June 10, 2025
Agenda Item No. 19
TO:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:
Grace K. Leung, City Manager - 949-644-3001, [email protected] PREPARED BY:
Jason Al-Imam, Finance Director/Treasurer - 949-644-3126, [email protected] TITLE:
Resolution No. 2025-34: Fiscal Year 2025-26 Budget Adoption, Budget Public Hearing, Recommendations from the Finance Committee, and Proposed Budget Revision Items ABSTRACT:
Following multiple opportunities for public comment before the City Council and the Finance Committee beginning in February of this year, the City Council held a joint Study Session with the Finance Committee to review the proposed fiscal year 2025-26 budget on May 27, 2025. After discussions at that meeting, changes were made to the Capital Improvement Program budget as presented, which are reflected on the Proposed Budget Revision list and incorporated into this report. The revised General Fund budget continues to be balanced. It is recommended that the City Council consider adoption of the proposed budget for Fiscal Year 2025-26 via Resolution No. 2025-34 to fulfill the City Charter requirement that the City Council adopt an annual budget by resolution each year by June 30.
RECOMMENDATIONS:
Conduct a public hearing regarding the City Manager’s proposed budget for Fiscal Year 2025-26; Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; Consider the Finance Committee’s budget recommendations; Review and approve the proposed budget revisions;
Adopt Resolution No. 2025-34, A Resolution of the City Council of the City of Newport Beach, California, Adopting the Budget for the 2025-26 Fiscal Year; and Review and approve the City Manager’s recommended list of position classifications and their salary ranges as required by the California Public Employees’ Retirement System and in accordance with 2 CCR § 570.5 (a)(1).
DISCUSSION:
In accordance with the City Charter, the City Manager is presenting the City of Newport Beach’s FY 2025-26 proposed operating and capital budget and Fiscal Years 2025-2031 Capital Improvement Program (CIP). These documents can be found on the City’s website at the following location:
https://www.newportbeachca.gov/government/departments/finance/city-budget-salary A third component of the budget includes proposed revisions to the initial proposed budget documents released in May. The proposed revisions are referred to as “Proposed Budget Revisions” and may represent revisions to either the operating or the capital budgets. The City Council, upon adoption of the proposed FY 2025-26 budget resolution and approval of the Proposed Budget Revisions, included as Attachment A and Exhibit A, respectively, will be authorizing the total proposed budget appropriations for Fiscal Year 2025-26.
The operating budget totals $463.9 million and the capital budget totals $68.9 million in FY 2025-26, for a total of $532.7million. Capital spending of $336.9 million is anticipated over the six years covered by the CIP, subject to change with each future annual budget process. The annual budget serves as the foundation for financial planning and control and allows the City Council to prioritize expenditures in alignment with community values. The budget as submitted includes:
A stable local revenue base with projected FY 2025-26 property tax revenues growing at an estimated 4.8% over the prior year due to the Proposition 13 inflationary adjustment, changes in ownership, and new construction.
A healthy level of reserves that include a General Fund contingency reserve of approximately $68 million, which is equal to 25% of the City’s General Fund operating budget.
Continuation of an aggressive pension payment plan with a level dollar payment of $40 million and the intent to allocate an additional $5 million from the FY 2025-26 year-end surplus, which based on current projections will see the City’s unfunded pension liability eliminated in Fiscal Year 2032-2033.
The FY 2025-26 budget as proposed includes 782 full-time positions, an increase of 7 full-time position from the prior year’s revised position totals, four of which are conversions of existing part-time positions to full-time positions. Part-time positions would decrease by a total of 1.04 full-time equivalent positions (FTEs) for a total of 145.45 part-time FTEs.
Budget Priorities
The FY 2025-26 proposed budget continues to address the same core budget priorities that have served the community well in recent years. The City endeavors to maintain funding for all priorities in a manner that is consistent with or exceeds the funding allocated in prior years.
