REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Travis Hopkins, City Manager
VIA: Robert Torrez, Interim Chief Financial Officer
PREPARED BY: Zack Zithisakthanakul, Assistant Chief Financial Officer
Subject:
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Approve FY 2024/25 Year-End Budget Adjustments, Year-End Audit Entries and Transfer Recommendations
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Statement of Issue:
The Finance Department is completing the year-end closing process for Fiscal Year 2024/25, which began on July 1, 2024, and ended on June 30, 2025. Certain budgetary transfers are needed to reconcile the budget with actual expenditures incurred; to comply with auditing, actuarial, accounting, and legal requirements; and to align with City Council's strategic goal of fiscal stability. City Council authorization is requested to perform these reconciliations in order to officially close Fiscal Year 2024/25.
Financial Impact:
1. Appropriation Increases: Appropriation increases of $94,195 are requested to reconcile the budget with actual expenditures incurred in the Bella Terra Parking Structure Fund (Attachment 1).
2. Appropriation and Inter-Fund Transfers (various funds): Appropriation increases and inter-fund transfer authority of $301,906 are requested to reconcile the budget with actual expenditures incurred in The CDBG and HOME Funds (Attachment 1).
3. Appropriation and Inter-Fund Transfers (General Fund): Authorization is requested for appropriation and inter-fund transfers totaling $4,500,000 from the General Fund in the following amounts:
• Transfer of $2,500,000 to the Workers' Compensation Fund; and
• Transfer of $2,000,000 to the Equipment Replacement Fund.
Recommended Action:
recommendation
A) Increase appropriations for the Fiscal Year 2024/25 Revised Budget by $94,195 in the funds and amounts contained in Attachment 1 to reconcile the budget with actual expenses incurred; and,
B) Approve the $301,906 appropriations and transfers for the Fiscal Year 2024/25 Revised Budget in the funds and by the amounts contained in Attachment 1; and,
C) Approve the appropriation and transfer of $4,500,000 into the Workers’ Compensation, and the Equipment Replacement Fund from the General Fund year-end balances (see Attachment 1).
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Alternative Action(s):
Do not approve the recommended action, and direct staff accordingly.
Analysis:
The Fiscal Year 2024/25 Budget was adopted by City Council on June 4, 2024, for the fiscal year beginning July 1, 2024. The Finance Department has compiled recommended budget adjustments to cover additional costs and/or provide appropriations necessary to expend funds that have been received for specific purposes. The requested adjustments will be funded by available revenue or fund balances within each distinct fund.
The Finance Department is projecting an available General Fund surplus of $7.4 million for Fiscal Year 2024/25. This projected surplus is primarily driven by stronger-than-expected revenues and one-time receipts. Parking citation revenue increased from $4.24 million to $5.80 million, due to higher enforcement activity and improved collection rates. The City also received a one-time $4 million litigation settlement, contributing to the positive year-end position. In addition, investment interest earnings exceeded budgeted estimates, reflecting higher interest rates and steady cash balances. These combined factors, along with overall expenditure savings, have positioned the City to close the fiscal year with a surplus.
In order to align with the City Council’s Strategic Goal 2 - Fiscal Stability, staff is recommending the allocation of year-end surplus funds to bolster the Workers’ Compensation Fund and the Equipment Replacement Fund. Both funds continue to experience rising costs due to inflationary pressures, increasing claim severity, aging fleet and infrastructure, and higher replacement costs for vehicles, technology, and safety equipment. Proactively dedicating surplus revenues to these reserves strengthens the City's long-term financial position, reduces future reliance on the General Fund, and ensures the City can meet its current and future obligations without disrupting service levels. Sufficient funding in the City’s General Fund in Fiscal Year 2024/25 is available for the recommended funding detailed below.
Workers’ Compensation:
California Workers’ Compensation Law provides state mandated benefits to employees for work-related illness or injury. Benefits may include payments for medical treatment, salary continuation, Total Temporary Disability (TTD) benefits, and permanent disability benefits. The City is self-insured for its workers’ compensation program and is liable for all costs up to $1 million dollars per claim. The costs related to claims are paid for by the City as the Employer.
As of the most recent actuarial valuation dated June 30, 2025, the City’s workers’ compensation liability is estimated at $66.7 million, reflecting an increase from the prior year. While several factors may have contributed to the higher liability, the valuation confirms a continued upward trend in long-term costs. To address this obligation and improve the overall funded status of the program, staff is recommending an appropriation and transfer of $2,500,000 to the Workers’ Compensation Fund. This allocation will help offset the increase identified in the actuarial report and is expected to raise the funded ratio from 48% to approximately 52%.
Equipment Replacement:
The City’s fleet, technology systems, and major equipment continue to age, and replacement costs have increased more quickly than existing funding levels. Several scheduled replacements have been deferred in recent years to balance the operating budget, resulting in a growing backlog of vehicles and equipment that are beyond their useful life. Setting aside additional funds now will ensure the City can replace critical equipment in a timely manner, avoid higher repair and downtime costs, and maintain continuity of essential public services. For these reasons, staff recommends transferring $2,000,000 to the Equipment Replacement Fund to strengthen the balance available for future replacements and reduce the risk of unplanned General Fund impacts.
Inter-Fund Transfers and Budget Adjustments (Other Funds):
Technical year-end budget adjustments to the Fiscal Year 2024/25 Revised Budget are requested to align appropriations in certain funds with actual expenditures incurred through June 30, 2025, as actual expenditures cannot exceed the appropriation amounts contained in the Revised Budget. Adjustments are also required to ensure compliance with Generally Accepted Accounting Principles (GAAP), Governmental Accounting Standards Board (GASB), and other regulatory, contractual or legal requirements. Please note any appropriation increases are fully offset by commensurate amounts of revenues, available cash, or fund balances in each fund.
Bella Terra Parking Structure Fund (711):
An appropriation increase of $94,195.91 is requested to align the budget with actual Fiscal Year 2024/25 revenues and expenditures. The City collects a maintenance fee from the owners of the center which is used to fund maintenance and operations costs for the structure.
Revolving Loan and CDBG Funds (215 and 239):
An appropriation increase of $116,879.82 is requested to increase transfers out of the Revolving Loan Fund (215) into the Community Development Block Grant (CDBG) Fund (239) to reconcile funding with the Integrated Disbursement and Information Systems (IDIS) for the CDBG Program and show use of program income.
HOME Funds (240 and 854):
An appropriation increase of $185,026.26 is requested to increase transfers out of the HOME Program 06 Fund (854) into the HOME Fund (240) to reconcile funding with the Integrated Disbursement and Information Systems (IDIS) for the HOME Program and show use of program income.
Environmental Status:
Pursuant to CEQA Guidelines Section 15378(b)(5), administrative activities of governments that will not result in direct or indirect physical changes in the environment do not constitute a project.
Strategic Plan Goal:
Goal 2 - Fiscal Stability, Strategy A - Consider new revenue sources and opportunities to support the City's priority initiatives and projects.
For details, visit www.huntingtonbeachca.gov/strategicplan.
Attachment(s):
1. Fiscal Year 2024/25 Year-End Appropriations and Inter-Fund Transfers.
2. PowerPoint Presentation.