AGENDA ITEM
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SIAMLU COX
ADMINISTRATIVE SERVICES OFFICER / FINANCE DIRECTOR
SUBJECT:
title
RESOLUTION ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2026-27 (YEAR 1) AND RESOLUTION ESTABLISHING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2026-27
summary
Summary:
The City Council will consider adopting the first year of the biennial budget for Fiscal Year 2026-27. The City Council reviewed the proposed Operating and Capital Budget (Operating Budget) at the budget workshop held on May 19, 2026. The Operating Budget, as presented, is structurally balanced per City policy. In addition, the City Council will also consider resolutions adopting the Annual Operating and Capital Budget for Fiscal Year 2026-27; adopting the annual appropriations limit; adopting a city-wide pay schedule as required by the California Public Employees’ Retirement System (CALPERS); and adopting salary ranges for hourly, part-time employees.
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 & 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.
recommendation
Recommendations:
1. Adopt a Resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2026-27.
2. Adopt a Resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, APPROVING AND ADOPTING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2026-27.
3. The City Council shall consider potential adjustments to the compensation of Elected Officials and direct Staff to introduce ordinances reflecting updates to compensation for City Council members, the City Clerk, and the City Treasurer in accordance with state law, at the City Council Meeting of July 14, 2026.
4. Adopt a Resolution approving and adopting a city-wide pay schedule for the Signal Hill Employees’ Association, Signal Hill Police Officers’ Association, Management Personnel, and the City Manager, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, APPROVING AND ADOPTING A CITY-WIDE PAY SCHEDULE AS REQUIRED BY THE CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM (CALPERS), AND REPEALING ALL PRIOR RESOLUTIONS.
5. Adopt a Resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, APPROVING AND ADOPTING SALARY RANGES FOR HOURLY, PART-TIME EMPLOYEES, AND REPEALING ALL PRIOR RESOLUTIONS.
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Fiscal Impact:
The City’s Operating Budget provides program expenditure budgets for the General Fund in addition to the Water Fund, the Vehicle Replacement Fund, and Special Revenue Funds. The Operating Budget reflects Year 1 and Year 2 General Fund estimated revenues and transfers-in totaling $39,382,690 & $39,308,513 respectively, comprised of $37,878,346 and $38,469,426 respectively in operating revenues and $1,504,344 & $839,087 in non-operating revenues; and total appropriations and operational transfers-out in the amount of $39,382,690 in Year 1 and $39,308,513 in operating expenses (Attachment A).
The total revenues and proposed expenditures result in a projected balanced General Fund Operating budget. Staff projects the estimated General Fund unassigned fund balance will complete Year 1 and Year 2 at $30,686,044, and the Economic Uncertainties Fund balance will be $9,985,100, with an estimated total of $40,671,144. This amount represents approximately 106% of the General Fund budgeted operating expenses for Year 1 and 79% General Fund budgeted operating expenses for Year 2.
At the close of each fiscal year, the City returns any unused appropriations or revenues exceeding expenses to the fund balance. This residual fund balance can then be allocated for one-time, non-operating expenses or held as a reserve for future needs. Staff recommends that the City Council consider these one-time uses or reserve allocations for any unused appropriations when staff presents the final audited financial results for Year 1 in February 2027.
Background:
A community’s quality of life is rooted in the effective delivery of essential municipal services to residents and businesses. Cities provide leadership and governance; establish local laws; provide public safety and emergency services; deliver safe, clean, affordable water; provide recreational, social, and learning opportunities; oversee private development activities; build and maintain public infrastructure; and identify opportunities for reinvesting in the community. Therefore, how a city is funded and how well it is funded is vital to the delivery of these services and, ultimately, the quality of life.
Cities are constantly faced with the challenges associated with balancing limited resources against ongoing costs and demands of delivering essential services. Each year, the City establishes priorities and makes decisions to balance the needs of the community compared to available resources. A city’s budget memorializes and documents those priorities and decisions, serving as a framework throughout the fiscal year. The budget is a guide and financial plan developed to implement community priorities and goals, build upon past experience and performance, while anticipating new opportunities, and support continuous improvement.
