Hermosa Beach City Council on June 10 reviewed a proposed, balanced fiscal year 2026 budget that preserves a 20% general‑fund reserve, advances about $34 million in capital projects and asks council to reactivate a finance subcommittee to study revenue and cost options.

Interim City Manager Steve opened the budget workshop by calling the document “a living document” and saying, “The proposed budget for your consideration is balanced.” Administrative Services Director Brandon Walker gave a detailed presentation of revenue and expenditure assumptions and supplemental requests.

Why it matters: Council and staff said the city faces a near‑term budget squeeze despite a balanced FY26 plan. Staff forecast that costs could outpace revenues in FY2027–28 because several county contracts that Hermosa Beach shares or relies on — including lifeguard, beach maintenance and fire services — are up for renegotiation and could increase substantially. Officials also cited construction inflation, a new wave of tariffs and pension funding uncertainty as risks to the city’s five‑year outlook.

Key fiscal picture: Brandon Walker told the council property tax remains the city’s largest revenue source, at roughly 40% of general‑fund dollars; service charges make up about 18%; transient occupancy tax about 9%; and vehicle‑in‑lieu payments about 7%. Sales tax was described as a small portion of Hermosa Beach’s general fund compared with many nearby cities.

On expenditures, Walker said more than half of every general‑fund dollar supports public safety and personnel costs, with public works, parks and recreation, community development and management services following. The FY26 proposal keeps a 20% general‑fund reserve; Walker noted the Government Finance Officers Association recommends about 16%.

Capital and supplemental items: The budget includes a combined roughly $34,000,000 capital‑improvement program (CIP), of which about $15,000,000 is carryover from earlier years and roughly $15,000,000 is new projects. Among supplemental items presented to council were a $100,000 citywide beautification earmark, $75,000 for Fourteenth Street beach restroom maintenance, $50,000 for a street‑sign design and fabrication program at signalized intersections, $18,000 for a part‑time intern to support community outreach events such as Coffee with a Cop, and $45,000 for gates and site work at the South Park after‑school courtyard. Public works staff described the $45,000 estimate as a conservative, bid‑ready placeholder for metal swing gates and associated work.

Technology and equipment needs flagged in the workshop include a $135,000 server replacement tied to core systems (finance, records and dispatch) and a $310,600 replacement bucket/lift truck that public works says is 23 years old and increasingly costly to maintain.

Risks and contingencies: Staff singled out FY2027–28 as the most uncertain period in the five‑year projection. Walker and Interim City Manager Steve said anticipated county contract renewals — particularly for lifeguards and beach maintenance — could produce cost increases the city must plan for now. Walker said staff has built conservative assumptions into the projections and will ask council to reconvene a finance subcommittee to analyze long‑term trends and revenue options. "I'll be asking that council reactivate its finance subcommittee to do a deep dive with the city treasurer and our staff into our financial trends," Interim City Manager Steve said.

On pensions and other long‑term liabilities, staff reported the city’s OPEB (retiree health) funding currently stands at about 150% of the actuarial requirement and that an existing pension‑stabilization (Section 115) trust holds roughly $1 million to help mitigate CalPERS volatility. Staff warned, however, that CalPERS underperformance would increase city costs.

Emergency operations plan and grants: The budget included $90,000 to update the city’s emergency operations plan, but Administrative Services Director Brandon Walker recommended removing that item from the FY26 budget while staff pursues grant funding and best practices from neighboring communities. “We would be comfortable, foregoing this item at a at a council level and reallocating the $90,000 while we pursue grant opportunities,” Walker said.

Revenue assumptions and near‑term decisions: Staff said FY26 revenue projections assume a modest stabilization: property tax growth is expected to be steady, overall revenues are forecast to grow roughly 2%, and interest‑income assumptions were made conservatively. Walker told the council the drop in projected interest income year‑over‑year reflects a conservative budgeting choice rather than poor investment performance: the city estimated a roughly $1,300,000 decline in interest income from the prior year in order to avoid midyear budget gaps if rates fall.

Council questions and direction: Council members pressed staff on the sources of the projected headwinds (construction cost indices, tariffs and county contract negotiations). Council Member Jackson urged staff to include a review of administrative citation collections and cannabis delivery tax compliance as part of revenue‑collection work. Mayor Pro Tem DeToy asked for clarity on OPEB and the Section 115 trust; Walker and staff explained the 150% figure refers to retiree health funding at present market values and that the Section 115 is a separate pension‑stabilization reserve.

Public comment and next steps: Two speakers in the study session—David Grama (resident and public‑works commissioner) and John Burry (resident)—highlighted items they’d noticed in the budget packet, including funding for the housing element and declines in intergovernmental/grant revenues. Staff said formal adoption will be scheduled before the July‑1 start of the fiscal year, and that the council will be asked to reactivate the finance subcommittee afterward to consider revenue options, contract reviews and projected FY2027–28 cost increases.

No formal motions or votes were taken at the June 10 study session; staff returned multiple supplemental requests and recommendations for council consideration at the adoption hearing scheduled later in June.

Closing: The council closed the study session with direction to staff to continue refining estimates, pursue grant and interagency information where feasible, and return with formal budget adoption materials in two weeks.