balance of these reserves is as follows:

Pension Rate Stabilization Trust $3,600,000*
OPEB Trust $1,200,000*
Employee Paid Leave Fund $1,200,000
Total $6,000,000
*This represents the amount held in the required Trust Fund as of April 30, 2025.

RISK FACTOR #4 Reserve Allocation: $6 million
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2 Cities must manage year-round operating expenses while receiving major revenue sources on a delayed or seasonal basis. To prevent cash flow disruptions, the City must maintain adequate reserves to cover expenditures during periods when revenues are not yet collected.

Property tax—the City’s largest revenue
source—is primarily received in
December, January, April, and May. This
seasonal pattern creates a cash flow gap
for as much as eight months of the fiscal
year, during which operational costs may
exceed incoming revenue. Without
sufficient reserves, the City would need to
rely on short-term borrowing to meet
payroll and vendor obligations.

To ensure adequate cash flow during periods of delayed revenue, the City maintains a liquidity reserve aligned with the Government Finance Officers Association (GFOA) recommendation of at least two months of operating expenditures. This reserve provides a buffer to support uninterrupted operations without relying on short-term borrowing or reactive budget adjustments.

While the City’s liquidity needs have evolved over time, maintaining a prudent reserve remains essential to manage seasonal cash flow fluctuations and avoid reliance on short-term borrowing.

RISK FACTOR #5 Reserve Allocation: $12 million
RISK FACTOR #5 – LIQUIDITY
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2 Several City funds depend on General Fund support—either to subsidize operations or to bridge timing gaps in revenue. These include programs such as the Community Development Block Grant (CDBG) and Measure M2, which experience annual fluctuations based on external allocations, economic conditions, and policy changes.

The City also frequently receives grant and developer fee funding to support Capital Improvement Plan (CIP) projects. However, many of these grants operate on a reimbursement basis, requiring the City to front project costs before submitting for repayment. As a result, the General Fund often serves as a funding bridge, creating a temporary financial burden. Over the past five fiscal years, programs such as CDBG, Measure M2, and other grant-funded efforts have required substantial General Fund advances, reinforcing the need to maintain a reserve to cover delayed reimbursements and prevent project disruptions.

A growing concern is the long-term outlook for Highway Users Tax Account (HUTA) revenues, funded through the State Gas Tax. These revenues support core contract services for street maintenance. While HUTA has historically been stable, emerging trends threaten its sustainability. The increasing adoption of electric vehicles, higher fuel efficiency standards, and evolving commuter behaviors are expected to reduce gasoline consumption, placing downward pressure on gas tax collections. .

To mitigate this risk, the City should maintain reserves to backfill temporary shortfalls and ensure cash flow for projects and street services, while continuing to explore permanent solutions to diversify funding for essential infrastructure.

RISK FACTOR #6 Reserve Allocation: $4.2 million
RISK FACTOR #6 – OTHER FUND DEPENDENCY
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2 As the City continues to grow, new demands on public services will emerge, raising questions of what program areas will be needed in the future and how the City will fund them.

Lake Forest operates as a contract city, relying on third-party providers for core municipal services such as law enforcement, street maintenance, landscaping, and recreation programs. While this model offers flexibility and cost efficiency compared to maintaining a full-time workforce, it also introduces financial risk, particularly from rising contract costs and inflationary pressures tied to population and service area growth.

One of the City’s most significant contractual obligations is its annual agreement with the Orange County Sheriff’s Department (OCSD). In FY 2025–26, OCSD contract costs are estimated at $22.7 million, a 6% increase over the prior year. These increases are largely driven by wage growth, pension liabilities, and the terms of collective bargaining agreements approved by the County Board of Supervisors. Although the contract is recurring, it provides limited flexibility to reduce costs during economic downturns or periods of fiscal constraint.

Other contract services, including street maintenance and landscaping, are expected to increase as residential and commercial development continues. These contracts are particularly sensitive to fluctuations in labor and materials costs. If service demand grows faster than revenues, the City may face mid-year budget adjustments or reductions in service levels. Maintaining adequate reserves helps safeguard against these pressures without compromising essential services.

To maintain stability during periods of growth or economic contraction, it is prudent to reserve funds specifically to absorb short-term contract cost spikes. A reserve sufficient to cover fluctuations in OCSD costs over two years, estimated at $1.0 million annually, would provide flexibility to sustain public safety services without resorting to service cuts or new revenue measures.

Additionally, long-term financial planning should account for broader cost escalations in all contracted services to ensure the City remains resilient as growth continues.

RISK FACTOR #7 Reserve Allocation: $4 million
RISK FACTOR #7 – COMMUNITY GROWTH
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2 The City of Lake Forest owns and maintains a wide range of capital assets, including buildings, roads, parks, and other public infrastructure essential to deliver community services. As these assets age, maintenance and replacement costs increase, making long-term financial planning critical to sustaining service levels and avoiding deferred maintenance backlogs.

To support this planning, the City developed a citywide Asset Management Plan (AMP) as a foundational tool for capital budgeting. The AMP includes a full inventory and condition assessment of more than 73,000 assets and integrates lifecycle forecasting, condition ratings, and risk of failure data to help prioritize investments based on objective analysis, not just need or available budget.

This represents a shift from reactive replacement to proactive reinvestment. Just as a homeowner would benefit from maintaining a roof before it leaks, the City can significantly reduce long-term costs by strategically maintaining and rehabilitating assets before full replacement is needed. For example, playground resurfacing at $20,000 can extend useful life and defer a $150,000 replacement — a 7:1 cost savings. Scaled across the City, this preventive strategy supports fiscal resilience while preserving high- quality infrastructure.

To reinforce this approach, the 2025–2032 Capital Improvement Plan (CIP) integrates AMP data for the first time, aligning infrastructure funding with real-time asset condition and risk. Approximately $9.4 million in General Fund resources are programmed for upcoming capital projects, supported by a combination of revenues, fund balance, and assigned capital commitments. This approach allows the City to maintain investment levels without incurring debt — though drawing down reserves without a replacement strategy introduces long-term financial risk.

As infrastructure ages, annual revenue may no longer be sufficient to meet future needs. In addition, cost escalations, regulatory changes, and unexpected failures could accelerate capital pressures. To reduce future fiscal strain, the City will continue using the AMP to guide CIP development and will evaluate the creation of a dedicated capital replacement reserve. This reserve would serve as a safeguard — ensuring uninterrupted infrastructure reinvestment even in periods of economic uncertainty.

To understand the scale of risk the reserve intends to address, consider the following asset management data:
•13,626 assets are in the High-Risk category, totaling $15.99 million in replacement cost
RISK FACTOR #8 – CAPITAL PROJECTS – INFRASTRUCTURE &

REPLACEMENT
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2 •14,053 assets are in the Medium Risk category, totaling $460.69 million •Combined, the City faces $476.68 million in capital exposure across elevated-risk infrastructure
A good risk-based reserve policy doesn't aim to fully pre-fund that amount, but a meaningful portion should be set aside to ensure the City can manage urgent needs, respond to cost shifts, and maintain flexibility without turning to debt.

Setting the Capital Replacement Reserve target at 10% of this combined risk total — $48 million — strikes the right balance. It positions the City to support reinvestment at scale while maintaining fiscal control and long-term resilience.

Reserve Target Options
Reserve Tier Description
% of High +
Medium Risk
Cost
Dollar
Target
Minimum
Short-term, Emergency-only response
capability, does not meet life cycle
needs
5% ~$24
million
Recommended Supports lifecycle-driven reinvestment
and financial flexibility 10% ~$48
million
Optimal Enables full proactive execution of AMP
strategies + grant match potential 15% ~$71.5
million
RISK FACTOR #8 Reserve Allocation: $48 million
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2 SUMMARY OF RESERVE LEVELS PER RISK FACTOR
Eight risk factors have been analyzed to determine what constitutes a prudent reserve level for the City of Lake Forest. The results of each risk factor evaluation are summarized in Table 5. Risk Factor 5, Liquidity has not been used in calculating the target reserve level. For liquidity, the resources needed overlap with the other risk factors. As long as there is at least $12.0 million in reserves as a result of all other factors combined, this same $12.0 million could be used to satisfy cash flow needs.

Similarly, Risk Factor 4 Leverage – the resources in the established OPEB trust are not reported as part of the General Fund resources in the financial statements therefore they have been excluded from the amounts recommended to commit to reserves from the available General Fund resources. The OPEB balance as of April 30, 2025, was $1.2 million. In both cases, reserves have been right sized to reflect actual exposure without overstating total reserve requirements.

Table 5 – RESERVE LEVELS PER RISK FACTOR
(In Millions)
Operating Risk Factors:
1 Revenue Source Stability $10.0
2 Vulnerability to Extreme Events (Political, Natural
Disaster, Legal)

5.0 3 Expenditure Volatility 4.0
4 Leverage (Debt Service, Pension Unfunded
Liabilities, Other Unfunded Liabilities)

6.0 5 Liquidity 12.0
6 Other Fund Dependency (Short Term, Annual) 4.2
7 Community Growth 4.0
Capital Projects Risk Factors:
8 Capital Projects -Infrastructure & Replacement 48.0
Sub Total $93.2
Optional Factors Discounted in Calculation
4 Leverage (OPEB Trust) (1.2)
5 Liquidity (12.0)
Total $80.0
% Based on Projected 2025-26 Revenue 116%
Therefore, the Target Reserve Level is set at $80.0 million, with a Minimum Reserve Level set at $76.0 million (5% below the Target Reserve amount).

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2 The City of Lake Forest has evaluated eight key risk factors to determine a prudent reserve level that supports long-term financial stability. These factors include economic volatility, contract cost escalation, pension liabilities, capital infrastructure needs, and other financial risks that could impact the City's ability to maintain essential services.

The City’s Risk Reserve Policy is a core component of its Financial Management and Budgetary Policy, serving as a tool to guide fiscal decision-making and reinforce long- term financial resilience. This policy framework supports proactive planning by ensuring that reserve levels are strategically aligned with the risks most relevant to the City’s operations.

CONCLUSION
The City’s Risk Reserve Policy is a vital element of the broader Financial Management and Budgetary Policy, which sets the financial framework for budget development and long-term planning. The importance of maintaining strong reserves has been underscored by lessons from past economic downturns. The Great Recession revealed the vulnerabilities of cities with insufficient reserves, while more recent fiscal pressures, such as rising service contract costs and growing infrastructure demands, further emphasize the need for financial preparedness.

