REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Travis Hopkins, City Manager
PREPARED BY: Zack Zithisakthanakul, Acting Chief Financial Officer
Subject:
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Consider Adopting Resolution No. 2026-24 to Adopt a Budget for the City for Fiscal Year 2026/27 Authorize the Corresponding Appropriation and Transfer; Authorize the Professional Services included in the Fiscal Year 2026/27 budget to be representative of the services projected to be utilized by departments; Approve revisions to the City’s Financial Policies to eliminate the automatic allocation of unassigned fund balance; Resolution No. 2026-20 Establishing the Gann Appropriation Limit for Fiscal Year 2026/27; Resolution No. 2026-22 Levying a Retirement Property Tax for Fiscal Year 2026/27 to Pay for Pre-1978 Employee Retirement Benefits; Resolution No. 2026-23 Adopting an Updated Master Fee and Charges Schedule; Resolution No. 2026-30 Adopting Amended Classification Plan by adding the classification Human Performance and Wellness Coordinator; Resolution No. 2026-31 Repealing the City’s Unfunded Accrued Liability Pension Funding Policy
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Statement of Issue:
The City Charter of the City of Huntington Beach requires a Public Hearing prior to the adoption of the City’s annual budget. The City Charter further requires adoption of the annual budget by June 30, 2026 for Fiscal Year (FY) 2026/27.
Financial Impact:
The FY 2026/27 Proposed Budget is structurally balanced. The All Funds Proposed Budget equals $592.4 million. The General Fund Proposed Budget totals $328.3 Million. Fund-level appropriations are contained in the attached herein.
Recommended Action:
recommendation
A) Adopt Resolution No. 2026-24, “A Resolution of the City Council of the City of Huntington Beach Adopting a Budget for the City for Fiscal Year 2026/27” (Attachment 2); and,
B) Authorize the Professional Services included in the FY 2026/27 budget to be representative of the services projected to be utilized by the departments in FY 2026/27 (Attachment 3); and,
C) Approve revisions to the City’s Financial Policies to eliminate the automatic allocation of unassigned fund balance to reserve categories and establish guidelines for its use to support the City’s long-term fiscal stability (Attachment 4); and,
D) Adopt Resolution No. 2026-20 “A Resolution of the City Council of the City of Huntington Beach Establishing the Gann Appropriation Limit for Fiscal Year 2026/2027” (Attachment 5); and,
E) Adopt Resolution No. 2026-22, “A Resolution of the City Council of the City of Huntington Beach Levying a Retirement Property Tax for Fiscal Year 2026/2027 to Pay for Pre-1978 Employee Retirement Benefits” (Attachment 6); and,
F) Adopt Resolution No. 2026-23, “A Resolution of the City Council of the City of Huntington Beach Adopting an Updated Master Fee and Charges Schedule” (Attachment 7); and,
G) Adopt Resolution No. 2026-30, “A Resolution of the City Council of the City of Huntington Beach Amending the City’s Classification Plan by Adding the Classification of Human Performance and Wellness Coordinator” (Attachment 8); and,
H) Adopt Resolution No. 2026-31, “A Resolution of the City Council of the City of Huntington Beach Repealing the City’s Unfunded Accrued Liability Pension Funding Policy by Repealing City Council Resolution No. 2021-19” (Attachment 9).
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Alternative Action(s):
A. Instruct City staff regarding changes to be incorporated into the budget and adopt the FY 2026/27 Budget and corresponding actions and resolutions as amended.
B. Continue the Public Hearing to a designated date.
Analysis:
The FY 2026/27 Proposed Budget is structurally balanced and totals $592.3 million across All Funds. The General Fund is the key operating fund within the City’s budget, as it provides traditional City services such as public safety, parks, recreation, libraries, etc. 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. FY 2026/27 General Fund resources are projected at $328.3 million. Major sources of General Fund revenue include Property Tax, Sales Tax, Utility Users Tax, and Transient Occupancy Tax, among others.
Capital Improvement Program (CIP)
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, parks and beach improvements, facilities, and water and sewer improvements. The FY 2026/27 CIP budget consists of $45.9 million in new appropriations. Specific project plans for this budget year are discussed in more detail in the CIP document. Unlike the operating budget, capital improvement appropriations are expended over multiple years due to the unpredictable nature of large construction projects that require environmental review, coordination of outside entities (public utilities) and design/policy considerations.
Professional Services
As established by Administrative Regulation Number 228, each department has submitted a list of professional services that are generally contained in their Proposed Budgets (Attachment 3). Professional services contracts are subject to compliance with Administrative Regulation Number 228 and City Ordinance Chapter 3.03.
General Fund Surplus Utilization
The proposed revision to the Financial Policies provides greater flexibility in the use of unassigned fund balance by eliminating the automatic allocation of audited available unassigned fund balance to designated reserve categories. The City currently maintains reserve levels that meet or exceed the Government Finance Officers Association (GFOA) recommended minimum of two months of regular operating expenditures and has established a strong financial position through prudent fiscal management.
In periods of projected structural budget imbalance, the use of unassigned fund balance may be considered on a temporary basis to offset budget shortfalls and support the City’s overall fiscal stability. Any use of unassigned fund balance for this purpose would be evaluated annually as part of the budget development process and would take into consideration the City’s projected financial condition, reserve levels, infrastructure and capital needs, long-term liabilities, and other financial obligations. The use of unassigned fund balance is intended to provide budgetary flexibility while maintaining the City’s commitment to long-term financial sustainability.