Analysis:
Beginning in 2014, the City transitioned to utilizing a two-year budget format to reinforce the City’s commitment to long-term fiscal health. This approach provides a broader overview of the City’s capacity to continue meeting the costs and demands of delivering essential services and promoting long-term strategic planning, while retaining the fiscal control provided by annual budgets. Preparation of the two-year budget is an extensive process that involves a collaborative effort beginning with the City’s documented strategic goals and objectives. The budget is then drafted and reviewed in depth at a public budget workshop. The City Council adopts the first year of the budget by resolution and approves the budget for the second year.
In the second year, staff reviews the previously approved budget and presents it with recommended updates based on projected revenues and operational needs. This process is similar in concept to a mid-year budget review and affords the opportunity to adjust the second year as needed. Inasmuch as the City Council approves the second-year budget in conjunction with the two-year budget, it is not intended to be a complete re-evaluation of the City’s major goals and plans. Staff presented the proposed Year 1 Operating Budget for review and discussion at a duly noticed budget workshop on May 19, 2026, and it is now being presented for adoption.
Fiscal Year 2025-26 Review:
While the budget continued to reflect tempered optimism with the global and local economies facing challenges related to stubborn inflation, high interest rates, and geopolitical pressures, the City maintained a strong fiscal position with its long tradition of fiscal prudence and conservative budgetary management. The City’s FY 2025-26 Operating Budget focused on the continued delivery of quality core municipal services while proactively addressing public safety, deferred maintenance, and operational needs. The City also advanced efforts to create and maintain a work environment conducive to retaining, promoting, and attracting a successful workforce. In developing the budget for the major general fund revenues, the City relied on an analysis of historical performance and trends, as well as industry, economic, and news reports.
Staff developed the City’s expenditures as a conservative spending plan addressing City Council and community priorities. The City’s continued operations at full capacity include the expansion of current community programs, increased public engagement through communications, committees, leadership academies, and other city events, and plans for future economic development. The budget also reflects the utilization of special revenues and grant programs in the City’s capital plan and operational expenditures.
As mentioned, changing economic conditions have impacts on the City’s budget and lead to reevaluating spending strategies; the City’s future economic health will be dependent on maintaining healthy reserves through fiscally conservative budgets and policies, planning for economic development opportunities, and maintaining its strong financial position through prudent, long-range policy decisions and sound fiscal management. The City will continue to monitor key economic indicators, sources of revenue, and spending levels as part of its sound, conservative fiscal approach.
Staff continued delivering many programs, projects, and services that contribute to the high quality of life enjoyed by residents and businesses. Over the past three years, the City began placing a greater emphasis on focused efforts to address quality-of-life issues such as code enforcement, improving public park and facility maintenance, and ongoing efforts related to homelessness. During this time, the City has seen a decrease in public nuisances, improved park maintenance, and achieved Functional-Zero Homeless status. As we continue these efforts, staff will work to implement the City Council’s priorities as articulated in the adopted Five-Year Strategic Plan and through the adoption of the budget.
Fiscal Year 2026-28 Outlook:
Staff will continue delivering the quality core municipal services that our residents and businesses have come to expect and deserve. The City will continue expanding recreation and cultural arts programs with the opening of the new Signal Hill Amphitheater. The City will continue focusing its efforts on revenue diversification and economic development by making efficacious use of available fund balances and entering into public-private partnerships to develop City-owned properties. The City will continue building and maintaining a work environment that is conducive to retaining and promoting a successful workforce.
In keeping with the City’s fiscal sustainability strategy, staff relied on industry forecasts and historical and current data and applied these principles during the budget development process for the FY 2026-28 Biennial Budget. While the national economy remains relatively resilient, current economic conditions continue to create uncertainty for the City’s budget outlook. Inflation remains elevated, as energy costs, tariff-related pricing impacts, and broader geopolitical uncertainty continue to place pressure on prices. At the same time, interest rates remain high, and the Federal Reserve has not established a clear timeline for future rate reductions. Although the labor market continues to show signs of stability and most economists do not anticipate a near-term recession, higher borrowing costs and persistent inflation may continue to slow consumer spending, business investment, and development activity.