By implementing a structured, risk-based reserve strategy, the City of Lake Forest is better positioned to mitigate financial disruptions, adapt to changing conditions, and continue delivering high-quality services to the community.

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ATTACHMENT 5
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Projected Available
Fund Revenues Fund Reserve Available
Balances Budgeted less Balances level Fund
July 1, 2025 Revenues Expenditures CIP Plan Total Transfer In Transfer Out Expenditures June 30, 2026 Balance General Fund
General Fund 56,931,041 69,105,500$ 64,285,800$ -$ 64,285,800$ 5,450,000$ 4,819,700$ 56,300,741$ 27,200,000$ 29,100,741$ General Fund Capital 48,000,000 - - 5,450,000 5,450,000 5,450,000 (5,450,000) 48,000,000 48,000,000 - Assigned -
Employee Paid Leave Fund 1,200,000 - - - - - - - 1,200,000 1,200,000 - Infrastructure Fund 4,741,642 - - 3,100,000 3,100,000 - - (3,100,000) 1,641,642 - 1,641,642 Neighborhood Park Improvement Fund 1,850,309 - - 840,000 840,000 - - (840,000) 1,010,309 - 1,010,309 Restricted -
Pension Rate Stabilization 3,600,000 - - - - - - - 3,600,000 3,600,000 - Total General Fund: 116,322,992$ 69,105,500$ 64,285,800$ 9,390,000$ 73,675,800$ 5,450,000$ 5,450,000$ (4,570,300)$ 111,752,692$ 80,000,000$ 31,752,692$ Special Revenue Funds:

Low- and Moderate-Income Housing Asset 838,633$ 55,000$ 203,000$ -$ 203,000$ -$ -$ (148,000)$ 690,633$ -$ 690,633$ Gas Tax Fund (HUTA) 703,945 2,539,300 2,791,900 - 2,791,900 - - (252,600) 451,345 400,000 51,345 Gas Tax Road Maintenance and Rehabilitation Account Fund (RMRA SB1) 708,668 2,394,000 - 3,025,000 3,025,000 - - (631,000) 77,668 - 77,668 South Coast Air Quality Management District Fund (SCAQMD) 244,909 127,000 - 370,000 370,000 - - (243,000) 1,909 - 1,909 Measure M2 Local Fairshare 381,711 2,011,100 - 2,100,000 2,100,000 - - (88,900) 292,811 250,000 42,811 Measure M2 Senior Mobility 176,400 116,900 195,700 - 195,700 - - (78,800) 97,600 - 97,600 Suppl. Law Enforcement Services 553,305 300,000 601,000 - 601,000 - - (301,000) 252,305 - 252,305 Solid Waste - 1,420,620 945,620 475,000 1,420,620 - - - - - - Beverage Recycling 8,898 21,000 21,000 - 21,000 - - - 8,898 - 8,898 Certified Access Specialist (CASp) 39,852 5,000 5,000 - 5,000 - - - 39,852 - 39,852 Permanent Local Housing Allocation Program 317,891 145,300 463,200 - 463,200 - - (317,900) - - - Community Development Block Grant Fund (CDBG) - 1,121,110 841,110 280,000 1,121,110 - - - - - - Special Revenue Subtotal 3,974,212$ 10,256,330$ 6,067,530$ 6,250,000$ 12,317,530$ -$ -$ (2,061,200)$ 1,913,021$ 650,000$ 1,263,021$ Total Operating Budget 120,297,205$ 79,361,830$ 70,353,330$ 15,640,000$ 85,993,330$ 5,450,000$ 5,450,000$ (6,631,500)$ 113,665,714$ 80,650,000$ 33,015,714$ Capital Project Funds:

City Facilities Fees 49,411,959$ 4,410,400$ -$ -$ -$ -$ -$ 4,410,400$ 53,822,359$ -$ 53,822,359$ Park Development 421,504 23,100 - 320,000 320,000 - - (296,900) 124,604 - 124,604 Lake Forest Transportation Mitigation 3,620,953 475,000 300,000 826,100 1,126,100 - - (651,100) 2,969,853 - 2,969,853 Foothill Circulation Phasing Plan 14,762,881 1,018,000 10,000 4,645,000 4,655,000 - - (3,637,000) 11,125,881 - 11,125,881 Meadows Traffic Improvement 2,180,000 - - 2,180,000 2,180,000 - - (2,180,000) - - - Subtotal 70,397,296$ 5,926,500$ 310,000$ 7,971,100$ 8,281,100$ -$ -$ (2,354,600)$ 68,042,697$ -$ 68,042,697$ Grand Total All Funds 190,694,501$ 85,288,330$ 70,663,330$ 23,611,100$ 94,274,430$ 5,450,000$ 5,450,000$ (8,986,100)$ 181,708,410$ 80,650,000$ 101,058,410$ Budgeted Expenditures
Fiscal Year 2025-26 Fund Balance Summary
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ATTACHMENT 6
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Projected Available
Fund Revenues Fund Reserve Available
Balances Budgeted less Balances level Fund
July 1, 2026 Revenues Expenditures CIP Plan Total Transfer In Transfer Out Expenditures June 30, 2027 Balance General Fund
General Fund 56,300,741$ 70,598,200$ 66,231,800$ -$ 66,231,800$ -$ 6,134,000$ 4,366,400$ 54,533,141$ 27,200,000$ 27,333,141$ General Fund Capital 48,000,000 - - 6,134,000 6,134,000 6,134,000 - (6,134,000) 48,000,000 48,000,000 - Assigned
Employee Paid Leave Fund 1,200,000 - - - - - - - 1,200,000 1,200,000 - Infrastructure Fund 1,641,642 - - 1,640,000 1,640,000 - - (1,640,000) 1,642 - 1,642 Neighborhood Park Improvement Fund 1,010,309 - - 1,000,000 1,000,000 - (1,000,000) 10,309 - 10,309 Restricted
Pension Rate Stabilization 3,600,000 - - - - - - - 3,600,000 3,600,000 - Total General Fund: 111,752,692$ 70,598,200$ 66,231,800$ 8,774,000$ 75,005,800$ 6,134,000$ 6,134,000$ (4,407,600)$ 107,345,092$ 80,000,000$ 27,345,092$ Special Revenue Funds:

Low- and Moderate-Income Housing Asset 690,633$ 57,000$ 129,500$ -$ 129,500$ -$ -$ (72,500)$ 618,133$ -$ 618,133$ Gas Tax Fund (HUTA) 451,345 2,437,400 2,400,200 - 2,400,200 - - 37,200 488,545 400,000 88,545 Gas Tax Road Maintenance and Rehabilitation Account Fund (RMRA SB1) 77,668 2,269,800 - 2,200,000 2,200,000 - - 69,800 147,468 - 147,468 South Coast Air Quality Management District Fund (SCAQMD) 1,909 112,700 - - - - - 112,700 114,609 - 114,609 Measure M2 Local Fairshare 292,811 2,062,800 - 2,101,000 2,101,000 - - (38,200) 254,611 250,000 4,611 Measure M2 Senior Mobility 97,600 119,900 214,200 - 214,200 - - (94,300) 3,300 - 3,300 Suppl. Law Enforcement Services 252,305 300,000 550,000 - 550,000 - - (250,000) 2,305 - 2,305 Solid Waste - 1,420,620 945,620 475,000 1,420,620 - - - - - - Beverage Recycling 8,898 21,000 21,000 - 21,000 - - - 8,898 - 8,898 Certified Access Specialist (CASp) 39,852 5,000 5,000 - 5,000 - - - 39,852 - 39,852 Community Development Block Grant Fund (CDBG) - 1,180,000 1,000,000 180,000 1,180,000 - - - - - - Special Revenue Subtotal 1,913,021$ 9,986,220$ 5,265,520$ 4,956,000$ 10,221,520$ -$ -$ (235,300)$ 1,677,721$ 650,000$ 1,027,721$ Total Operating Budget 113,665,714$ 80,584,420$ 71,497,320$ 13,730,000$ 85,227,320$ 6,134,000$ 6,134,000$ (4,642,900)$ 109,022,814$ 80,650,000$ 28,372,814$ Capital Project Funds:

