El Segundo council adopts balanced 2025–26 budget, flags pension and long‑term gap

The El Segundo City Council on June 3 adopted a resolution approving the citywide operating budget, capital improvement program and the GANN appropriations limit for fiscal year 2025–26.

City Chief Financial Officer Paul Chung told the council the proposed budget is balanced for 2025–26, with conservative revenue assumptions and a 25% general fund reserve. Council members voted 5–0 to adopt the resolution.

Why it matters: The budget keeps the city’s reserves high and maintains current service levels but includes a $2.9 million payment for unfunded pension liability that staff flagged as contributing to a structural deficit starting in fiscal 2027–28. City leaders and staff said they expect the city will need to revisit revenue or expenditure choices in the coming year to avoid drawing down fund balance.

Chung presented a condensed version of the May 5 budget study session and the staffing and program changes incorporated since then. The presentation notes included the addition of sworn police positions (reduced from an earlier proposal of 69 to 67), a new after‑school program (“Club Cowabunga”) with start‑up costs offset in part by program revenue, and a conservative revenue forecast for next year.

Budget highlights and numbers presented by staff: - General fund revenues were presented at about $104.6 million for 2025–26 (Chung referenced $104,573,049 as the general fund figure shown to council). - Total city appropriations across all funds were presented at roughly $218.9 million. - The budget reflects a $2.9 million contribution for the city’s unfunded pension liability (UAL). - Full‑time equivalent staffing was listed at about 378.31 FTEs. - The proposed general fund capital improvement program (CIP) contribution was $5.2 million; total CIP for all funds next year was shown at approximately $28.8 million.

Chung told the council the budget assumes flat revenues next year and incorporated a 5% vacancy factor. He warned that, under the presentation’s forecasting assumptions (4% annual revenue growth vs. 7% expenditure growth), the city faces a structural shortfall beginning in 2027–28 and risks drawing down reserves over the five‑year outlook.

Council members pressed staff on the pension assumptions and the choice to pay the $2.9 million from the general fund rather than from the city’s pension trust. Staff explained the pension trust has earned higher returns than the CalPERS discount rate assumption and that maintaining that trust fund provided better interest earnings in recent years; CalPERS’ longer‑term assumptions and investment performance create a multi‑year lag in employer costs.

Council discussion also touched on possible revenue levers to address the forecast gap, including a sales tax increase (staff noted a 0.75 percentage point increase would yield roughly $9 million annually), a short‑term rental or transient occupancy tax change, and a potential change to the city’s transient lodging tax. Staff also noted the Chevron tax‑related agreement maturing in 2027 as an uncertain future revenue source.

The city manager and finance staff thanked department heads and budget staff for extensive work on the book; staff noted a recent meritorious review from the California Society of Municipal Finance Officers and said they had strengthened department narratives and financial detail.

What the council decided and next steps: Council adopted the budget and related financial policies by resolution. Staff will return to council with any budget changes if ongoing labor negotiations or later council direction require amendments. Several council members asked staff to return next year to revisit reserve policies and discuss potential revenue options ahead of the structural deficit identified in the five‑year forecast.

The council’s adoption preserves current service levels and a strong reserve posture while placing pension costs and medium‑term structural balance on the policy agenda for coming years.