These factors could affect key City revenues, including sales tax, property tax growth, development-related revenues, and other interest-sensitive economic activity. Given the potential for slower revenue growth and continued cost pressures, the City should continue to take a conservative approach to budgeting by using cautious revenue assumptions, closely monitoring economic indicators, and preserving adequate reserves. For these reasons, staff adjusted sales tax revenue to account for reduced consumer confidence and spending activity in certain business sectors. Despite staff’s highly conservative revenue projections, the City’s budget remains balanced relative to its ongoing expenditures.
Signal Hill Measure R (Measure SHR) is a three-quarter cent per dollar (0.75%) general transactions and use (sales) tax that helps provide a reliable, locally controlled funding stream, ensuring revenue is not subject to State redirection. For Fiscal Year 2026-27, this tax is estimated to generate approximately $6 million in annual revenues. Measure SHR funding is vital to support programs such as street and pothole repairs, infrastructure maintenance, public area upkeep, 9-1-1 emergency response, and crime prevention. Measure SHR and the City’s diversified sales tax base have been major contributors to the City’s strong financial position. However, sales tax accounts for 66% of total City revenues, and the longer these economic headwinds persist, the more likely they are to have an impact on overall sales tax revenues. The Sales and Use Tax proposed in the FY2026-27 budget is $28 million, which reflects a $1.4 million reduction from the current FY 2025-26 budget of $29.4 million.
In recent years, the City has benefited from a high-interest environment, with receipts totaling $3.6 million in FY2023-24, and $3.9 million for FY2024-25. For FY2025-26, the City has budgeted $2.4 million in total Interest Income, of which $1.8 million is allocated to the General Fund. Current projections suggest that actual receipts will exceed the budgeted amounts. For FY2026-27, Staff is recommending a cautious Interest Income budget of $2.8 million, anticipating a decline in interest rates as the high-interest environment subsides, and a modest increase due to the City’s new investment and advisory contract. Of total interest, approximately $2.2 million is allocated to the General Fund. Staff will continue to provide periodic budget updates to re-evaluate budgetary assumptions and make necessary adjustments.
The City has always taken a conservative and disciplined approach to budgeting, which continues to serve the organization well. For this two-year budget cycle, the City is exercising additional caution in recognition of ongoing economic uncertainty, elevated costs, and the potential for slower revenue growth. This approach allows the City to maintain financial flexibility, thoughtfully evaluate spending priorities, and continue aligning ongoing expenditures with reliable, recurring revenues. At the same time, the City remains optimistic that consumer spending may improve over the budget cycle as borrowing costs ease and consumer confidence strengthens.
The City’s long-term fiscal health depends on maintaining healthy reserves, continuing prudent fiscal management, and making strategic policy decisions that support long-term sustainability. The City’s strategy involves making appropriately timed decisions related to changes in operating expenditures and capital improvements. The City will also continue to plan for economic development opportunities that can strengthen and diversify future revenues, while maintaining its strong financial position through conservative budgeting practices and disciplined long-range planning.
As noted, the City relies on a variety of funding sources to support its Operating and Capital Budget. The City received several outside funding sources and will continue to actively pursue grants and other external funding opportunities to support future programs and capital improvement projects. Over this upcoming budget cycle, the City has further leveraged these sources to reduce the need for General Fund transfer into the Capital Improvement Project Budget. The following section provides a summary of revenues, expenditures, reserves, and projects.
Federal and State Appropriations and Competitive Grant Awards
The City will utilize $2,785,000 CalTrans Active Transportation Program (ATP) Grant to fund the East Burnett Street Historical District Pedestrian and Bike Enhancement Project. This project is designed to enhance active transportation, offering safe, popular, and healthier modes of travel through improvements such as the installation of sidewalks between Gaviota Avenue and Cherry Avenue, a Class 2 Bike Lane between Walnut Avenue and Dawson Avenue, and related roadway amenities. The East Burnett Street Historical District Pedestrian and Bike Enhancement Project is projected to be completed by July 2027.