Maintaining a Prosperous, Fiscally Sustainable, and Economically Viable City An ongoing priority is to maintain the City’s financial health by managing resources as efficiently as possible, responsibly managing debt, and working collaboratively with employees to share in the costs of pension obligations. The City Council has adopted prudent fiscal policies concerning its investments, reserves, budget administration, revenue initiatives, competitive contracting, facility replacement planning, and more. Financial operations have produced net operating surpluses in recent years due to conservative budgeting, cooperative negotiation of labor agreements, and a stable and growing tax revenue base. The City’s annual surplus typically derives in equal measure from higher revenue and lower expenditures than budgeted.
Providing High Quality Municipal Services that Residents Expect This budget priority is an ongoing, organization-wide effort to maintain the City as a high-performing municipal corporation that anticipates and responds to customer needs by delivering public services better, faster, less expensively, and when customers need them.
Keeping Newport Beach Looking Great
The City’s goal is to maintain a high-quality natural and physical environment by creating aesthetically pleasing places in which to live, work, recreate and visit. Key service areas include maintaining high-quality community centers, parks, parkways and medians, roads, trees, alleys, beaches, utility services, and other major infrastructure. Public Works will continue to provide safe, quality, cost-effective, and timely improvements and maintain all City-owned public facilities such as libraries, piers, beach and park restrooms, fire stations, and the Civic Center, including managing the contracts for janitorial services, to support the residential, business, recreational and social needs of the community. The Utilities and Public Works Departments will continue the effective operation, maintenance and repair of the City’s water system, sewer system, storm drain system, streets, sidewalks, and beaches. The Community Development Department will continue to consistently implement codes, policies and regulatory requirements to ensure quality residential neighborhoods and commercial districts throughout the city.
Providing a Safe and Secure Neighborhood
The City’s focus on public safety translates into top quality police, fire, emergency medical, and lifeguard response, as well as working with the community to prevent crime, fires, and the need for rescue. The City’s fire prevention, emergency preparedness, and other programs also support these efforts. The City’s contracted homeless services providers continue to assist people experiencing homelessness. Their outreach efforts, coordinated with the City and County’s resources, provide shelter, housing and other opportunities.
Budget Submission and Finance Committee Recommendation
Pursuant to Section 1102 of the Newport Beach City Charter and City Council Policy F-3 – Budget Adoption and Administration, the proposed CIP and operating budget for the 2025-26 fiscal year was first submitted to the City Council and made available to the public on May 1, 2025. Per City Council Resolution No. 2018-71, the Finance Committee is responsible for reviewing and recommending approval of the operating portion of the City Manager’s proposed budget to the City Council.
The Finance Committee reviewed in detail the budget and operations of select City departments in advance of its consideration of the FY 2025-26 budget and held multiple meetings to discuss the budget before the joint Study Session with the City Council on May 27, 2025.
The Finance Committee reviewed the funded status of the City’s pension plan based on the latest California Public Employees’ Retirement System (CalPERS) actuarial valuation and considered pension funding recommendations for FY 2025-26 on November 14, 2024 as well as for the City’s Long-Range Financial Forecast update on January 23, 2025. On March 13, 2025, the committee reviewed the Facilities Financial Plan and Harbor and Beaches Master Plan and the revenue assumptions used to develop the FY 2025-26 operating budget. On April 10, 2025, the committee reviewed the proposed operating budget and reviewed the operating budget detail found in the preliminary budget document on May 8, 2025. This robust review process, and numerous opportunities to receive public input on the proposed budget, help to ensure that the draft budget presented to the City Council is fiscally sound and adequately detailed.
Following the joint Study Session of the City Council and the Finance Committee on May 27, 2025, the Finance Committee met on May 29, 2025, to finalize its recommendations to the City Council regarding the proposed FY 2025-26 budget. A motion was made to recommend the City Manager’s proposed FY 2025-26 budget to the City Council for approval as presented, including proposed budget revisions. The motion was carried unanimously with a yes vote from all present members of the Finance Committee.
