AGENDA ITEM
TO:
HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY:
SIAMLU COX
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
DEBBIE PACHECO
ACCOUNTING MANAGER
SUBJECT:
title
FISCAL YEAR 2025-26 MID-YEAR BUDGET REVIEW AND RESOLUTION AUTHORIZING APPROPRIATIONS FROM THE FISCAL YEAR 2024-25 GENERAL FUND OPERATING POSITIVE FUND BALANCE; CURRENT YEAR APPROPRIATION ADJUSTMENTS AND CAPITAL IMPROVEMENT PLAN BUDGET AND RELATED FUNDING; TRANSFERS FOR CAPITAL IMPROVEMENT PLAN PROJECTS; AMENDING THE FISCAL YEAR 2025-2026 BUDGET
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Summary:
The City Council will conduct a mid-year budget review regarding the City’s financial position based on the first six months of the fiscal year as of December 31, 2025, and consider adopting a resolution approving proposed budget adjustments. The proposed changes to the current fiscal year budget include proposed adjustments to the Capital Improvement Program Fund, Special Revenue funds, Water Fund and the General Fund.
Staff presented the Annual Comprehensive Financial Report (ACFR) findings for Fiscal Year 2024-25 at the December 9, 2025, City Council meeting. The ACFR highlighted a General Fund operating positive fund balance of approximately $7 million, which is a combination of revenues which came in higher than projected and operational savings. Staff recommends a distribution of the positive fund balance towards projects, programs, and reserves, further reinforcing the City's commitment to prudent fiscal management. The City’s General Fund reserve target is estimated to be at approximately 89% of the current year FY 2025-26 adopted budget expenditures after netting out all proposed appropriations.
This report will provide an overview of the financial results and a detailed list of proposed positive fund balance appropriations towards reserve allocations and other critical program, operational, and project needs.
recommendation
Strategic Plan Goal(s):
Goal No. 1 Financial Stability: Ensure the City’s long-term financial stability and resilience.
Goal No. 2 Community Safety: Maintain Community Safety by supporting public safety services and increasing emergency preparedness.
Goal No. 3 Economic and Downtown Development: Improve the local economy, support local businesses, and create a vibrant downtown core.
Goal No. 4 Infrastructure: Maintain and improve the City’s physical infrastructure, water system, and recreational spaces.
Goal No. 5 High-Functioning Government: Strengthen internal communication, recruitment, retention, systems, and processes to increase the effectiveness and efficiency of City services.
Recommendations:
1. Approve the proposed appropriations and reserve transfers from FY 2024-25 to FY 2025-26 operating budget and reserve balances, utilizing the current FY 2024-25 General Fund operating positive fund balance of $7,039,019.
2. Adopt a resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, AUTHORIZING APPROPRIATIONS FROM THE FISCAL YEAR 2024-25 GENERAL FUND OPERATING POSITIVE FUND BALANCE, CURRENT YEAR APPROPRIATION ADJUSTMENTS, AND CAPITAL IMPROVEMENT PLAN BUDGET AND RELATED FUNDING TRANSFERS, AND AMENDING THE FISCAL YEAR 2025-26 BUDGET
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Fiscal Impact:
FY 2024-25 closed with General Fund revenues exceeding expenditures, including net transfers, in the amount of $7,039,019. The proposed list of positive fund balance requests includes reserve fund increases, carryovers and one-time operating and capital improvement expenditures. Staff’s recommended actions would result in the changes below:
• Transfer to Type I Reserves totaling $4,175,837.
• Transfer to Type II Reserves totaling $1,924,304.
• Carry over General Fund budget appropriations totaling $103,779
• Increase one-time and ongoing General Fund budget appropriations totaling $250,056.
As a result of mid-year budget analysis, proposed budget changes would result in the changes below:
• One-time budget increases in the Water Fund would increase the expenditure budget by a total of $255,650.
• One-time budget increases in the Capital Projects Fund would increase the expenditure budget by a total of $59,406.
• One-time budget transfer from MTA STPL Special Revenue Fund totaling $28,024.
• One-time budget transfer from CDBG Special Revenue Fund totaling $6,960.