The City has successfully secured significant federal and state appropriations for projects. Through the Consolidated Appropriations Act (CAA), passed by Congress on March 15, 2022, the City obtained $1.8 million via Congressman Alan Lowenthal's office for the Civic Center Parking Lot Improvement Project; this project is slated for completion in Fiscal Year 2027-28. Additionally, the City received $5 million in funding through Assembly Bill 178 (Budget Act of 2022), through Senator Lena Gonzalez's office, to build a new amphitheater. This amphitheater comprises the First Phase of the Civic Center Master Plan. The project is under construction and will be finished during the first half of Fiscal Year 2026-2027. The adopted Civic Center Master Plan will continue prioritizing the development of future infrastructure improvements, including the Amphitheater, Community Center, and City Hall, as a multi-phased project that will continue to develop based on funding availability.
The City has also successfully secured several competitive grants. The City was among 385 grant proposals selected as a recipient of a $1 million USDA Urban and Community Forestry Grant (2023 Grant Awards), which was approved in August 2024. This funding, made possible by the Inflation Reduction Act, began in FY2025-26 and facilitated the planting of 1,000 new trees within City limits. This project will continue increasing the City’s urban forest coverage, enhancing shade equity, reducing urban heat island effects, and promoting improved overall air quality, aesthetics, and walkability.
Through the Los Angeles County Flood Control District's Safe, Clean Water Program (Measure W) Competitive Grant, the City was awarded $6.7 million in April 2025. The disbursement of funds to the City over a multi-year period will fund the design and construction phases of the Reservoir Park Stormwater Capture Project to rehabilitate the existing park and install a new underground infiltration (water treatment) system at Reservoir Park. Staff expects this project to be completed in FY 2029-2030.
Through Metro's I-710 South Early Action Program (Measure R) and the California Department of Transportation Highway Safety Improvement Program (HSIP) Cycle 12, the City secured approximately $5.2 million in grant funding to improve traffic operations and safety along the Willow Street and Cherry Avenue corridors. The project includes signal timing updates, coordination of 15 signalized intersections, installation of a fiber-optic communication network, protected left-turn phasing at eight intersections, enhanced signal visibility at three intersections, and pedestrian countdown heads. The project will improve corridor mobility, reduce congestion, and enhance safety for motorists, pedestrians, and bicyclists.
Through Metro's I-710 Congestion Relief Program, the City secured approximately $7.6 million in grant funding to improve traffic operations and reduce congestion along the Willow Street corridor between Walnut Avenue and Cherry Avenue. The project includes construction of dedicated eastbound and westbound right-turn lanes at Willow Street and Cherry Avenue, a second northbound left-turn lane on Cherry Avenue, protected left-turn phasing at Willow Street and Walnut Avenue, video detection systems, drainage improvements, and pavement rehabilitation. The project is currently in the right-of-way acquisition phase and is anticipated to improve intersection capacity, traffic flow, and roadway safety.
During the course of Fiscal Year 2025-2026, the City received $7.6 million toward its workforce housing projects. Of this amount, the City received $2.0 million from the Federal government and $5.6 million through the Gateway Cities Housing Trust Fund. In total, the City has secured $9.6 in funding for its workforce housing projects. The grant funding, along with the Housing Authority’s commitment of funds to the City’s development partner (National CORE), will allow the developer to secure additional funding through tax credit allocation programs and loans to build the projects.
The City submitted a FY 2027 Community Project Funding request through Congressman Robert Garcia's office seeking approximately $1.4 million for the Raymond Arbor Park Renovation Project. The proposed project will revitalize the existing neighborhood park through replacement of aging playground facilities, irrigation and water conservation improvements, upgraded lighting, sustainable landscaping, and enhanced recreational amenities. The project will also improve accessibility, sustainability, and overall park functionality while creating a more vibrant community gathering space for residents and visitors.
The City submitted a FY 2027 Community Project Funding request through Congressman Robert Garcia's office seeking approximately $1.6 million for the Hilltop Park Improvements Project. The proposed project would improve accessibility, connectivity, and visitor amenities through ADA-compliant pathways, shade structures, picnic shelters, self-cleaning restroom facilities, hydration stations, bicycle parking and repair stations, landscaping improvements, and wayfinding signage. The project will strengthen connections to the regional bicycle and trail network while enhancing one of the City's most visited recreational destinations.