City Facilities Fees 53,822,359$ 3,500,000$ -$ -$ -$ -$ -$ 3,500,000$ 57,322,359$ -$ 57,322,359$ Park Development 124,604 - - - - - - - 124,604 - 124,604 Lake Forest Transportation Mitigation 2,969,853 380,000 300,000 795,000 1,095,000 - - (715,000) 2,254,853 - 2,254,853 Foothill Circulation Phasing Plan 11,125,881 511,000 10,000 - 10,000 - - 501,000 11,626,881 - 11,626,881 Subtotal 68,042,697$ 4,391,000$ 310,000$ 795,000$ 1,105,000$ -$ -$ 3,286,000$ 71,328,697$ -$ 71,328,697$ Grand Total All Funds 181,708,410$ 84,975,420$ 71,807,320$ 14,525,000$ 86,332,320$ 6,134,000$ 6,134,000$ (1,356,900)$ 180,351,510$ 80,650,000$ 99,701,510$ Budgeted Expenditures
Fiscal Year 2026-27 Fund Balance Summary
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ATTACHMENT 7
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Fiscal Year of Funding
Project Class and
Number Public Works Project # Category Description Funding Source FY 2025-26 FY 2026-27 E01 25E01 Environmental Aliso Creek Drainage Repairs General Fund 30,000 300,000$ F01 26F01 Facilities Slurry Seal Civic Center General Fund 200,000 -$ F02 26F02 Facilities Civic Center Painting General Fund 950,000 -$ F03 26F03 Facilities Civic Center Fountain Repairs General Fund 120,000 -$ F04 26F04 Facilities Lake Forest Sports Park HVAC Replacement General Fund 600,000 -$ F05 26F05 Facilities Lake Forest Sports Park Roof Repairs General Fund 165,000 $ - F06 27F06 Facilities Etnies Skate Park Building Improvement Project General Fund 100,000 $ 1,100,000 P01 26P01/27P01 Parks Park Concrete Trail Repairs General Fund 100,000 100,000$ P02 26P02 Parks Nature Park Trail Connection to Meadows & County Trails General Fund 50,000 $ - P03 24P03 Parks Etnies Skate Park Improvement Project General Fund 100,000 1,100,000$ P04 26P04 Parks Lodge Pole & Metal Fence Repairs General Fund 325,000 -$ P05 26P05 Parks Energy Efficient LED Lighting Projects - Etnies Skate Park General Fund 175,000 $ - P06 25P06 Parks Neighborhood Park Renovations - Nature Park and Lake Forest Park Neighborhood Park Improvement Reserve Fund 360,000 $ - P07 26P07 Parks Lake Forest Sports Park Windscreens, Soccer Netting and Background General Fund 250,000 $ - P08 25P08 Parks Neighborhood Park Renovations - Cavanaugh Park Neighborhood Park Improvement Reserve Fund 250,000 $ 1,000,000 P09 24P09 Parks Neighborhood Park Renovations - Peachwood Park Neighborhood Park Improvement Reserve Fund 230,000 $ - P10 27P10 Parks Slope Landscaping Removal and Replanting Project - Heroes Park General Fund $ - $ 500,000 P11 24P07 Parks Neighborhood Park Renovations - Vintage Park General Fund 200,000 $ - P12 24P05 Parks Pickleball Analysis and Court Installation Project General Fund 420,000 $ - P13 24P01 Parks Lake Forest Sports Park Renovations General Fund 300,000 $ - P14 24P04 Parks Foothill Ranch Box Lacrosse Installation Project Park Development Fund 320,000 $ - P15 25P01 Parks Normandale Open Space Area Renovations General Fund 365,000 $ - P16 25P14 Parks Citywide Park Restroom Painting and Renovations Project General Fund 150,000 $ - S01 26S01A Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1A Gas Tax Road Maintenance and Rehabilitation Account Fund 2,375,000 -$ S01 26S01A Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1A Solid Waste Pavement Impact Fund 475,000 -$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B Measure M2 Local Fairshare 2,100,000 -$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B Gas Tax Road Maintenance and Rehabilitation Account Fund 650,000 -$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B City Road Infrastructure Fund 3,100,000 -$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Measure M2 Local Fairshare -$ 175,000$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Gas Tax Road Maintenance and Rehabilitation Account Fund -$ 2,200,000$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Solid Waste Pavement Impact Fund -$ 475,000$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D Measure M2 Local Fairshare -$ 1,926,000$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D City Road Infrastructure Fund -$ 1,640,000$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D General Fund -$ 2,284,000$ S02 26S02 Streets CDBG - ADA Ramps Phase 15 Community Development Block Grant Fund (CDBG) 230,000 -$ S03 26S03/27S03 Streets City Street Sidewalk Repairs General Fund 150,000 150,000$ S04 26S04 Streets Southwest Lake Forest Crosswalk Enhancement General Fund 300,000 -$ S05 27S05 Streets Rockfield Median at El Toro Road General Fund -$ 50,000$ S06 26S06 Streets Lake Forest Branding Entry Way Monuments General Fund 150,000 550,000$ S07 22S05 Streets El Toro Raised Medians from Jeronimo to Trabuco Foothill Circulation Phasing Plan Capital Projects Fund (FCPP) 940,000 -$ S08 24S09 Streets Arterial Median Improvement Project General Fund 250,000 -$ T01 26T01/27T01 Traffic CDBG - Audible Pedestrian Signals - Phase 5 & 6 Community Development Block Grant Fund (CDBG) 50,000 180,000$ T02 27T02 Traffic Lake Forest Dr-Ave De Carlota - I-5 Offramp Lake Forest Traffic Mitigation Fund (LFTM) -$ 100,000$ T03 26T03 Traffic Alton Pkwy Irvine Blvd Intersection Improvements Lake Forest Traffic Mitigation Fund (LFTM) 676,100 -$ T04 28T04 Traffic Protective Permissive Left Turn Project Unfunded -$ 425,000$ T05 25T03 Traffic Bake Parkway and Rockfield Traffic Signal Synchronization Program South Coast Air Quality Management District Fund (SCAQMD) 370,000 -$ T06 24T08 Traffic Second left-turn Lanes in All Directions at the Intersection of Los Alisos and Foothill Circulation Phasing Plan Capital Projects Fund (FCPP) 3,300,000 -$ T07 24T09 Traffic Meadows Traffic Improvements: Bake / Toledo Meadows Traffic Improvement Program Fund (MTIP) 2,180,000 -$ T08 22T03 Traffic Bake Pwky/Jeronimo Widening Improvements Lake Forest Traffic Mitigation Fund (LFTM) 150,000 695,000$ T09 22T07 Traffic Widening/Realignment of Jeronimo at El Toro Rd Foothill Circulation Phasing Plan Capital Projects Fund (FCPP) 405,000 -$ 23,611,100 14,950,000
2025-2027 Capital Project Plan - Expenditures

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Fiscal Year of Funding
FY 2025-26 FY 2026-27
Funding Needs:

Capital Project Expenditures 23,611,100$ 14,950,000$ Funding Sources:

General Fund 5,450,000$ 6,134,000$
City Road Infrastructure Fund 3,100,000$ 1,640,000$ Neighborhood Park Improvement Reserve Fund 840,000$ 1,000,000$ Gas Tax Fund (HUTA) -$ -$
Gas Tax Road Maintenance and Rehabilitation Account Fund (RMRA SB1) 3,025,000$ 2,200,000$ Measure M2 Local Fairshare 2,100,000$ 2,101,000$ South Coast Air Quality Management District Fund (SCAQMD) 370,000$ -$ Community Development Block Grant Fund (CDBG) 280,000$ 180,000$ Park Development Capital Projects Fund -$ -$ Opportunity Study Area Capital Projects Fund -$ -$ Lake Forest Traffic Mitigation Fund (LFTM) 826,100$ 795,000$ Foothill Circulation Phasing Plan Capital Projects Fund (FCPP) 4,645,000$ -$ M2 CTFP Competitive Grant Funds -$ -$ Meadows Traffic Improvement Program Fund (MTIP) 2,180,000$ -$ Park Development Fund 320,000$ -$
Lake Forest Traffic Mitigation Fund (NITM Reimbursement Irvine) -$ -$ Solid Waste Pavement Impact Fund 475,000$ 475,000$ Unfunded -$ 425,000$
TOTAL 23,611,100$ 14,950,000$
$ -
Two-Year Capital Project Plan - Funding Sources

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Project Class and
Number Public Works Project # Category Description Funding Source FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32 F06 27F06 Facilities Etnies Skate Park Building Improvement Project General Fund 1,100,000$ -$ -$ -$ -$ F07 28F07 Facilities Civic Center Carpet Replacement General Fund 165,000$ -$ -$ -$ -$ F08 28F08 Facilities Civic Center Permeable Pavement Repairs General Fund 200,000$ -$ -$ -$ -$ P01 26P01/27P01 Parks Park Concrete Trail Repairs General Fund 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ P02 26P02 Parks Nature Park Trail Connection to Meadows & County Trails General Fund 50,000$ 300,000$ -$ -$ -$ P03 24P03 Parks Etnies Skate Park Improvement Project General Fund 1,100,000$ -$ -$ -$ -$ P09 24P09 Parks Neighborhood Park Renovations - Peachwood Park Neighborhood Park Improvement Reserve Fund -$ -$ 170,000$ -$ -$ P17 28P17 Parks El Toro Parkway Non Functional Turf Removal Project Phase 2 General Fund $ 690,000 $ - $ - $ - $ - P18 28P18 Parks Energy Efficient LED Lighting Projects - LF Sports Park General Fund $ 2,550,000 $ - $ - $ - $ - S01 26S01A Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1A Gas Tax Road Maintenance and Rehabilitation Account Fu 2,375,000$ 2,375,000$ 2,375,000$ S01 26S01A Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1A Solid Waste Pavement Impact Fund 475,000$ -$ 475,000$ -$ 475,000$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B Measure M2 Local Fairshare 2,100,000$ -$ 2,100,000$ -$ 2,100,000$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B Gas Tax Road Maintenance and Rehabilitation Account Fu -$ -$ -$ -$ -$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B City Road Infrastructure Fund -$ -$ -$ -$ -$ S01 26S01B Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1B General Fund 3,750,000$ -$ 3,750,000$ -$ 3,750,000$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Measure M2 Local Fairshare -$ 175,000$ -$ 175,000$ -$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Gas Tax Road Maintenance and Rehabilitation Account Fu -$ 2,200,000$ -$ 2,200,000$ -$ S01 27S01C Streets Slurry Seal and Street Resurfacing - Residential Slurry Seal Project 1C Solid Waste Pavement Impact Fund -$ 475,000$ -$ 475,000$ -$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D Measure M2 Local Fairshare -$ 1,926,000$ -$ 2,100,000$ -$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D City Road Infrastructure Fund -$ 1,640,000$ -$ -$ -$ S01 27S01D Streets Slurry Seal and Street Resurfacing - Street Resurfacing Project 1D General Fund -$ 2,284,000$ -$ 3,750,000$ -$ S02 26S02 Streets CDBG - ADA Ramps Phase 15 Community Development Block Grant Fund (CDBG) 230,000$ -$ 230,000$ -$ 230,000$ S03 26S03/27S03 Streets City Street Sidewalk Repairs General Fund 150,000$ 150,000$ 150,000$ 150,000$ 150,000$ S05 27S05 Streets Rockfield Median at El Toro Road General Fund 400,000$ -$ -$ -$ -$ S09 28S09 Streets Santa Margarita Parkway Lighting General Fund 20,000$ 200,000$ -$ -$ -$ S10 28S10 Streets Bridge Inspection Repairs UNFUNDED 200,000$ 200,000$ 200,000$ 200,000$ 200,000$ T01 26T01/27T01 Traffic CDBG - Audible Pedestrian Signals - Phase 5 & 6 Community Development Block Grant Fund (CDBG) -$ 180,000$ -$ 180,000$ .

