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El Segundo officials present balanced $220 million budget, warn of pension-driven structural deficit within three years
Summary
City staff proposed a balanced $220 million budget for fiscal 2025–26 that keeps a 25% reserve but forecasts an operating gap in about three years driven largely by rising pension costs and capital spending needs.
El Segundo City Manager Daryl and Chief Financial Officer Paul presented a proposed $219 million-plus budget at the May 5 budget study workshop that city staff described as balanced for 2025–26 but vulnerable later in the forecast period due to pension costs and capital needs.
Paul, the city’s finance director, told the council the budget presented “a balanced budget tonight,” while warning that his multi‑year forecast shows an operating shortfall beginning in year three. He told the council staff modeled a scenario in which revenues grow modestly while expenditures — driven in part by pension obligations — grow faster.
The nut graf: the budget keeps the city’s reserve at 25% (about $24.9 million) and includes the planned $2.9 million unfunded accrued liability (UAL) payment to CalPERS for the coming year, funding for 7 new police officer positions and six months of operations and staffing for the new plunge aquatic facility. Those line items, staff said, together are the primary upward pressure on next year’s spending.
Staff gave the following top‑level figures: total proposed all‑fund appropriations of about $219,080,572 and a general fund baseline near $104 million. The plan includes roughly $5.2 million of general‑fund capital projects for 2025–26. Paul said the budget assumes flat revenues for the coming year and emphasized a conservative revenue outlook: “We did not project any significant revenue increases in this budget.”
Pension liabilities figure prominently in the forecast. Paul told the council the $2.9 million UAL payment is included for next year and said pensions could rise further depending on CalPERS investment performance. He summarized the long‑term sensitivity: even without new hiring, pension costs could push operating expenditures higher and eventually outpace revenues.
Council members and staff also discussed other drivers and offsets: low city debt and a past pension obligation bond that the city locked in at a favorable rate, diversified revenue sources including a large Chevron Tax Revenue Agreement (TRA) payment, and the city’s forecast that property tax growth will remain capped by Proposition 13 rules. Paul said the city’s diversified revenue mix helps “shelter us” from sharp downturns but is not a complete shield.
On reserves and contingency, staff noted the city is keeping the economic uncertainty reserve intact at $2 million even though overall reserves are higher than in past years. Several council members questioned whether that separate $2 million account is still necessary now that the reserve target is 25%.
Staff will return with a final proposed budget for adoption June 3. Paul told the council he would reflect any policy changes discussed at the workshop when the budget comes back for adoption.
Ending: The finance presentation focused on maintaining service levels while calling attention to growing long‑term pension obligations and capital needs; city staff urged the council to consider revenue options or other long‑term measures as forecasts show a structural gap forming within a few years.