The City submitted a FY 2026 Safe Streets and Roads for All (SS4A) Implementation Grant application requesting approximately $3.0 million in federal funding for the Signal Hill Elementary School Safe Routes to School Safety Corridors Project. The project proposes pedestrian, bicycle, drainage, and traffic calming improvements along Walnut Avenue and Hill Street surrounding Signal Hill Elementary School. Improvements include new sidewalks, ADA-compliant curb ramps, enhanced crossings, bicycle facilities, and school-area safety improvements intended to improve accessibility and safety for students, families, and other vulnerable roadway users.
Long-Term Financial Forecast
Long-term financial forecasts are crucial for sound fiscal management, enhancing transparency, encouraging fiscal discipline, identifying adverse trends, and promoting fiscal sustainability. Financial forecasts help the City Council consider the long-term costs of today’s commitments. The Operating Budget is part of a greater whole, setting the foundation for future fiscal health. Using the FY 2025-26 actuals and the proposed FY 2026-28 budget as a base, staff developed a high-level five-year forecast to provide a generalized outlook toward future revenues, expenditures, and potential changes to the General Fund balance.
The General Fund forecast includes the following assumptions:
• Averaged historical annual trends, industry expert estimates, and Consumer Price Index (CPI) data
• Consideration of only General Fund revenues and expenditures
• Revenues and expenditures providing services at full capacity, including approved decision packages
• Consideration of one-time expenditures
• Measure SHR revenue
• Increases to obligated costs
o CalPERS Unfunded Accrued Liability
§ Based on the CalPERS July 2025 valuation reports and Fresh Start program
o California Joint Powers Insurance Authority insurance
§ Based on historical trends
o Retiree medical costs
§ Based on historical trends
• Other financing sources used to pay debt service expenditures, including the early payoff of the 2018 Library Revenue Bonds in 2028, which also includes the potential for Civic Center Master Plan future funding
• Reserve transfers for Capital Outlay based on a long-range Capital Improvement Program model
Using the General Fund balance as a measure of financial resources, the outlook continues to be positive and is predicted to remain healthy over the long term. However, it is notable that the rising obligated costs could impact future long-term financial strategies. Each year, staff will review and refine the forecast, identifying the impact of one-time costs, analyzing economic changes, and re-examining fund balance targets to ensure adequate reserves are maintained.
General Fund Overview
The General Fund is the general operating fund of the City. All general tax revenues and other receipts not allocated by law or contractual agreement to restricted or special funds are accounted for in the General Fund. Expenditures of this fund include the general operating expenses and capital improvement costs, which are not paid through other funds. The Budget is balanced and reflects estimated revenues and transfers-in totaling $39.4 million, comprised of $37,878,346 in operating revenues and $1,504,344 in non-operating revenues. Total appropriations and transfers-out in the amount of $39,382,690 are included in operating expenditures. Staff would note that during the budget workshop presentation, the City Council approved decision packages for additional expenditures and transfers-out that are reflected in the budget.
See Attachment I, Table 1. General Fund Balance
As presented, staff estimates the General Fund unassigned fund balance will be $30,686,044 , and the Economic Uncertainties Fund balance will be $7,609,161. The combined total of the unassigned General Fund balance and the Economic Uncertainties Fund balance is estimated at $38,295,205; this represents 100% of the General Fund budgeted expenses.
Unused appropriations and revenues exceeding expenses at the end of every fiscal year revert to the fund balance. This residual fund balance can then be used for one-time expenses (non-operating) or put aside as a reserve for future purposes. After year-end financial results are analyzed, Staff will propose that the City Council consider any unused appropriations for one-time uses or reserves.
FY2026-27 General Fund Revenues
Total General Fund revenues, as shown in the table below, equal $38,374,596, including transfers in from outside the General Fund only. As noted in the FY 2026-28 Outlook section, sales and Use Tax is projected to decline, driven by anticipated loss of consumer confidence caused by the uncertainty of federal policies, which could continue to raise prices of goods and reduce spending in Fiscal Year 2026-27. Projections for Interest Income, included in the Use of Money and Property, are predicated on expectations of the Federal Reserve and anticipated interest rate adjustments. The General Fund is anticipated to receive a total of $496,250 in transfers. This total includes $5,000 from Proposition C, $300,000 from Gas Tax, and $191,250 from Measure W.