T04 28T04 Traffic Protective Permissive Left Turn Project Unfunded $ 425,000 $ - $ 425,000 $ - $ - T10 28T10 Traffic Lake Forest & Rockfield Signal (LFTM) Lake Forest Traffic Mitigation Fund (LFTM) 60,000$ -$ -$ -$ -$ T11 28T11 Traffic Live Oak Traffic Signal General Fund 100,000$ 800,000$ -$ -$ -$ T12 28T12 Traffic Ridge Route TSSP Unfunded -$ 500,000$ -$ -$ -$ T13 30T13 Traffic Jeronimo TSSP Unfunded -$ -$ 250,000$ -$ -$ T14 31T14 Traffic El Toro TSSP Unfunded -$ -$ -$ 400,000$ -$ T15 31T15 Traffic Active Transportation Plan General Fund -$ -$ -$ 200,000$ -$ 16,240,000 11,130,000 10,225,000 9,930,000 9,380,000 2027-2032 Proposed Capital Project Plan - Expenditures
Fiscal Year of Funding

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FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32
Funding Needs:

Capital Project Expenditures 16,240,000$ 11,130,000$ 10,225,000$ 9,930,000$ 9,380,000$ Funding Sources:

General Fund 10,375,000$ 3,834,000$ 4,000,000$ 4,200,000$ 4,000,000$ Infrastructure Reserve Fund -$ -$ -$ -$ -$ Neighborhood Park Improvement Reserve Fund -$ -$ 170,000$ -$ -$ Gas Tax Fund (HUTA) -$ -$ -$ -$ -$ Gas Tax Road Maintenance and Rehabilitation Account Fund (RMRA SB1) 2,375,000$ 2,200,000$ 2,375,000$ 2,200,000$ 2,375,000$ Measure M2 Local Fairshare 2,100,000$ 2,101,000$ 2,100,000$ 2,275,000$ 2,100,000$ South Coast Air Quality Management District Fund (SCAQMD) -$ -$ -$ -$ -$ Community Development Block Grant Fund (CDBG) 230,000$ 180,000$ 230,000$ 180,000$ 230,000$ Park Development Capital Projects Fund -$ -$ -$ -$ -$ Opportunity Study Area Capital Projects Fund -$ -$ -$ -$ -$ Lake Forest Traffic Mitigation Fund (LFTM) 60,000$ -$ -$ -$ -$ Foothill Circulation Phasing Plan Capital Projects Fund (FCPP) -$ -$ -$ -$ -$ M2 CTFP Competitive Grant Funds -$ -$ -$ -$ -$ Meadows Traffic Improvement Program Fund (MTIP) -$ -$ -$ -$ -$ Park Development Fund - (Prop 68 Grant Funding) -$ -$ -$ -$ -$ Lake Forest Traffic Mitigation Fund (NITM Reimbursement Irvine) -$ -$ -$ -$ -$ City Road Infrastructure Fund -$ 1,640,000$ -$ -$ -$ Solid Waste Pavement Impact Fund 475,000$ 475,000$ 475,000$ 475,000$ 475,000$ Unfunded 625,000$ 700,000$ 875,000$ 600,000$ 200,000$ TOTAL 16,240,000$ 11,130,000$ 10,225,000$ 9,930,000$ 9,380,000$ 2027-2032 Proposed Capital Project Plan - Funding Sources Fiscal Year of Funding

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ATTACHMENT 8
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Lake Forest Master Financial Plan
The City of Lake Forest recognizes the importance of long-range ﬁnancial planning and forecasting. This Master Financial Plan (MFP) is an integral part of the City’s biennial budget process and supports the City’s long-term ﬁnancial strategy. It serves as both a strategic tool and a ﬁnancial roadmap, ensuring ﬁscal sustainability, data-driven decision-making, and proactive management across both short- and long-term planning horizons.

Introduction
Beyond helping to develop a structurally balanced budget, the MFP provides valuable insights into General Fund reserves, revenue capacity, and long-term stability. It enables the City to assess funding capacity for equipment replacement, infrastructure maintenance, and future capital needs. The seven-year ﬁnancial forecast positions the City to respond proactively to economic shifts, align service delivery with revenue trends, and remain resilient through volatility.

While the MFP serves as a strategic guide, it does not establish formally adopted revenues or expenditures. Rather, it offers ﬁnancial context for evaluating the City’s ability to sustain services, maintain infrastructure, and support Council priorities over time.

Purpose and Approach
This MFP was prepared as part of the 2025–2027 Operating Budget process and includes a long-term forecast through FY 2032. It is a key component of the City’s Financial Management and Budgetary Policy and supports long-term ﬁscal planning and compliance.

The MFP complements other strategic ﬁnancial tools, including the adopted two-year Operating Budget, the 2025–2027 Risk Reserve Analysis, and the seven-year Capital Improvement Plan. Together, these documents offer a full picture of the City’s ﬁnancial health and future funding obligations.

The MFP includes:
• A detailed two-year short-term ﬁnancial plan (2025–2027) • A seven-year long-term ﬁnancial forecast (2025–2032)
• Risk-based reserve modeling that aligns with the City’s Reserve Policy • Updated forecast methodologies that incorporate expected, opportunity, and risk scenarios
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Two-Year Financial Plan (2025–2027)
The City’s two-year ﬁnancial plan forms the foundation of the Operating Budget and outlines anticipated revenues, expenditures, and service delivery for the 2025–2027 period.

This plan provides detailed program-level information across all departments and funds, supporting the development of a balanced, transparent, and performance-based budget.

The two-year plan focuses on:
• Projected General Fund revenues and expenditures over the biennium • Major spending categories, including the law enforcement contract, infrastructure maintenance, and personnel services
• Fiscal sustainability, ensuring service levels are maintained while anticipating future economic and operational challenges
By aligning short-term decisions with long-term goals, the two-year ﬁnancial plan allows staff to monitor ongoing costs, evaluate progress on strategic priorities, and adjust in response to changing conditions.

Seven-Year Financial Plan ( 2025–2032)
The City’s seven-year ﬁnancial plan provides a long-term outlook that extends beyond the two-year budget cycle. It evaluates projected revenues, expenditures, and capital needs through FY 2032 and illustrates how today’s decisions will affect future ﬁnancial capacity.

By modeling potential ﬁscal conditions, the plan ensures the City can remain resilient through economic shifts and evolving service demands.

The seven-year plan serves to:
• Evaluate past and current spending decisions to inform sustainable cost planning • Project General Fund revenues, expenditures, transfers, and capital outlay over a seven-year horizon
• Support long-term reserve planning to protect against economic uncertainty This extended planning period strengthens ﬁnancial sustainability by:
• Leveraging historical data and economic indicators to forecast revenue and cost trends
• Aligning spending with long-term priorities, not just short-term budget balancing Item: 12
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• Identifying future funding needs for equipment replacement, infrastructure rehabilitation, and major capital investments
Long-Term Financial Objectives
• Maintain adequate cash ﬂow and reserves
• Optimize resource allocation for long-term efficiency • Support sound general management and transparent reporting Forecast Methodology
To plan responsibly for the future, the City uses the most current ﬁnancial data, contract terms, and adopted budgets as the foundation for long-term forecasting. Strategic and long-range plans are reviewed and updated regularly to reﬂect changing conditions.

The City’s seven-year ﬁnancial forecast (2025–2032) is based on a combination of historical trends, contract commitments, and economic outlooks. These projections are informed by assessments from local economists, regional market data, and national indicators. Forecast assumptions are reﬁned regularly to reﬂect the best available information.

Building on the 2025–27 Operating Budget, the forecast models trends through FY 2032 under multiple scenarios. The methodology incorporates three forecast scenarios:

Economic Outlook Summary
(Source: Beacon Economics, May 2025)
Key Trends Inﬂuencing Long-Term Planning
• The U.S. economy continues to grow, though at a slower pace, with lingering inﬂationary pressure.
• Consumer balance sheets remain strong, supporting ongoing spending and retail activity. • Higher interest rates have increased the cost of borrowing, especially for long-term capital. • Beacon Economics estimates a 30% probability of recession in the next 12 months. • Risks include declining capital inﬂows, tighter credit conditions, and geopolitical uncertainty.

Local Implications for Lake Forest
• The City’s diversiﬁed tax base and strong reserves provide a buffer against external volatility. • Financial planning will continue to emphasize ﬂexibility, liquidity, and scenario modeling. • No changes are proposed to forecast assumptions at this time, but conditions will be monitored.

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• Expected Scenario – Assumes moderate, historically consistent revenue growth and inﬂation-aligned expenditure increases.
• Opportunity Scenario – Assumes strong economic performance, including rising property values, increased consumer activity, and expanded hotel occupancy. • Risk Scenario – Accounts for economic softening, such as a housing market slowdown, reduced tourism, or higher operating costs.

Each scenario helps the City evaluate potential ﬂuctuations and prepare for a wide range of outcomes. While the expected scenario reasonably and cautiously guides most long-term planning, the opportunity and risk scenarios provide insight into ﬁscal ﬂexibility and resiliency under different conditions.

The City relies on the Consumer Price Index for All Urban Consumers (CPI-U) for the Los Angeles-Long Beach-Anaheim region, published by the U.S. Bureau of Labor Statistics, unless more speciﬁc sources are available for a given line item. Revenue and expenditure models are updated as economic conditions shift.

This forecasting process allows the City to:
• Align future resource needs with available revenues.
• Plan for long-term capital, staffing, and service delivery changes. • Quantify risk and guide reserve and policy decisions in accordance with the City’s Financial Management and Budgetary Policy.

Modeling Assumptions
To develop the long-term forecast, the City used a scenario-based approach that models a range of potential revenue and expenditure outcomes. This approach helps quantify ﬁnancial risk and identify potential budget challenges before they arise.

The tables below show the annual percentage change assumptions used to model revenue and expenditure growth across the three scenarios.

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Revenue Growth Assumptions by Scenario
Revenue Source Risk Scenario Expected
Scenario
Opportunity
Scenario
Property Tax 0.0% 4.5% 6.0%
Sales Tax (0.3%) 3.0% 5.0%
Transient Occupancy
Tax 0.0% 2.5% 4.0%

Expense Assumptions by Scenario
Expense Category Risk Scenario Expected
Scenario
Opportunity
Scenario
Contractual Services 5.0% 3.0% 2.0%
Personnel 6.0% 4.0% 3.0%
Law Enforcement 6.0% 4.0% 3.0%

Key Revenues
As with most cities, Lake Forest’s dominant sources of revenue fall into the broader category of taxes. The City’s ﬁnancial stability has historically been supported by a strong and diverse tax base. Major revenue categories are outlined below, along with projected trends through FY 2032.

Property Tax Revenue
Property tax is the City’s largest single revenue source, representing approximately 41% of total General Fund revenues. This revenue is driven by assessed valuation of real property within city boundaries.

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• Over the last
ﬁve years, assessed
valuation has grown
at an average annual
rate of 6.2%,
reaching
approximately $22.9
billion in FY 2025.
• Recent
development and
housing market
strength have
bolstered growth.

The median home
price increased 23.6% in 2022 and 10.0% in 2023.
• Property tax revenue has shown consistent year-over-year gains, driven by new residential construction and appreciation in assessed valuation. • Beginning in FY 2029, property tax revenue is projected to grow 4.5% annually under the expected scenario.