• Ongoing budget appropriations as a result of staff reclassifications totaling $24,017; General Fund - $3,047; Water Fund - $10,535; and Fleet Fund - $435.
Background:
Since 2014, the City has operated on a two-year budget cycle to support long-term fiscal health and strategic planning. A positive year-end fund balance, such as the approximately $7 million positive fund balance from FY 2024-25, occurs when revenues exceed expenditures generally, as a result of higher-than-expected revenues, and/or lower than budgeted expenditures, or both. The City’s financial practices direct the allocation of year-end positive fund balance in alignment with its strategic goals and objectives. The General Fund Analysis provides a detailed overview of the ACFR financial results and outlines staff recommendations to allocate the positive fund balance toward various critical needs.
The City is operating in the second year of the Fiscal Year (FY) 2024-26 Biennial Operating Budget. The FY 2025-26 Approved Operating Budget (Year 2) focuses on the continued delivery of quality core municipal services and proactively addresses safety and maintenance needs while maintaining the City’s long tradition of fiscal prudence and conservative budgeting practices. The Year 2 Adopted Budget consists of a $68.7 million operating and capital improvement expenditure budget for all City funds, including a General Fund Operating Budget with projected revenues of $38.4 million (excluding transfers in) and expenditures plus capital outlay of $38 million (excluding transfers out).
This report provides the status of the Year 2 Budget based on year-to-date actual revenues and expenditures for the first half of the fiscal year through December 31, 2025. This review is not intended to be inclusive of all finance and accounting transactions and excludes encumbrances (funds reserved for a specific project or budgeting purpose). This review provides the City Council with an opportunity to consider economic assumptions and recommend adjustments to the operating and capital budgets based on revenues and expenditures.
General Fund Analysis
The General Fund is the City’s primary operating fund, comprised of local tax revenues and fees for services to fund core municipal services such as public works, police, planning, and recreation. The General Fund ended FY 2024-25 with revenues exceeding expenditures, including transfers, by $7,039,019.
As reported in the ACFR, the FY 2024-25 General Fund Operating and Non-Operating Revenues were $42.8 million (excluding transfers), or $5.5 million, above the FY 2024-25 final budget of $37.3 million and $0.9 million over the prior year’s FY 2023-24 actuals of $41.9 million (excluding transfers). As the fiscal year 2024-25 progressed, and during the budget preparation for Year 2, the City increased the year’s revenue projections to $40.7 million. The increase over the FY 2024-25 adopted Operating Budget was due to an overall increase in most revenue line items, with the largest increase in investment income of $1.7 million, an increase in charges for services for $0.68 million and an increase in miscellaneous revenue of $263,000. With interest rates holding steady, the investment portfolio and net investment income remained positive and provided overall interest income that was higher compared to the original budget.
The General Fund’s Operating and Non-Operating Expenditures (net of subscription and lease acquisition sources) were $31.5 million, which is $4.28 million below the FY 2024-25 final Operating Budget of $35.7 million and $2.2 million above the prior year FY 2023-24 actuals of $29.2 million. All departments ended the year with expenditures below budget, primarily due to vacancies, delayed projects, and lower use of planned contract services.
Transfers-out were $4.5 million, which is $4.3 million lower than the FY 2024-25 final Operating Budget. The net transfers are mainly made up of transfers-in to fund operating activities of approximately $117,455, transfers-out to fund capital improvements of $3.97 million, and the annual transfer-out to the Housing Authority for approximately $414,461, representing 20% of the annual loan repayment between the City and the Successor Agency.
Staff has summarized the General Fund Operating Results in Table 1 and 2. The Beginning Fund Balance in the FY 2024-25 Operating Budget was $75.8 million. Revenues and transfers-in less operating expenditures and transfers-out resulted in a year-end positive fund balance of $7,039,019. After reflecting revenues, expenditures, and net transfers, the actual Ending Fund Balance, as of June 30, 2025, was $82.8 million.
Mid-Year General Fund Analysis
The General Fund is the general operating fund of the City. This fund accounts for all general tax revenues and other receipts not allocated by law or contractual agreement to other funds. Receipts of various revenues (such as property tax) does not occur on a pro-rated, monthly basis; therefore, percentages of revenues collected year-to-date do not reflect the same percentage of the fiscal year expenditures that have elapsed. Expenditures from this fund include the general operating expenses and capital improvement costs.