See Attachment I, Table 2. General Fund Revenues
Sales Tax
Sales tax represents approximately 66% of the City’s General Fund revenues and remains a critical component of the City’s overall financial outlook. In developing revenue projections, staff reviewed actual sales tax performance, historical trends, and relevant industry and economic reports. Consistent with the City’s philosophy of fiscal prudence and conservative budgeting practices, staff incorporated a cautious short-term outlook that recognizes continued economic uncertainty, including the potential impacts of federal tariff policies, inflationary pressures, and elevated borrowing costs.
Because sales tax revenues depend heavily on consumer spending and business activity, staff did not assume an immediate rebound in taxable sales during the two-year budget cycle. At the same time, the City remains cautiously optimistic that sales tax performance could improve if inflation moderates, borrowing costs ease, and consumer confidence strengthens. Stabilization in tariff policies, including through future trade agreements, could also support improved economic conditions and a stronger revenue outlook.
Accordingly, staff has taken a conservative approach to sales tax forecasting while recognizing the potential for improved performance if economic conditions strengthen over the budget cycle. This approach ensures that decisions regarding future one-time and ongoing expenditures remain appropriately measured and that the City maintains the flexibility needed to respond to possible economic fluctuations.
Property Tax
Property taxes make up approximately 7% of the City’s revenues and are projected to remain stable. The City is considered a no-to-low property tax city, receiving a significantly smaller portion of the property tax dollar, approximately 6 cents, compared to the average city allocation of 11 to 13 cents. Property tax revenues are predominantly a percentage of secured and unsecured taxable assessed values on the current property tax rolls. A second source of property tax revenue is from Vehicle License in Lieu of Fees (VLF) Adjustment Amount, which is based on a percentage of City-wide taxable assessed values. Both of the property tax revenues increase annually in proportion to the growth in assessed valuation. Signal Hill also receives residual property tax revenues from the Successor Agency (SA) that vary from year to year and are expected to decline as the SA annual loan payments to the General Fund escalate going forward.
Oil Production Barrel Tax
Oil production taxes make up approximately 1% of the City’s revenues. The rate per barrel is based on the Producer Price Index. The budget includes a conservative estimate, as projected revenues are dependent on fuel prices and supply and demand.
Investment Income
Investment income represents a positive area of revenue growth for the City over the two-year budget cycle. The City maintains a diversified investment portfolio that positions the organization to navigate market fluctuations while prioritizing safety, liquidity, and yield. The portfolio includes holdings in the California Asset Management Program, California CLASS, the Local Agency Investment Fund, government securities and municipal bonds, money market funds, and certificates of deposit.
Staff expects interest rates to remain elevated in the near term, therefore, City anticipates continued strong performance from its investment portfolio. In addition, the City recently engaged Chandler Asset Management Incorporated to provide professional investment advisory services. This strategic step is expected to further strengthen portfolio management and increase investment income revenues over the next two years, while maintaining the City’s conservative investment approach and commitment to prudent fiscal stewardship.
General Fund Expenditures
General Fund expenditures (excluding transfers out), as shown in the chart below, equal $38,464,519. This amount represents continued operations providing full municipal services while also including funding to address deferred maintenance, staffing, and operational and infrastructure needs. This budget also includes increasing obligated costs related to contract services, insurance, pension obligations, and unfunded mandates. Based on anticipated revenues, the expenditures are proposed to be 1.3% lower than the prior year’s current budgeted expenditures of $38,990,685, largely due to the increase in salary and benefits as a result of the new labor agreements, offset by differences in one-time annual expenditures year to year.
Staff would also note that the City’s conservative budget estimates account for staffing at full capacity, which assumes all positions are fully staffed during the entire fiscal year. Budgeting at full capacity is a best practice that allows the City to provide a true accounting of its ongoing annual personnel costs. Actual personnel expenditures accounted for at the end of the fiscal year will be based on actual staffing levels experienced during the fiscal year. The difference between budgeted personnel costs and actual costs may contribute to an operating positive fund balance in that fiscal year.
See Attachment I, Table 3. General Fund Expenditures
Budget Uncertainties
As in any given year, a degree of uncertainty surrounds the actual performance of the economy. Staff have identified the following factors for ongoing monitoring.