All Funds Budget Overview
The FY 2025-26 proposed budget, including internal charges and transfers for all funds is $532.7 million. The operating portion of the budget amounts to $463.9 million, including $87.9 million in transfers, which represents a 5.3%, or $23.4 million increase over the prior year’s adopted budget.
Capital Improvement Program (CIP) Expenditures
The CIP serves as a funding plan for public improvements, special projects, and many ongoing maintenance programs. Projects in the CIP include construction and rehabilitation of arterial highways, local streets, storm drains, bay and beach improvements, parks and buildings, and water and wastewater improvements. Specific project plans for the CIP are discussed in more detail in the CIP budget volume.
New appropriations for capital improvement projects included in the proposed budget amount to $68.9 million. Unlike the operating budget, capital improvement appropriations are expended over multiple fiscal years due to timing considerations related to the ebb and flow of large construction projects that require environmental review, coordination with outside entities (public utilities), and design/policy considerations. The estimated total appropriations for capital projects will be approximately $112.3 million when the estimated re-budgeting of capital projects is included with the new appropriations. Prior year carry forward capital appropriations are supported by resources reserved and carried forward to offset those expenditures.
General Fund Budget Overview
The General Fund is the key operating fund within the City’s budget. The General Fund accounts for discretionary revenues and expenditures, while all other funds are used to account for enterprise activities, internal service activity, major capital improvement projects, and special revenue sources that are restricted for specific purposes. The General Fund budget is balanced and includes total sources of $333.7 million, which include operating revenues and interfund transfers in. Total uses of $321.5 million include operating expenditures and interfund transfers out.
As illustrated in the table below, appropriations for operating expenditures are balanced in relation to projected revenue sources, and one-time revenue sources and reserves have not been utilized to balance the budget. The budget as proposed results in a structural budget surplus of $12.2 million, which means that the surplus is not the result of one-time revenues and is expected to continue in future fiscal years until such time as additional ongoing expenditures are added to the budget.
General Fund Operating Revenues and Transfers In
The General Fund operating revenues for FY 2025-26 are projected at $332.5 million, which is approximately $9 million (2.8%) higher than revenues projected for FY 2024-25. This growth is supported by a strong local economy, and most notably due to the continued strength of the Newport Beach real estate market (property tax revenue is the City’s largest source of General Fund revenue). *Gross TOT revenues amount to approximately $41.3 million. Visit Newport Beach receives 18% of transient occupancy tax (TOT) on a gross basis. Beginning January 1, 2025, VNB will receive 23% of Hotel TOT on a gross basis and 0% of Residential TOT. Payments to VNB are estimated to amount to approximately $7.3 million in Fiscal Year 2025-26. TOT revenues are estimated to be $33.9 million, net of amounts remitted to VNB.
FY 2025-26 General Fund operating revenues are projected to increase by $9 million over the amounts projected for FY 2024-25 primarily due to the following:
Property Taxes – Approximately one-half of General Fund revenue is derived from property taxes, the City’s largest source of revenue, which is projected to increase $7.4 million (4.8%) in FY 2025-26. This is largely related to a 2% increase in assessed values for the annual inflation adjustment that is capped at 2% under Proposition 13. Assessed values are also projected to increase due to changes in ownership and new construction.
Sales Tax – The second largest funding source for the General Fund is sales tax revenue, making up 14% of General Fund revenues. The City’s sales tax base is largely generated from four major industry groups including Autos and Transportation, General Consumer Goods, Restaurants/Hotels, and the State and County Pools. Sales tax is projected to grow 4.6% over the amount projected for FY 2024-25. The growth in sales tax revenue is largely due to strong sales projected from Restaurants/Hotels and a rebound of sales from Autos and Transportation, which will also boost the City’s share of the State and County Pools.
