City may face near-term deficits; consultants present scenarios to narrow gap

Huntington Beach city staff and consultant Urban Futures delivered a long-range financial plan to the City Council that showed operating deficits in the near to midterm and a projected inflection to surplus in the early 2030s, with a cumulative gap of roughly $50 million under the baseline scenario.

The baseline forecast, presented by David Kane, Interim Chief Financial Officer, and Jim Morris of Urban Futures (UFI), relies on the city’s FY25 adopted budget and 10 years of historical data. The model incorporates sources including Moody’s regional economic projections and local assumptions for CalPERS pension costs, ROPS waterfront receipts and emergency medical services reimbursements.

Kane said the plan’s purpose was “a strategic document that outlines the city's financial look,” and Morris emphasized the model’s role in testing options: “What if we do something different?”

The nut graf: the baseline projects that Huntington Beach would cover operating shortfalls by drawing on reserves, reducing the city’s contingency over time. Consultants presented two modest scenario adjustments — using certain one-time ROPS waterfront receipts in the general fund and adopting a UAL (unfunded actuarial liability) management strategy that could involve discretionary payments or Pension 115 trust deployment — that together roughly halved the modeled cumulative deficit.

Key details from the presentation included: - Baseline assumptions: the forecast begins with the FY25 adopted budget and carries current service levels forward; several MOUs are included while a few remain open. - Pension risk: CalPERS’ FY22 investment loss and the fund’s assumed 6.8% return drive a new city UAL that will require higher ongoing payments if CalPERS underperforms. - Revenue drivers and limits: Huntington Beach benefits from a diversified tax base and relatively low current debt, but some revenue sources (EMS reimbursements, one-time ROPS receipts) are uncertain or nonrecurring. - Not-included items: the forecast does not yet assume funding for identified critical infrastructure or full equipment-replacement needs; both increase fiscal pressure if added.

Morris showed that stacking two positive assumptions improved the city’s outlook materially but did not eliminate the need for near-term policy choices. He explained the model is designed to be interactive: staff and council can change inputs — revenue growth rates, pension strategies, transfers to capital — and see financial consequences over a 10-year horizon.

During Q&A council members pressed on cash-flow implications and the sensitivity of results to CalPERS returns. Kane and Morris noted the city receives major property tax payments twice a year and must maintain sufficient liquidity; they also reiterated that pension returns are an external wild card the city cannot control.

Councilmembers and staff agreed the next steps include two public town-hall meetings to gather community priorities (scheduled for February 24 at City Hall and March 12 at the Main Library) and further scenario work to identify options for narrowing deficits, including: prioritized service categorization, additional revenue tools, targeted use of reserves or pension trust assets, potential debt financing for capital needs, and energy-efficiency projects under ESCO assessments.

The presentation and model materials will remain available to staff for further refinement; councilmembers asked staff to return with more disaggregated scenarios and cash-flow projections.

The council did not take a formal fiscal-policy vote at the session; staff said they would present follow-up analyses and public engagement materials ahead of the upcoming budget cycle.