Sales Tax Revenue
Sales tax is the City’s second-largest General Fund revenue source, representing approximately 26% of total
revenues.
• Revenue is derived from a
wide range of sectors,
including auto sales, fuel,
restaurants, and general
retail, providing a relatively
diverse and stable revenue
base
• The City’s share of the
countywide sales tax pool
continues to increase,
beneﬁting from strong per
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capita spending and a mix of brick-and-mortar and online sales. • Sales tax growth has ﬂattened recently due to broader economic instability and shifts in consumer behavior. However, these trends are expected to normalize, with revenue growth rebounding over the forecast period.
• Under the expected scenario, moderate annual growth of 2.0% is projected beginning in FY 2026, supported by steady local economic activity and continued expansion in retail and online sales.

Transient Occupancy Tax (TOT)
TOT is the City’s third largest revenue source, contributing around 9% of General Fund revenues.
• Lake Forest collects
TOT from 14 local
hotels, most of
which cater to
business travelers.
• The City’s TOT base
has remained stable
over the past several
years, with
occupancy rates
consistently
supporting steady
monthly
remittances.
• TOT revenue is
expected to increase by 2.5% annually through FY 2032, reﬂecting incremental rate adjustments and steady corporate travel demand.

Franchise Fees
Franchise fees are imposed on utility providers (electric, gas, and cable) for the use of public rights-of-way.
• This category accounts for 3.2% of General Fund revenues.

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• Revenue is sensitive to changes in consumption habits—such as cord-cutting in cable services—but tends to grow with population and rate adjustments. • A 2.5% average annual increase is projected through FY 2032.

Licenses and Permits
Licenses and permits include building, plumbing, electrical, and encroachment permits. • Activity has been high in recent years due to new residential construction. • As major housing projects wind down by FY 2027, growth in this category is expected to taper.
• Permits revenue is projected to grow 3% annually through FY 2032, with spikes tied to any future development cycles.

Charges for Services
This category includes recreation fees, plan check services, and various administrative charges.
• Demand for services related to new development (e.g., plan checks) is expected to decline as residential buildout nears completion.
• Recreation-related fees are expected to grow with CPI and population. • A 3% annual increase is forecast, with adjustments based on updates to the City’s Master Fee Schedule.

Investment Earnings
Investment income is inﬂuenced by market interest rates and the City’s portfolio strategy. • Since FY 2023, the City has engaged an investment advisor to actively manage its portfolio, improving performance.
• Due to ongoing market volatility and uncertainty in interest rate trends, the long- term ﬁnancial forecast assumes no growth in investment earnings through FY 2032. • This approach avoids overestimating revenue tied to unpredictable market ﬂuctuations and supports a more stable, realistic ﬁnancial outlook.

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Operating Expenditures
Operating expenditures account for the City’s core services, including law enforcement, infrastructure maintenance, personnel, and administrative operations. The Master Financial Plan models these expenditures over a seven-year horizon based on known contracts, inﬂation trends, and service expectations.
• Contractual Services are projected to grow by 3.0% annually, reﬂecting increases in prevailing wages, material costs, and service demands. This category includes the City's largest operational contracts, such as street and park maintenance, landscape services, and technical support agreements.
• Law Enforcement Contract costs are expected to grow by 4.0% per year beginning in FY 2027. These projections are based on historical trends and recent increases related to labor agreements and pension cost adjustments. • Personnel Costs are projected to grow at an average of 4.0% annually for wages, retirement contributions, and for non-wage personnel services, including beneﬁts and insurance. While Lake Forest operates under a contract city model, these costs are expected to increase as the City works to retain talent and remain competitive.

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plan adjustments in service delivery, staffing, or contract scope in future budget cycles if needed.

Forecast and Projections for Revenue and Expenditures
The City’s seven-year ﬁnancial forecast provides a strategic view of long-term revenues and expenditures under expected assumptions. The model helps identify trends, anticipate budgetary challenges, and guide the allocation of resources toward sustainable service delivery.

The following chart visually compares projected General Fund revenues and operating expenditures from FY 2021 through FY 2032. It illustrates the City’s ability to maintain a structurally balanced budget and highlights the projected annual surplus under expected assumptions.

From FY 2026 through FY 2032, General Fund revenues and expenditures are projected to remain closely aligned. Operating surpluses are expected in all years, allowing the City to maintain reserves above the Council-adopted target and to support future one-time needs. • The ideal scenario assumes stable growth in property tax, moderate growth in sales tax, and ﬂat projections for categories with greater variability. • Operating expenditures grow at inﬂation-adjusted rates, with detailed modeling of major contracts, personnel costs, and infrastructure services. • The model does not rely on one-time revenues to balance the budget and exclude speculative revenue sources.

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The City’s ﬁnancial forecast is reviewed and reﬁned during each biennial budget cycle to reﬂect updated economic conditions, legislative impacts, and Council priorities. This ensures the forecast remains a practical tool for ﬁnancial decision-making.

Reserves and Risk Management
Maintaining healthy reserves is a cornerstone of Lake Forest’s long-term ﬁnancial strategy.

Reserve funds allow the City to respond to economic shifts, fund emergencies, and sustain services during revenue ﬂuctuations—without borrowing or making reactionary budget cuts.

The City uses a structured, risk-based approach to determine reserve levels. This approach ensures reserve targets are tied to actual ﬁnancial exposure, not a ﬁxed percentage. The Risk Reserve Policy is reviewed and updated every two years as part of the City’s biennial budget.

2025–27 Reserve Policy Summary
In June 2025, the City adopted updated reserve levels based on an evaluation of eight key risk factors:

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Risk Factor Allocation
Revenue Stability $10.0 million
Vulnerability to Extreme Events $5.0 million
Expenditure Volatility $4.0 million
Leverage (Unfunded Liabilities) $6.0 million
Liquidity $12.0 million
Other Fund Dependency $4.2 million
Community Growth $4.0 million
Capital Replacement $48.0 million
Total $93.2 million
Discounted Factors $13.2 million
Target Reserve $80.0 million
Minimum Reserve Level (5% below
target)
$76.0 million

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Reserve Use and Requirements
Reserves are intended to be used strategically, not hoarded:
• Drawdowns are permitted to address budget gaps, emergencies, or special obligations.
• Any time reserves fall below the minimum level, a replenishment plan must be submitted to Council.
• Use of reserves below the minimum requires a four-ﬁfths vote of the City Council.

Additional Fund-Speciﬁc Reserves
• Gas Tax (HUTA) Reserve: Maintained to support street repairs and traffic safety needs during emergencies.
• Measure M2 Reserve: Designated for transportation-related contingencies consistent with Measure M2 guidelines
• Pension & OPEB Reserve: The City maintains trust funds to stabilize the required contribution rates and target fully funded status over time as per the Master Budgetary and Financial Policy.
• Employee Paid Leave Reserve: The City maintains a fund for the required costs associated with unused employee leave balances, including vacation, sick leave, and other forms of paid time off.

Closing and Observations
Lake Forest’s reserves aren’t just savings—they’re the foundation of ﬁnancial resilience. As service demands grow, infrastructure ages, and economic conditions shift, the City must be prepared to respond ﬂexibly and protect service levels.

The structured reserve framework equips the City Council to plan proactively, respond conﬁdently, and maintain long-term ﬁscal health.

This document remains ﬂexible, built to adapt as priorities shift, opportunities emerge, or economic conditions evolve. While projections may shift over time, the framework allows staff and Council to assess the long-term impact of today's choices.

This plan supports proactive budgeting and provides a tool for visualizing how different strategies—such as changes to service levels, capital investments, or staffing—can affect Item: 12
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the City’s ﬁnancial position. By maintaining alignment with the Risk Reserve Policy and evaluating the seven-year forecast regularly, the City can adjust to changing conditions without compromising stability.

Staff will continue to monitor key revenue and expenditure trends and make timely recommendations to ensure the budget remains balanced and the City's reserves stay above the policy thresholds. With strong ﬁnancial planning tools in place, the City Council is equipped to respond conﬁdently during periods of uncertainty and maintain high-quality services for the community.

With a strong ﬁnancial foundation, a structured reserve strategy, and a forward-looking forecasting model, Lake Forest is well-positioned to sustain high-quality services, navigate ﬁscal uncertainty, and invest in the long-term ﬁscal resiliency for the community Item: 12
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Actual Actual Actual Actual Budget Projection Projection Projection Projection Projection Projection Projection FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2031-32 REVENUES:

Taxes:

Property Taxes 21,245,269 22,428,077 24,018,144 25,525,153 26,576,300 28,143,200 29,649,300 31,093,700 32,458,700 33,885,100 35,375,700 36,933,400 Real Property Transfer Tax 1,028,672 1,273,561 894,404 903,972 675,000 750,000 765,000 780,300 795,900 811,800 828,000 844,600 Sales and Use Tax 17,241,510 19,436,169 19,049,883 17,678,956 17,580,000 17,931,600 18,290,200 18,838,900 19,404,100 19,986,200 20,585,800 21,203,400 Transient Occupancy Tax 2,883,787 5,269,730 5,818,578 5,941,072 5,610,000 6,250,000 6,250,000 6,406,300 6,566,500 6,730,700 6,899,000 7,071,500 Franchise Fees 2,566,677 2,640,596 2,908,051 2,908,251 2,756,250 2,182,000 2,237,000 2,292,900 2,350,200 2,409,000 2,469,200 2,530,900 Subtotal Taxes 44,965,915 51,048,133 52,689,060 52,957,404 53,197,550 55,256,800 57,191,500 59,412,100 61,575,400 63,822,800 66,157,700 68,583,800 Intergovernmental 539,565 6,927,604 258,982 712,704 400,000 435,000 460,000 460,000 460,000 460,000 460,000 460,000 Licenses and Permits 2,501,133 3,193,228 2,765,577 1,580,298 1,799,500 1,936,300 1,670,200 1,720,300 1,771,900 1,825,100 1,879,900 1,936,300 Charges for Current Services - Parks & Recreation 711,728 1,308,199 1,243,339 1,334,174 1,243,300 1,249,900 1,255,000 1,292,700 1,331,500 1,371,400 1,412,500 1,454,900 Charges for Current Services - Other 2,653,355 3,331,561 2,262,049 2,036,966 2,658,100 1,973,500 1,855,300 1,911,000 1,968,300 2,027,300 2,088,100 2,150,700 Developer Contributions 332,120 360,040 368,220 94,640 85,000 93,000 38,000 - - - - - Fines, Forfeitures, and Penalties 370,442 464,559 511,109 473,787 680,000 790,000 790,000 790,000 790,000 790,000 790,000 790,000 Facility and Park Rentals, Leases 205,593 745,138 840,397 1,260,063 1,060,000 1,091,000 1,058,200 1,089,900 1,122,600 1,156,300 1,191,000 1,226,700 Investment Earnings 789,314 225,883 3,629,229 7,924,632 5,450,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 Other 535,722 327,902 654,562 681,532 85,000 280,000 280,000 280,000 280,000 280,000 280,000 280,000 TOTAL REVENUES 53,604,887 67,932,247 65,222,524 69,056,201 66,658,450 69,105,500 70,598,200 72,956,000 75,299,700 77,732,900 80,259,200 82,882,400