General Fund Revenues
Staff closely monitors all revenue sources. Fiscal Year 2025-26 shows that the City's largest revenue source, Sales and Use Tax, is projected to reach $26.7 million by the end of the fiscal year. Use of Money & Property, the second largest budgeted revenue source, is expected to generate $3.19 million, primarily attributed to the City’s diversified portfolio earnings returns. Property Tax, historically the City's second-largest revenue source, follows closely behind with a budget of $2.68 million. Staff will continue to monitor this data and provide updated Year 2 projections during the budget workshop. The table below summarizes revenues for the current fiscal year as of December 31, 2025.
Sales Taxes
Signal Hill’s current sales tax revenue portfolio remains elastic. The City receives 1% of the 9.5% Bradley-Burns Local Sales and Use Tax applied to goods sold in the City (point of sale), in addition to Measure SHR, the voter approved 0.75% add-on sales tax. The City’s sales tax is budgeted at $26.7 million (net), representing approximately 68% of the General Fund budgeted revenue.
The City’s major sales tax industry groups include Business and Industry, General Consumer Goods, and Autos and Transportation. The City’s Business and Industry represent approximately 24% of total sales tax receipts, maintaining a relatively stable share year after year. General Consumer Goods accounts for roughly 21%, reflecting continued resilience in household and necessity-based spending compared to prior fiscal periods. Autos and Transportation industry sector continues to provide a steady revenue source, accounting for approximately 19% of total collections, though its share reflects a modest softening compared to the prior year as vehicle demand continues to normalize.
State and County Pool Allocations comprise approximately 14% of total Sales and Use Tax, remaining volatile but consistent with prior-year trends as online purchasing and pooled transactions continue to comprise a meaningful share of total activity. Building and Construction accounts for approximately 13%, continuing a downward trend from the prior year as consumers defer large home-improvement purchases despite short-term interest rate relief. Restaurants and Hotels, Fuel and Service Stations, Food and Drugs, and Transfers collectively represent the remaining balance of revenues and remain generally stable relative to the prior year.
Overall, sales tax revenues are projected to remain relatively flat in the near term. Consistent with prior-year trends, the forecast assumes tempered growth in select categories in the out-years, with modest growth in General Consumer Goods, stronger but moderating growth in State and County Pool Allocations, and flat to minimal growth in Food and Drugs, aligning with conservative economic and consumer spending expectations.
Use of Money and Property
Use of Money and Property includes rent revenue and returns on the City’s investments and represents about ten (10%) percent of the General Fund. The Federal Reserve's federal funds rate target range has been reduced to 3.5% to 3.75% which influences short-term interest rates for other financial instruments but can put downward pressure on long-term yields. The City is maximizing the opportunity by strategically diversifying its investment portfolio across the Local Agency Investment Fund, California Cooperative Liquid Assets Securities System, California Asset Management Program, California Fixed Income Trust, government securities, municipal bonds, money market accounts, and certificates of deposit. Staff provides monthly investment updates to the City Council for review.
Property Taxes
Property taxes account for the next largest revenue source, representing seven percent (7%) of the General Fund. Property Tax is predominately made up of the taxes received from assessed property values and the property tax received in lieu of Vehicle license fees (VLF). As a reminder, the City is considered a no-to-low property tax city, receiving only 0.0678%, or 6 cents per dollar, of the City’s total taxable assessed property value. Additionally, a portion of the City's assessed taxable property belongs to the redevelopment agency, further limiting property tax revenue. The City’s receipt of property taxes does not follow the calendar year, and therefore percentages of property taxes collected year-to-date do not reflect the same percentage of the fiscal year that has elapsed.
Other Taxes
Other Tax Revenue is primarily comprised of Franchise Taxes, Transient Occupancy Taxes (TOT), and Real Property Transfer Tax. Franchise taxes comprise the majority of this category, with the largest franchisors being Southern California Edison, EDCO, and Charter Communications. TOT is self-reported and paid for by each lodging facility. Real Property Transfer Tax is the smallest segment in this category and varies yearly based on property sales. Overall, revenue from other tax sources is trending on target.
