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City staff present balanced 2026–27 budget but warn of looming structural deficit
Summary
City staff told the El Segundo City Council the proposed 2026–27 budget is balanced and preserves a 25% reserve, but forecasts show expenditures growing faster than revenues and a structural deficit emerging in later years; staff proposed several revenue options including a sales tax measure and TOT increase.
El Segundo city staff presented a tentative fiscal year 2026–27 budget that staff described as balanced and maintaining a 25% general fund reserve.
"We are pleased to present the 20 26 27 budget that is balanced," the city manager said, thanking department directors and finance staff for their work. Finance lead Paul told the council total all‑funds revenue is about $186.6 million, with $108 million in the general fund.
Staff said the budget reflects months of review and flagged several items not yet included—most notably a $315,000 cultural development allocation and pending labor agreements that will be added before final adoption. The presentation highlighted top revenue sources (sales tax, business license, transient occupancy tax and property tax) and one‑time items that affect comparatives, including a prior $2.2 million commercial hauling payment that will not recur.
Looking beyond the coming year, staff presented five‑ and 10‑year forecasts showing a potential structural deficit beginning in the 2027–28 fiscal year if current trends continue. The forecast assumes 4% annual revenue growth and 7% annual expenditure growth; staff said those assumptions reflect historical patterns over recent years. "If everything stays the way it is, expenditures will eventually exceed our ongoing revenues," Paul said.
To address the gap, staff outlined options the council could consider: a sales tax measure (Measure C) up to 0.75 percentage point that staff estimated could raise about $9 million annually at the maximum; a 1 percentage point increase in the city's transient occupancy tax (roughly $1 million annually); and an increase to the utility users tax, which staff estimated would bring roughly $0.5–$1.0 million depending on the rate. Staff also reminded the council that the Chevron tax reimbursement agreement (TRA) expires next September and that negotiations remain unresolved.
The council did not take final votes in the study session. Staff said they will incorporate council direction, resolve outstanding MOU items and return with a clean budget for adoption at a June 2 meeting.