OPERATING EXPENDITURES
Full Time Wages 5,872,289 6,594,975 7,129,544 7,280,970 8,623,900 9,075,500 9,713,000 10,198,700 10,708,600 11,244,000 11,806,200 12,396,500 Part Time Wages 301,436 852,287 1,140,391 1,350,905 1,873,500 2,112,500 2,112,500 2,218,100 2,329,000 2,445,500 2,567,800 2,696,200 Retirement - Normal Service Cost 572,351 642,422 781,098 825,362 1,036,600 1,049,100 1,094,200 1,148,900 1,206,300 1,266,600 1,329,900 1,396,400 Retirement - Unfunded Liability 46,246 63,397 97,520 4,402,525 12,000 78,100 85,700 92,100 98,500 104,900 104,900 104,900 Personnel Services 1,211,983 1,300,620 1,395,324 1,650,580 2,090,850 2,021,100 2,054,700 2,136,900 2,222,400 2,311,300 2,403,800 2,500,000 Contractual Services 15,805,437 17,780,072 21,459,964 18,269,846 24,843,410 24,072,300 24,031,100 24,752,000 25,494,600 26,259,400 27,047,200 27,858,600 Law Enforcement Contract 17,399,270 18,149,715 18,937,269 19,798,762 21,361,000 22,739,100 24,098,600 25,062,500 26,065,000 27,107,600 28,191,900 29,319,600 Law Enforcement Contract (Non-General Fund) (125,000) (125,000) (216,919) (297,967) (328,965) (791,500) (400,000) (150,000) (150,000) (150,000) (150,000) (150,000) Strategic Economic Improvement Program - - 1,262,611 3,482,814 2,108,203 - - - - - - - Memberships and Development 120,411 164,989 384,001 241,959 464,857 524,900 516,100 529,000 542,200 555,800 569,700 583,900 Supplies, Materials and Other 1,462,510 1,519,254 1,104,990 1,600,006 2,613,823 2,230,500 2,240,200 2,296,200 2,353,600 2,412,400 2,472,700 2,534,500 Operating Capital 126,438 306,868 403,506 439,157 1,248,315 1,174,200 685,700 689,100 692,500 696,000 699,500 703,000 Debt Service - - - 15,736 31,000 - - - - - - - TOTAL OPERATING EXPENDITURES 42,793,371 47,249,599 53,879,299 59,060,655 65,978,493 64,285,800 66,231,800 68,973,500 71,562,700 74,253,500 77,043,600 79,943,600 REVENUES LESS OPERATING EXPENDITURES 10,811,516 20,682,648 11,343,225 9,995,545 679,957 4,819,700 4,366,400 3,982,500 3,737,000 3,479,400 3,215,600 2,938,800 2025-2032 Proposed Financial Forecast - General Fund
Financial Forecast
Revised April 2025
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ATTACHMENT 9
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3 CITY COUNCIL POLICY: FINANCIAL

MANAGEMENT AND BUDGETARY POLICY
Revised: January 7, 2025
1 Purpose.

Provide the framework and direction for financial planning and decision- making by the City Council and City staff. These policies are designed to ensure the City’s financial integrity and provision of services that address the priorities of Lake Forest’s constituents.

This policy establishes financial parameters that will guide the budget development and deliberation process, safeguard financial assets, and maintain the City’s strong financial conditionposition.

The desired policy outcome is that the long-term implications of financial decisions are fully understood and considered in the decision-making process.

The City Council will review this policy during each budget development process and consider any recommended revisions with the adoption of the budget. 2 Long-Range Financial Planning and Budget.
a) The budget is a resource allocation document and serves as the financial plan for the City. It will serve as the policy document of the City Council and will provide policy direction to the City Manager in the areas of desired service levels and funding priorities.
b) The City Manager shall present a proposed budget to the City Council on a biennial basis to be adopted no later than June 30 in odd- numbered years preceding the commencement of the two-year budget cycle. The budget will be prepared, presented, and administered by the City Manager and Director of Finance/City Treasurer. The City Manager will inform the City Council of any anticipated delays.
c) The City will maintain a long-range fiscal perspective by preparing a two-year operating budget, seven-year Capital Improvement Plan, and seven-year Financial Forecast. The budget will be developed and adopted with a sharp focus on long-term financial solvency and compliance with provisions of this policy.
d) The City Council values public input in the budgeting process and will provide opportunities for public input.

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3 e) The budget document will be prepared in a manner which that facilitates public study and effectively communicates key economic issues and fiscal policies. The budget will document and explain assumptions for underlying revenue sources and expenditure estimates.
f) The City Council may authorize the use of reserves and/or non-recurring revenues to balance the budget when unforeseen events occur that reduce the City’s recurring revenues, and to direct Tthe City Manager will notify the City Council of any such use and to make budgetary recommendations budgetary adjustments to that will re-balance the budget within a specified timeframe.
g) All budgetary procedures will conform to state regulations and Generally Accepted Accounting Principles (GAAP) for governmental agencies. h) The City’s budget will be presented by Program Area with a logical breakdown of programs. The budget format will clearly outline the major service areas and associated expenditures.
i) The budgeting process will include reports to the City Council Audit Committee and will include budgetary status and compliance. The City Manager will notify the City Council whenever changing operations or economic developments require corrective budgetary modifications. The City Manager shall also inform the City Council if operating revenues are projected to decrease by more than 10% from the adopted budget. j) Non-personnel appropriations in the Operating Budget may be carried over from the first year to the second year of the two-year budget period with the approval of the City Manager with and notification to the City Council Audit Committee.
k) Non-personnel appropriations in the Operating Budget may be carried over from one two-year budget cycle to another when an agreement is in effect prior to the commencement of the new two-year budget with the approval of the City Manager with and notification to the City Council Audit Committee. l) The City’s legal budget shall be established by City Council resolution with the adoption of the Operating Budget and Capital Improvement Plan (CIP).

Budget control shall be the responsibility of each Department Director, who is accountable for ensuring expenditures remain within approved appropriations for the programs, projects, and funds under their direction.Budget control shall be the responsibility of the Department Head.

Department Heads shall, with the concurrence of the Director of Finance/City Treasurer, have the authority to move appropriations between Item: 12
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3 programs under their responsibility within the same Program Area.. At the discretion of the City Manager, appropriations may be transferred from one Program Area to another, or between funds within the Operating Budget with notification to the City Council Audit Committee.
i. Intra-Program Area Transfers: Department Directors, with the concurrence of the Director of Finance/City Treasurer, may transfer appropriations between programs under their
responsibility within the same Program Area.
ii. Inter-Program Area Transfers: At the City Manager’s discretion, appropriations may be transferred between Program Areas within the Operating Budget. These transfers shall be reported to the City Council Audit Committee.
iii. Inter-Fund Transfers: At the City Manager’s discretion, appropriations may be transferred between funds. These transfers shall be reported to the City Council Audit Committee.
iv. Capital Improvement Plan (CIP) Transfers: At the City Manager’s discretion, appropriations may be transferred between existing capital improvement projects within the adopted CIP. These transfers shall be reported to the City Council Audit Committee. v. CDBG Fund Transfers: The City Manager may approve transfers between the Operating Budget and CIP within the Community Development Block Grant (CDBG) Fund, provided the use is consistent with the City’s approved CDBG Action Plan and federal requirements. These transfers shall be reported to the City Council Audit Committee.

At the City Manager’s discretion, appropriations may be moved from one capital improvement project to another existing project within the adopted Capital Improvement Program with notification to the City Council Audit Committee. m)l) During the budget cycle, special circumstances may require an adjustment in the appropriations established in the adopted budget and would require a budget amendment. These may include:
i. Changes to spending priorities
ii. Increase in operating or capital expenditures
iii. Decrease in operating revenues
n)m) City Council approval is required to increase the total sum of the appropriations made for the Operating Budget or the Capital Improvement Plan from the adopted Budget Resolution. City Council approval is also required to move appropriations between the Operating Budget and the Capital Improvement ProgramPlan.
n) Appropriations to the Employee Paid Leave Fund will be authorized by Item: 12
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3 the City Manager on an as needed basis during the fiscal year. o) The goal of the City’s long-range financial planning is to pay for capital projects and large, one-time expenditures from existing sources (savings or reserve funds) and not be dependent on borrowing or new revenues. 3 Capital Planning.
a) The purpose of the Capital Improvement Program Plan is to systematically plan, schedule, and finance capital projects as approved and prioritized by the City Council. The Capital Improvement Program Plan will be a seven-year plan and will include major rehabilitation costs to existing infrastructure and facilities, as well as the cost of new facilities or capital improvements. Staff will inventory and assess the condition of all major capital assets every two years and make recommendations to the City Council regarding any modification to the Capital improvement Program Plan as part of the budget development process.
b) Proposed capital projects will include projected changes in operating and maintenance costs, work force requirements, productivity, and risk management considerations.
c) A capital improvement project shall be established for all projects greater than $100,000 with an expected useful life of at least three years that also meet the definition of a public project per State Public Contracts Code Section 22002.These include projects involving construction, reconstruction, alteration, renovation, improvement, demolition, or major repair work. This excludes routine, recurring and usual work for related to the preservation, protection, or maintenance of publicly owned land, improvements and equipment.
d) For purposes of this policy, the scope of a proposed capital improvement project may be defined as the work to be undertaken at a single location.

