Hermosa Beach council reviews balanced FY26 budget, flags rising costs for county fire, lifeguard and deferred capital projects

Hermosa Beach City Council members and staff reviewed the proposed fiscal year 2026 spending plan at a June 10 study session, with staff calling the draft “balanced” but warning of rising costs ahead and asking the council to reactivate a finance subcommittee to study long-term options.

Interim City Manager Steve said the document is “the city's spending plan for the next year” and described it as “a living document.” He told council, “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 and explore ways to both cut costs and increase revenues.”

Administrative Services Director Brandon Walker reviewed the budget’s major assumptions and highlights. He said property taxes make up nearly 40% of general fund revenue, transient-occupancy tax (hotel bed tax) about 9% and vehicle-in-lieu roughly 7%. Walker said the city is presenting “a balanced FY26 budget” and that staff plans $34 million in capital improvement program (CIP) spending including roughly $15 million in carryover projects and about $15 million in new projects.

Why it matters: staff told council the city has healthy reserves today — a 20% general-fund reserve that exceeds the Government Finance Officers Association recommendation of about 16% — but that costs tied to pension liabilities, construction inflation and potential increases in LA County contracts for fire, lifeguard and beach maintenance could create larger deficits beginning in FY27–28. Brandon Walker gave an example, saying “over half of every general fund dollar goes to fire and employee services,” underscoring how labor- and contract-driven costs dominate the budget.

Key discussion points and supplemental items: Council asked detailed questions about several supplemental requests and long-term liabilities. Staff highlighted or proposed the following items (amounts as presented by staff): a $100,000 earmark for citywide beautification (unprogrammed), $75,000 for 14th Street beachfront restroom maintenance and rehab, $50,000 for street sign fabrication, $18,000 for a part-time intern to support Police Department community events, $135,000 for a server to support financial and records systems, $45,000 for courtyard flooring and water ceiling repairs at City Hall, $63,000 for HVAC and building maintenance increases, a $310,600 replacement bucket/lift truck for Public Works, $45,000 for South Park school patio gates and $10,000 for drinking fountains. Staff also included $60,000 for housing-element implementation work and increased funds for zoning ordinance updates.

Emergency operations plan: staff recommended removing a $90,000 consultant line for a new emergency operations plan from the proposed budget while pursuing grant funds and reviewing neighboring cities’ plans. On that point staff advised council: “we would be comfortable, foregoing this item at a council level and reallocating the $90,000 while we pursue grant opportunities and looking at best practices from other cities.”

County contracts, pension and other risks: multiple council members pressed staff about the scale and origin of risks cited in the presentation. Staff warned that LA County negotiations for lifeguard, beach maintenance and fire services could produce cost increases “as high as 20% or more” and that those increases are likely to affect FY27–28. The presentation also noted CalPERS’ assumed rate-of-return (6.8%) and said the city is sensitive to pension and OPEB market performance; staff reported the OPEB trust is currently funded at about 150% but cautioned that market swings would change that figure.

Revenue assumptions and next steps: staff project a modest 2% revenue increase in FY26, and Walker said the budget uses a conservative approach for interest-income estimates to avoid midyear shortfalls. He described efforts to pursue revenue maximization including updating fees and charges, reviewing meter and parking citation rates, and evaluating special-district funding such as stormwater and lighting districts.

Council direction and timing: no formal budget vote occurred at the study session. Staff said they will return with a formal adoption agenda item before the July 1 start of FY26 and that the council will be asked to reconvene a finance subcommittee after adoption to examine revenue and cost options.

Public comment and community concerns: two residents offered brief comments. David Graethon, identified as a resident and public-works commissioner, drew attention to items such as South Park improvements and zoning work; John Burry asked whether the budget’s projected decline in interest income reflected market assumptions or cash balances. Staff answered that the lower interest-income estimate reflects a conservative budgeting choice rather than an operational shortfall.

What’s next: staff will bring the budget back for formal adoption in roughly two weeks, pursue grant options for the emergency operations plan, and reconvene the finance subcommittee to review revenue and cost strategies ahead of expected contract negotiations with the county.