Gann Appropriation Limit
In November 1979, the California voters approved Article 13B of the State of California Constitution, which allows the City’s spending of tax proceeds to increase only by factors from the base year of 1978-1979. In June 1990, Proposition 111 was passed, which changed the way the limit is calculated and is outlined as follows. The City may increase its limit annually in two ways:
• By a percentage equal to the increase from the preceding year in county or city population (whichever is greater).
• By an amount equal to the change in per capita personal income in California or the change in the assessment roll the preceding year due to the addition of local non-residential new construction (whichever is greater).
The proposed appropriation limit for FY 2026/27 was calculated as follows:
FY 2025/26 Appropriation Limit $1,298,500,903
Multiplied by percentage growth in State Per Capita Personal Income 1.0495
Multiplied by change in County Population 0.9963
Proposed FY 2026/27 Appropriation Limit $1,357,734,424
Appropriations of revenues controlled by the Gann Limit are primarily in the General Fund. The General Fund proposed appropriation for FY 2026/27 of $328.3 million is significantly below this appropriation limit (Attachment 5).
Examples of proceeds of taxes governed by the Gann Appropriation Limit are property taxes, sales taxes, utility taxes, state subventions, fines, forfeitures, interest revenue on regulatory licenses, user charges, and user fees, to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service.
Employee Tax Override
On July 16, 2012, the City Council adopted an ordinance to permanently cap the tax rate at $0.01500 per $100 of assessed valuation. Therefore, the requested tax levy for FY 2026/27 reflects the same tax rate of $0.01500 per $100 of assessed valuation effective in FY 2012/13 pursuant to Chapter 3.07 of the Municipal Code. Fiscal Year 2026/27 will represent the Fifteenth year of the application of the permanent cap. The current capped Employee Tax Override results in an approximate $75 annual tax levy for a property assessed at $500,000. Revenue generated from this property tax helps the City fund public safety employee pension costs associated with pre-1978 retirement benefit levels. As such, the tax can only pay for the estimated costs associated with the public safety pension benefit formulas in place prior to the enactment of Proposition 13 on July 1, 1978. Hence, the tax can only pay for retirement benefits for all retired, current, and future public safety City employees that were contracted prior to July 1, 1978 (such as the 2% at 50 benefit formula for Safety employees in place before enactment of Proposition 13).
Due to the County of Orange’s timeline for approving the tax rate and the city’s budget cycle, the rate must be set before the City Council takes action on its annual budget. The recommended assessment rate would maintain essential services for Fiscal Year 2026/27 (Attachment 6).
Citywide Master Fee and Charges Schedule
The City’s current Master Fee and Charges Schedule was approved in 2025 and incorporates a full cost-of-service study based on FY 2023/24 budget data. Typically, a comprehensive study is conducted every three to five years, with interim updates in between to maintain alignment with actual service costs. These interim adjustments are essential to prevent erosion of cost recovery as operational costs increase. When a fee is set below full cost recovery, the General Fund typically provides a subsidy to cover the shortfall.
Annual Inflationary Adjustment
In the years between full cost-of-service studies, it is recommended that the City Council authorize annual inflationary adjustments to fees. These adjustments are based on the prior year’s percentage change in the Consumer Price Index (CPI) for All Urban Consumers in the Los Angeles-Long Beach-Anaheim area and are capped at maximum of 5% per year. The proposed update represents such an interim adjustment and includes CPI-based increases along with the addition of a new fee. A CPI adjustment of 3.00% is recommended for most development and operational permit fees, including:
• Building Fees - permitting for new construction or modifications to existing structures
• Planning Fees - entitlement review and zoning compliance
• Land Development Engineering Fees - public improvement plan review
• Encroachment Permit Fees - activities conducted in the public right-of-way
• Fire Prevention Fees - compliance reviews related to new and existing developments
General Fund and All Funds Revenue Impact
If the Master Fee and Charges Schedule is amended as proposed, General Fund subsidization of these fees would decrease thereby increasing available discretionary General Fund revenue to be used for capital projects, equipment, and other City Council priorities providing a broad public benefit.
Environmental Status:
Not Applicable
Strategic Plan Goal:
Non Applicable - Administrative Item
Attachment(s):
1. Public Hearing Notice
2. Resolution No. 2026-24, “A Resolution of the City Council of the City of Huntington Beach Adopting a Budget for the City for Fiscal Year 2026/27”
3. Professional Services Listing Fiscal Year 2026/27
4. Revised Reserve Financial Policy
5. Resolution No. 2026-20, “A Resolution of the City Council of the City of Huntington Beach Establishing the Gann Appropriation Limit for Fiscal Year 2026/2027”
6. Resolution No. 2026-22, “A Resolution of the City Council of the City of Huntington Beach Levying a Retirement Property Tax for Fiscal Year 2026/2027 to Pay for Pre-1978 Employee Retirement Benefits”
7. Resolution No. 2026-23, “A Resolution of the City Council of the City of Huntington Beach Adopting an Updated Master Fee and Charges Schedule”
8. Resolution No. 2026-30, “A Resolution of the City Council of the City of Huntington Beach Amending the City’s Classification Plan by Adding the Classification of Human Performance and Wellness Coordinator”
9. Resolution No. 2026-31, “A Resolution of the City Council of the City of Huntington Beach Repealing the City’s Unfunded Accrued Liability Pension Funding Policy by Repealing City Council Resolution No. 2021-19”