However, if work at a specific location would not otherwise meet the cost threshold for establishing a separate capital improvement project and similar work is to take place at another location(s) during the same fiscal year, then all such similar work shall be defined as one capital improvement project. e) A capital project may originate from a variety of input, including but not limited to public feedback, City Council and Commission ideas, the Biennial Item: 12
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3 Residential and Business Satisfaction Study (i.e., survey), grant requirements or staff analysis. As part of the budget process, staff uses this input to submit Capital Improvement Program Plan requests providing a detailed description of the proposed project or purchase. All requests will be reviewed by the City Manager, using the formal evaluation process described below or some other alternative process identified by the City Manager. One evaluation consists of several ranking criteria, which are assigned relative weights as follows:

Criteria Weight
Project’s impact on health and safety 10
Project improves, upgrades, or rehabilitates an existing facility 9 Project’s impact on City operating budget 8
Project remedies a service deficiency 8
Percent of project costs to be funded by (non-City) resources and/or funding to be lost if project not done 7
Priority assigned by requesting DepartmentProgram 6
Other considerations, such as aesthetics, feasibility, special populations serviced, conformance to plans (including the General Plan), interjurisdictional effects and community economic effects 6 Once evaluation scores as assigned, project priorities will be determined and presented to the City Council for further review. After completing its review, the City Council will appropriate funding for the first two years of the Seven- Year Capital Improvement Program Plan as part of the two-year budget cycle.
f) Unexpended project appropriations will be automatically carried forward as continuing appropriations to future fiscal years as required to complete the intent of the original budget with notification to the City Council Audit Committee.
g) The City will actively pursue grant and other outside funding sources for all capital improvement projects. Staff will cognizant ensure that the grant amount should justify the staff time and other resources needed for its administration..
4 Risk Based Reserves.

This section is designed to develop standards for setting reserve levels for various significant City funds. Adequate reserve levels are a necessary Item: 12
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3 component of the City’s overall financial management strategy and a key factor in external agencies’ measurement of the City’s financial strength. a) The City shall maintain reserves at a prudent level and shall use reserves appropriately with a focusing on contributing to the reserves during favorable economic in good times and drawing on reserves in times of severe economic downturns, unforeseen major expenses, and/or sudden revenue losses to maintain a consistent level of service and quality operations. b) The City shall establish certain financial reserves to protect the City against unexpected interruptions in revenues, vulnerability of State actions, adverse economic conditions, unpredictable one-time costs, and exposure to natural disasters and emergencies.
c) Established reserves will be based on an analysis of the risks that influence the needs for reserves as a hedge against uncertainty and loss. A risk is defined as probability and magnitude of a loss, disaster, or other undesirable event. The Risk Analysis will review the following risk factors and the City’ ‘s level of exposure to each risk factor impacting the City’s General Fund.

OPERATING RISK FACTORS
Revenue Source Stability
Vulnerability to Extreme Events
Expenditure Volatility
Leverage
Liquidity
Other Fund Dependency
Growth

CAPITAL RISK FACTORS
Capital Infrastructure and Asset
Replacement
d) The Risk Analysis will identify the reserve level for each risk factor, the recommended Target General Fund Reserves based on all risk factors. e) The Risk Analysis will be performed biennially, in coordination with the development of the operating budget.

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3 f) The Total Minimum Reserve shall be established at 5% below the Target General Fund Reserve Level.
g) The Target General Fund Reserves and Total Minimum Reserve will be established and updated by resolution based on each biennial analysis. h) Spending beyond the Total Minimum Reserve shall require a four-fifths vote of the City Council.
i) Gas Tax HUTA Fund – A minimum reserve level of $400,000 will be set aside as a reserve for street repair emergencies and other unanticipated traffic safety projects. The City Manager shall provide a plan including a timeline to replenish the reserves within 180 days of City Council authorization to use the reserves. This reserve is intended to protect the City against unexpected interruptions in revenues, vulnerability of State actions, adverse economic conditions related to this revenue source.
j) Measure M Local Fair Share Fund – A minimum reserve level of $250,000 will be set aside as a reserve for street repair emergencies and other unanticipated traffic safety projects. The City Manager shall provide a plan including a timeline to replenish the reserves within 180 days of City Council authorization to use the reserves. This reserve is intended to protect the City against unexpected interruptions in revenues, vulnerability of State actions, adverse economic conditions related to this revenue source. k) The City shall maintain a Pension Employer Contribution Stabilization Trust Fund to reduce volatility in the employer contribution rates set by CalPERS.

The City shall target a 95% funding status for the pension plan and a required pension liability payment of less than 10% of the annual pension contribution within the seven-year financial forecast. Funding status will be based on the most recent actuarial valuation of the pension plan. The operating budget presented by the City Manager will provide an update on the balance of the available resources and any recommendations for the budget period. l) The City Shall maintain an Other Post-Employment Benefits Trust (“OPEB”) Fund to fund the required health care costs to retirees. The City shall target a 100% funding status based on the most recent actuarial valuation of the OPEB Plan. The City shall make annual required contributions based on the most recent actuarial valuation of the OPEB Plan. The operating budget presented by the City Manager will provide an update on the balance of the available resources and any recommendations for the budget period.

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3 m) The City shall maintain an Employee Paid Leave Fund to fund the estimated costs associated with unused employee leave balances, including vacation, sick leave, and other forms of paid time off. This includes elective leave cash- outs and payments made at the time of separation from employment. The City shall target a 100% funding status based on the most recent year-end estimate of total leave balances. The City shall make annual contributions as needed to achieve and maintain the targeted funding level. The Operating Budget presented by the City Manager shall provide an update on the balance of the available resources and any recommendations for the budget period. 5 Fund Balance Management.
a) The Fund Balance Policy establishes guidelines and procedures for allocating and reporting fund balance in the financial statements in accordance with Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and as committed by City Council.
b) Fund balance is defined as the difference between the assets and liabilities reported in a governmental fund.
c) GASB Statement No. 54 defines five separate components of fund balance, each of which identifies the extent to which the City is bound to honor constraints on the specific purposes for which amounts can be spent. d) The following components defined by GASB Statement No. 54 shall constitute the City’s Fund Balance for financial reporting purposes:
i. Nonspendable Fund Balance (inherently nonspendable) – Assets that cannot be converted to cash(e.g., prepaid items and inventories of supplies) and assets that will not be converted to cash soon enough to affect the current period. ii. Restricted Fund Balance (externally enforceable limitations on use) – Limitations imposed by creditors, grantors, contributors, or laws and regulations of other governments and limitations imposed by law through constitutional provisions or enabling legislation.
iii. Committed Fund Balance (self-imposed limitations on use set in place prior to the end of the fiscal year) – Limitation imposed at the highest level of decision making that requires formal action at the same level to remove (Ordinance).
iv. Assigned Fund Balance (limitation resulting from intended Item: 12
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3 use) – Intended use established by highest level of
decision- making, by a body designated for that purpose, or by an official designated for that purpose, (delegated by the City Council to the City Manager).
v. Unassigned Fund Balance (residual net resources) – Excess of nonspendable, restricted, committed, and assigned total fund balance.
e) For the General Fund, unless the fund balances are non-spendable or restricted, fund balances are “spendable” and available for use at the discretion of the City Council.
f) For all other Special Revenue, Capital Projects and Debt Service Funds, these resources are limited as to use by external enforceable limitations (e.g., enabling legislation); therefore fund balances in these funds will be categorized as restricted.
6 Revenues and Expenditures.
a) The City will maintain a level of expenditures which willthat provides for the health, safety and welfare of the residents of the community. b) The City will endeavor to maintain a diversified and stable revenue base to minimize the effects of fluctuations in any single revenue source. Efforts will be directed toward optimizeing existing revenue sources while periodically reviewing potential new revenue sources.
c) The City will estimate revenue using an objective, analytical process; in the case of assumption uncertainty, conservative projections will be utilized. d) The City will fund all current expenditures from current revenues, avoiding procedures that balance current budgets by postponing needed expenditures, accruing future revenues, or rolling over short-term debt. e) Development processing costs and related administrative expenses shall be totally offset by development fees.
f) Gas tax revenues will be annually set aside to offset all costs in connectionassociated with the City’s street maintenance program. The City will strive to maintain this program in such a manner that will not require the infusion of available General Fund resources.

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3 7 Grant Management
a) The City actively pursues grant funding opportunities to support programs, projects, and services that align with its strategic objectives. All grant applications must be coordinated with the City Manager and Finance to ensure consistency with the City’s operational and financial policies. a)
b) Before a grant can be accepted or awarded, all grant applications must include a defined project scope, estimated costs, matching fund requirements (if applicable), a designated project manager, and a summary of any long-term fiscal impacts. Applications that would create ongoing fiscal obligations shall only be advanced if an identifiable ongoing funding source is available. b)
c) All grant awards must be reviewed by Finance before acceptance by the City Manager to confirm alignment with federal, state, and local regulations, as well as City fiscal policies and internal controls.
d) Project Managers assigned to manage each grant-funded project are responsible for overseeing day-to-day compliance and coordination. This includes:
i. Tracking and monitoring authorized budget, revenues, expenditures, match requirements, deliverables, and
compliance milestones throughout the grant term.
ii. Maintaining separate records for each grant in coordination with Finance.
iii. Preparing, reconciling to the financial management system and submitting all required financial and performance reports timely.
iv. Supporting periodic internal reviews conducted by Finance to mitigate compliance and audit risks.
v. Submitting final reports, reconciling grant revenue and expenditure activities with the authorized budget, and returning any unspent or ineligible funds within 90 days of grant expiration or project completion.
8 User Fees.

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3 a) The purpose of this User Fee Policy is to provide a consistent framework for the analysis and evaluation of user fees imposed by the City of Lake Forest.

These topics include: Services for which user fees are appropriately considered, basis for maximum fee amounts, amount of costs to be recovered from fees, and procedures for updating fees.
b) User fees are applied to recover all or a portion of the City’s costs for providing service of individual benefit or cause. “Providing service” meansrefers to activities at the option of the individual, such as requests for service, or City response to the decisions or action of the individual, such as regulation. The wide-ranging application of user fees for services of individual benefit or cause enables the general revenue sources of the City to be directed more fully to other services yielding broader community benefits.
c) User fees are managed by nearly every operating function within the City.

Areas where user fees will be commonly applied include:
a. Regulatory activities, such as review and inspection of land development, construction/building, and improvements to infrastructure, and other areas of code review, compliance, and enforcement. b. Permitting, such as special events and use of public facilities, infrastructure, and services.
c. Facility rentals and use of public spaces, such as community centers, recreational sites, parks, and athletic field use.
d. Program participation.
e. Municipal operations providing service of individual benefit/request. f. Municipal operations responding to individual action. g. Licensing, billing, records management, and administration services. h. Direct-billing of City staff time.
d) Refer to the City’s Comprehensive Master Fee Schedule for a complete list of current services for which a user fee is imposed.
e) The City will identify basic tax-provided services and will establish user fees and charges for services provided in excess of basic services and/or non- taxpaying users.