Transient Occupancy Tax - Transient occupancy tax (TOT) provides 10% of all General Fund revenues and is estimated at $41.3 million before the portion that is paid to Visit Newport Beach. The net revenue to the City is $33.9 million for FY 2025-26. TOT revenue is projected to increase $1.3 million (4.1%) in FY 2025-26.
Pursuant to City Council Policy F-3, revenue projections are based on conservative assumptions to minimize adverse deviation from expected results and to ensure that the City has adequate financial resources to meet obligations and complete the programs approved by the City Council.
Transfers In
Interfund transfers into the General Fund from other funds total $20.7 million, which relate to reimbursement of costs incurred by the General Fund on behalf of other funds. These transfers are from the Tidelands Fund to offset costs for activities, programs and functions whose primary purpose benefits the Tidelands. Newport Beach’s Tidelands include the ocean beaches where the visitor impacts are high, adding revenue but also causing significant expense in terms of police, lifeguard and emergency medical response.
General Fund Operating Expenditures and Transfers Out
The total General Fund operating expenditures amount to $321.4 million ($278.3 million without transfers). This represents a $10.2 million, or 3.3%, increase from the Fiscal Year 2024-25 adopted budget, and is made up of several increases and decreases to expenditures.
The majority of Salary & Benefit expenditure increases are the result of placeholder salary increases of 2% for the City’s various employee associations. Negotiations are underway with each of the bargaining groups and will be incorporated into the budget as they are approved. FY 2025-26 will mark another year of accelerated pension liability payments to CalPERS, which is approximately $6 million more than the minimum amount required to be paid to CalPERS. This aggressive funding plan will improve the City’s funded status and provides for long-term fiscal sustainability.
General Fund operating expenditures excluding Salary & Benefit costs and transfers out are increasing by $2 million. This is primarily due to increases to operating budgets based on CPI, as well as other non-personnel enhancements. These increases are offset by internal service charge decreases of $1.7 million, which are primarily related to Other Post Employment Benefits (OPEB), for which the liability is now fully paid.
Program Enhancements
Contained in the proposed budget are enhancements to current programs and new programs that are in line with the City Council’s budget priorities. Included in these enhancements are staffing changes, as further detailed in the following section of this report, in the City Manager, Community Development, Fire, Finance, Harbor, Library, Public Works, Recreation and Senior Services, and Utilities Departments. Other major enhancements included in the proposed budget include contract prosecutorial services for the City Attorney’s Office; a new vehicle for Code Enforcement; increases for fire station maintenance; fire equipment internal service charges; recruitment and physical budgets and wellness program and benefits budgets for Human Resources; funding for the 3-year Sculpture Garden exhibition period; various increases to Police line items including Flock ALPR Data Storage; wildlife care expenses; and vehicle washing expenses; additional funding for facilities maintenance; parks hazard and mitigation expenses; contract inspector funding; additional funding for equipment maintenance operations; North Star Beach Summer Restrooms and Sewer Video Inspection Services.
Transfers Out
General Fund transfers out total $43.2 million transferred to other funds to address long-term obligations in high priority areas including $8.6 million to the Debt Service Fund plus an additional $6.8 million to the Facilities Financial Plan, together which exceed 3% of General Fund revenues as stipulated in Council Policy F-28. They also include $6.5 million for General Fund capital improvement projects, $2.5 million to the Facility Maintenance Plan, $2.3 million for Park Maintenance CIP projects, $6.0 million to the Tidelands Capital Fund, and the $10.6 million subsidy to the Tidelands Operating Fund.
Citywide Staffing Changes (All Funds)
The FY 2024-25 authorized position count is 775 full-time positions and 146.49 full-time equivalents of part-time positions. The proposed net staffing changes for FY 2025-26 will result in an increase of 7 full-time positions for a total of 782 full-time authorized positions and a decrease of 1.04 full-time equivalent part-time positions, for an authorized part-time total of approximately 145.45 full-time equivalent positions. Staffing changes are summarized in the following table.