The City of Signal Hill historically relied on oil production revenue; however, Oil Production Revenue currently constitutes only approximately 1% of the City's total revenue. Oil Production Tax revenue, a component of "Other Taxes," continues to decline primarily attributed to a decrease in the Producer Price Index whose adjustment is evaluated once a year on July 1st.
General Fund Expenditures
At mid-year, the General Fund operating expenditures across all City departments are at 32% of budgeted expenditures. The City Council established a goal to ensure long-term fiscal stability, relying on the efficient and effective use of City resources. Department Directors continue exercising fiscal discipline while managing their annual budgets. The Maintenance & Operations and Capital Outlay balances reflected in the table below exhibit seasonality and timing differences between when products and services are rendered and when they are recorded in the City’s financial system, but all departments are expected to conclude the fiscal year in line with the current budget.
General Fund Reserves
As reported in the ACFR, the General Fund Unassigned Reserve is $30.7 million, and the Economic Uncertainties Reserve is $5.8 million, for a total of $36.5 million as of June 30, 2025. Based on the original FY 2024-25 General Fund budgeted expenditures of $34.9 million which does not include net transfers, the General Fund Unassigned Reserve and Economic Uncertainties Reserve together represent a reserve level of 104% at the end of the fiscal year, which exceeds the City’s target minimum reserve level.
The grand total of the General Fund Committed Reserves, and the Unassigned General Fund Balance was $72.8 million on June 30, 2025. The Committed Reserves are classified fund balances that may only be used for the specific purposes determined by the City Council through the adoption of a resolution prior to the end of the fiscal year; staff has summarized Committed Reserves balances and changes reflected on the following Table.
Reserve Appropriations and Reallocations of FY 2024-25 Positive Fund Balance
For FY 2024-25, the General Fund closed with revenues exceeding expenditures in the amount of $7,039,019 (including net transfers), as shown in Graph 1.
This positive fund balance, available for a one-time allocation, provides the City Council with an opportunity to direct funds towards projects, programs, or reserves, further reinforcing the City's commitment to prudent fiscal management. Staff proposes allocating approximately 87% of the positive fund balance to the City’s reserve funds; the summary of proposed allocations is listed below for the City Council’s consideration:
Replenishment and augmentation of reserve funds (also see Attachment B - Table 4)
The following table shows the proposed mid-year and positive fund balance changes to the fund balance reserves.
The chart below shows a summary of all positive fund balance proposed changes by category.
See Attachment B - Tables 4-8 for detailed requests.
Water Enterprise Fund
The Water Enterprise Fund is used to account for operations financed and operated in a manner similar to a private business enterprise, where the intent of the City Council is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis, be financed or recovered primarily through user charges.
The sale of water for Year 2 is estimated at $7.36 million, and sales to date are $3.53 million, 47.99% of budgeted sales. At mid-year, operating expenditures are at 37.98% of budgeted expenditures, which is primarily due to the delayed Gundry Roof Reservoir project, and vacancies within the Water Department.
Proposed Mid-Year Budget Adjustments
As part of the mid-year review, the City Council has the opportunity to consider budget adjustments that consist of new appropriations, reallocation of currently budgeted funds, and adjustments to funding sources for capital projects.
The Year 2 mid-year review highlights that the General Fund’s overall revenues align with budget projections. Should the City Council approve the proposed budget adjustments, the overall impact on the respective funds are as follows:
• One-time budget increases in the Water Fund would increase the expenditure budget by a total of $255,650.
• One-time budget increases in the Capital Projects Fund would increase the expenditure budget by a total of $59,406.
• One-time budget transfer from MTA STPL Special Revenue Fund totaling $28,024.
• One-time budget transfer from CDBG Special Revenue Fund totaling $6,960.
• Ongoing budget appropriations as a result of staff reclassifications totaling $24,017; $3,047 General Fund; $10,535 Water Fund; and $435 Fleet Fund.
Attachments:
A. Positive Fund Balance and Mid-Year Appropriation Resolution
B. Reserve Transfers, Current Year Appropriations, and CIP Adjustments (Tables 4-8)
C. Mid-Year CIP schedule Summarized by Project
D. Mid-Year CIP schedule Summarized by Funding Source