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3 f) User fees are set at the discretion of the City Council, so long as the fees conform to the requirements of Article 13C of the California Constitution, which requires a “cost of services” basis for setting fee amounts. g) The City’s User fees will be set according to the estimated reasonable cost of service. Furthermore, user fees will bear a fair and reasonable relationship to the payer’s burdens on or benefits received from the activities and/or services provided by the City.
h) When evaluating user fees, the City will calculate the “full cost of service,” for each activity, which is the maximum fee amount allowed. The full cost of service will include components for:
i) The direct cost of service:
a. Labor associated with performance of service from all personnel involved in the activity.
b. Services, supplies, and/or materials required to complete the activity.
j) A reasonable share of the indirect costs of service:
a. The services, supplies, and materials which support the personnel involved in the activity.
b. The indirect management, administration, and support services associated with the City functions involved in the activity. c. The central services, City management and administration, and governmental oversight associated with the functions involved in the activity.
k) Once the full cost of service is established for each activity, the City will apply a consistent set of guidelines for determining the amount of cost to be recovered in the final fee amount. A cost recovery percentage will be applied to the full cost of service to calculate the fee.
l) Figure 1 below explains the City’s guidelines for setting a cost recovery threshold for each activity where user fees are applied. The cost recovery threshold assigned to each fee-related service will be identified in the periodic analysis and documentation supporting the calculation of the City’s user fees.

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3 m) The City shall recalculate the full cost of activities supported by user fees to take into accountconsider inflation and other related mattersfactors. The following cost index will be used as the basis for calculating annual changes to the fee amounts: Consumer Price Index (CPI) for the Los Angeles-Long Beach-Anaheim Metropolitan Statistical Area. The escalation amount will be the published annual percentage change calculation. The City’s Master Fee Schedule shall be approved and updated by resolution in connection with the adoption of the operating budget.
m)n) The City will complete a thorough user fee study periodically, at least every five years, to determine the full cost of service of each activity included in the Comprehensive Master Fee Schedule. The user fee study will:
a. Analyze the direct and indirect costs associated withof existing and new fee-related service provided City-wide.
b. Revisit cost recovery thresholds applied to fee related services. c. Determine updated fee amounts consistent with the cost of service basis and the City’s cost recovery at that time.
9 Accounting, Auditing, and Financial Reporting
a) The City’s accounting and financial reporting systems shall be maintained in accordance with generally accepted accounting principles (GAAP) and other standards promulgated by the GASB.
b) The City shall prepare an annual reports, in the form of a an Annual Comprehensive Financial Report ( ACFR) format, and a Popular Annual Financial Report (PAFR) format.which shall conform to the reporting standards established by the Governmental Accounting, Auditing and Financial reporting (GAFR).
c) The ACFR annual financial report will be audited each year by an independent auditor. A new independent auditor shall be selected competitively, through a formal public request for proposal process, at least every six years, pursuant to State law.
d)b) An Audit Committee shall be formed consisting of two City Council Members, and the City Manager, or designee, and the Director of Finance/City Treasurer to provide a direct line of communication between the auditor and the City Council. The City Attorney shall be available to advise the Audit Item: 12
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3 Committee.
e)c) The City Manager will provide quarterly reports to the Audit Committee that compares year-to-date actuals with revenue and expenditure projections.
f)d) The City Manager will notify the City Council whenever changing operations or economic developments require corrective budgetary measures.
10 Cash Management, Investments and Banking Relations.
a) Investments and cash management will be the responsibility of the Director of Finance/City Treasurer under the direction of the City Manager. The City may engage one or more external investments advisers that who may be granted discretionary authority to purchase and sell investment securities in accordance with the City’s Statement of Investment Policy. b) In accordance with Government Code Section 53646, the City Council will review and update annually a specific statement of investment policy. The primary purpose of this policy is to set forth the City’s investment philosophy and objectives. The City’s overriding objectives of the program are to preserve principal, provide sufficient liquidity, and manage investment risks, while seeking a market-rate of return.
c) In the selection of banking , investment custodial trust and investment advisory services, a competitive public request for proposal process will be used at least every ten years.

Policy History

1. Adopted October 20, 2020

2. Revised March 2, 2021

3. Revised January 18, 2022

4. Revised June 6, 2023

5. Revised January 7, 2025
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CITY COUNCIL AGENDA REPORT
MEETING DATE: 6/3/2025
DEPARTMENT: Finance
SUBJECT:

CALIFORNIA CONSITUTION ARTICLE XIIIB APPROPRIATIONS LIMIT RECOMMENDED ACTION(S):

Adopt a Resolution entitled: A RESOLUTION OF THE CITY COUNCIL OF THE

CITY OF LAKE FOREST, CALIFORNIA, APPROVING THE APPROPRIATIONS LIMIT FOR FISCAL YEAR 2025-26 IN THE AMOUNT OF $178,845,165 EXECUTIVE SUMMARY:

The Fiscal Year 2025-26 appropriations limit is $178,845,165 based on the calculation method traditionally used by the City; the limit will remain significantly above appropriations in the proposed budget subject to the limit. These appropriations are derived from the City’s “proceeds from taxes,” less eligible exclusions, such as unfunded mandates and qualified capital outlay. The factors used in the calculation of the limit were the growth in the City’s population and the change in California per capita income.

BACKGROUND:

The appropriations limit imposed by Proposition 4, known commonly as the “Gann Limit” and its subsequent ballot initiative, Proposition 111, create a restriction on the amount of revenue which can be appropriated by the City in any fiscal year. The limit is based on actual appropriations during the 1978-79 Fiscal Year and is increased each year using growth of population and inflation factors.

For cities that incorporated after Fiscal Year 1978-79, the initial limit is set pursuant to legislation that implemented Propositions 4 and 111. The controlling statute that governs this appropriations limit is Article XIIIB of the California State Constitution.

DISCUSSION:

Staff calculated the Fiscal Year 2025-26 appropriations limit based on uniform guidelines consistent with State law prepared by the League of California Cities.

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The City uses these guidelines each year. By law, the City Council is required to adopt the appropriations limit by resolution.

Adjustment Factors

Using the guidelines, staff computed the appropriations limit for Fiscal Year 2025-26 by applying two adjustment factors for the prior year’s limit: inflation and population. Staff selected and calculated these factors independently of each other to arrive at the City’s new appropriations limit for the upcoming fiscal year.

Inflation

The City can select either the percentage change in the California per capita personal income or the percentage change in assessed valuation due to non- residential new construction. For Fiscal Year 2025-26, the California per capita personal income change factor is 6.44%. The assessed valuation factor based on non-residential new construction as a percentage of the total value increases was 0.51%. The adjustment used in calculating the Fiscal Year 2025-26 appropriations limit was the change in per capita personal income.

Population

Each year, the City selects either the City’s population growth or population growth in the entire County of Orange. For the Fiscal Year 2025-26 calculation, staff selected the City‘s population growth (0.83% for the City versus 0.78% for the County). This factor selection may change in future years if the County’s population grows at a higher rate than the City’s.

Appropriations Limit for Fiscal Year 2025-26

In preparing the appropriations limit calculation, staff used the amounts contained in the 2025-2027 Operating Budget for Fiscal Year 2025-26. Based on selected components of the two adjustment factors and the previous year’s limit, the appropriations limit for Fiscal Year 2025-26 is $178,845,165. The City’s appropriations subject to the limit are $56,389,358. These appropriations are derived from the City’s “proceeds from taxes” less eligible exclusions, such as unfunded mandates and qualified capital outlay. The City’s appropriations limit continues to be significantly in excess of annual appropriations subject to the limit.

FISCAL IMPACT:

There is no fiscal impact associated with the recommended action.

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ATTACHMENTS:

Draft Resolution Approving Appropriations Limit for Fiscal Year 2025-26 Initiated By: Amy Lewis, Assistant Director of Finance
Submitted By: Kevin Shirah, Director of Finance/City Treasurer Approved By: Debra Rose, City Manager
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ATTACHMENT
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5 3
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7 RESOLUTION NO. 2025-

A RESOLUTION OF THE CITY COUNCIL OF THE

CITY OF LAKE FOREST, CALIFORNIA, APPROVING

THE APPROPRIATIONS LIMIT FOR FISCAL YEAR
2025-26 IN THE AMOUNT OF $178,845,165
WHEREAS, Article XIIIB of the California Constitution requires public entities in the State of California to calculate an annual appropriations limit; and
WHEREAS, Article XIIIB of the California Constitution and Government Code Section 7910 require the City Council to select the population and inflation factors for the year’s appropriations limit calculation; and

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LAKE

FOREST, CALIFORNIA, DOES HEREBY RESOLVE, DETERMINE, FIND AND ORDER AS FOLLOWS:

Section 1. That the appropriations limit for the City of Lake Forest for Fiscal Year 2025-26 shall be $178,845,165.

Section 2. That the inflation factor being utilized to calculate the Fiscal Year 2025-26 appropriations limit is the growth in per capita personal income.

Section 3. That the population factor being utilized to calculate the Fiscal Year 2025-26 appropriations limit is the City’s population growth.

PASSED, APPROVED AND ADOPTED this 3rd day of June 2025, by the following vote, to wit:

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7 SCOTT VOIGTS
MAYOR
ATTEST:
____

THY MERRITT

CITY CLERK
APPROVED AS TO FORM:
____
MATTHEW E. RICHARDSON

CITY ATTORNEY

STATE OF CALIFORNIA )

COUNTY OF ORANGE ) SS

CITY OF LAKE FOREST )
I, Thy Merritt, City Clerk of the City of Lake Forest, California, does hereby certify that the foregoing Resolution No. 2025-___ was duly passed and adopted at a regular meeting of the Lake Forest City Council on the 3rd day of June 2025, by the following vote, to wit:

AYES: COUNCIL MEMBERS:

NOES: COUNCIL MEMBERS:

ABSENT: COUNCIL MEMBERS:

ABSTAIN: COUNCIL MEMBERS:

THY MERRITT

CITY CLERK
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Lake Forest City CouncilJune 3, 2025

Lake Forest City Council
June 3, 2025