New full-time positions proposed for inclusion in the budget include the following:
Addition of one Management Analyst in Community Development to assist Real Property
Addition of one Public Works Crew Chief
Addition of one IT Engineer assigned to Cybersecurity
Conversion of 2.25 FTE Part-time Lifeguard Officers to 3.00 Fulltime Lifeguard Officers Part-time staffing changes will provide additional support for the enforcement and education of diversion of organics and recycling and overseeing special programs such as residential care facilities, sidewalk vending, short-term lodging, special events, and the residential building record program. Lastly, there are various position reclassifications and conversions of part-time positions to full-time, as shown in the table above, and salary adjustments included in the budget that do not increase the total FTE count for the City and address departmental reorganizations. All changes to positions will take place in the pay period which includes July 1, 2025.
Chapter 2.28 of the Newport Beach Municipal code (NBMC) addresses the establishment of classifications and salary ranges. Section 2.28.030 states the City Manager shall review and recommend changes to the City Council at least annually. It has been the City’s practice to bring forth the City Manager’s recommendations annually during the budget approval process.
In addition to the NBMC requirements, CalPERS requires all pay schedules (Attachment B) to be publicly available. The pay schedule must meet the following requirements:
1) be duly approved and adopted by the employer’s governing body in accordance with requirements of applicable meeting laws; 2) identify the position title for every employee position; 3) show the pay rate as a single amount or multiple amounts within a range for each identified position; 4) indicate the time base, including, but not limited to, whether the time base is hourly, daily, biweekly, monthly, bi‐monthly, or annually; 5) be posted at the office of the employer or immediately accessible and available for public review during normal business hours or posted on the employer’s website; 6) indicate an effective date and date of any revisions; 7) be retained by the employer and available for public inspection for not less than five years; and 8) not reference another document in lieu of disclosing the pay rate. Council’s approval of Attachment B with approval of the budget facilitates compliance with these requirements. Changes included in the salary schedule not previously discussed include:
Changes to the titles in the Harbor Service Worker Series:
Harbor Service Worker renamed to Harbor Safety Officer
Harbor Service Worker, Lead renamed to Harbor Safety Officer, Lead Salary ranges have been adjusted to adhere to the State of California minimum wage increases, as necessary.
Salary schedules for the Mayor and City Council were increased by 3.0% in accordance with City Charter Section 402.
Updated Appendix A of the Key & Management Compensation Plan to add the title of the IT Engineer, Cybersecurity Finance Committee’s Recommended Use of the Structural Budget Surplus The General Fund budget as proposed includes an excess of revenues over expenditures of $12.2 million. This surplus is structural in nature, meaning it is not the result of one-time revenues, and is expected to continue in future fiscal years absent appropriation of the surplus toward recurring expenditures. The Finance Committee recommends a $40 million payment from the baseline budget plus an additional $5 million added as a supplemental appropriation at year-end to CalPERS for the Unfunded Actuarial Liability.
As negotiations with bargaining groups are underway, the Finance Committee recommends that the City Council does not appropriate the remaining $12.2 million surplus at this time.
FISCAL IMPACT:
In accordance with the City Charter, the City Manager is presenting the City of Newport Beach’s FY 2025-26 proposed operating and capital budget and Fiscal Years 2025-2031 Capital Improvement Program Plan. The operating budget totals $376 million, the capital budget totals $68.9 million in FY 2025-26, and transfers for all funds total $87.9. The proposed General Fund budget is balanced, with revenues exceeding expenditures by $12.2 million.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A – Resolution No. 2025-34
Attachment B – City Manager’s Recommended List of City Position Classifications and Salary Ranges Attachment C – Updated Appendix A of Key & Management Compensation Plan 19-12
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Resolution No. 2025-33: Fiscal Year 2025-26 Budget Adoption, City Budget Hearing, and Recommendations from the Finance Committee June 10, 2025
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