• Global and local economies continue to face ongoing challenges, including tariffs, inflation, and rising interest rates. These Federal policies have increased the cost of goods for capital projects. Locally, cities also continue to be challenged by unfunded mandates and legislative directives.
• Pension Cost fluctuations caused by CalPERS’ continual challenges to meet demographic and discount rate actuarial assumptions, as well as shortened amortization schedules for reducing unfunded liabilities. In Fiscal Year 2023-24, the City took action to mitigate the pension costs by entering a Fresh Start program and making an additional discretionary payment (ADP) to address the City’s CalPERS Unfunded Accrued Liability (UAL) costs. Changes in unfunded liabilities can still emerge due to assumption or method changes, changes in plan provisions, and actuarial experience different than those assumed in the annual valuation reports. However, the Fresh Start program and ADP helped stabilize the existing UAL annual payment plan and provided several benefits for the City, including a fixed annual dollar payment for increased budget flexibility, a three-year reduction in the UAL amortization schedule, and the potential to save the City $800,000 in interest costs.
Reserves
As noted, unused appropriations and revenues exceeding expenses at the end of every fiscal year revert to the fund balance. Each Funds’ balance can then be used for one-time, non-operating expenditures or set aside as a reserve for future purposes. All Committed Reserve funds are represented below:
See Attachment I, Table 4. General Fund Reserves
The proposed Budget achieves a balanced operating budget and utilizes reserve transfers to fund capital improvement projects, public art installations, and other projects outlined below:
• $5,945,333 from the Civic Center Master Plan (CCMP) Reserve for the City Hall renovation capital improvement project and Civic Center Master Plan - Phase I (Amphitheater).
• $1,648,349 from the Capital Improvement Reserve for various capital projects across the City.
• $620,000 from the General Fund to the Housing Authority as part of the Loan Repayment schedule from the Successor Agency to the City.
• $600,000 from the Workforce Innovation Reserve to assist with the Pilot Program for public safety brought to council on 6/9/26
• $445,000 from the Art Reserve for Public Artwork Installations at Heritage Point Park, Hilltop Park, Raymond Arbor, and the Amphitheater Grand Opening.
• $338,094 from the Police and Radio Reserve to pay for the yearly maintenance of the Motorola radios
• $191,000 from the Facilities Reserve for the City Hall Emergency Generator
In addition, $293,170 was transferred to reserves, allocated as follows:
• $268,170 to the Land and Building Reserve for future development opportunities
• $25,000 to the Art Reserve for future needs.
Reserve Policy
The Fund Balance Reserves Policy establishes three reserve types (i.e., Type I, Type II, and Type III). For Type I Reserves, the General Fund Unassigned Balance target is 55-80% of adopted General Fund expenditures, and the Economic Uncertainties Reserve target is 15-20% of the same. The combined threshold for Type I Reserves is 75% to 100% of adopted General Fund Expenditures.
Type I Reserves serve as the primary safeguard against unpredictable adverse events such as economic downturns. This category includes the General Fund Unassigned and Economic Uncertainties Reserves (highlighted in yellow in Table 4. General Fund Reserves). The proposed General Fund Unassigned Balance is $30.7 million (80% of operating expenditures), and the Economic Uncertainty Reserve is $7.6 million (20% of operating expenditures). The combined total of these reserves is 100% of the Operating Expenditures budget, which means the reserves meet the established target threshold for Type I reserves.
Type II Reserves, highlighted in orange in Table 4, include the CalPERS Reserve, OPEB Reserve, and Insurance Reserve; these are specifically designated for their identified purposes. Type III Reserves, highlighted in green in Table 4, function as savings for larger future expenses. The Capital Improvement Project (CIP) Reserve is a prime example, supporting our multi-year strategy for significant infrastructure projects.
Capital Improvement Plan (CIP)
The CIP Fund is used to account for financial resources segregated for the development, construction, and improvement of City facilities, streets and roads, parks, and water infrastructure. The Capital Improvement Plan includes new and existing projects, or project phases, representing an investment of $34.2 million. The City’s CIP plan maximizes the use of one-time and special revenue funds for each project, as detailed in the CIP Schedule. CIP projects for Water use funding from the Water Fund, and do not use the General Fund.
Water Fund
The Water Fund is an enterprise fund and is used to account for operations financed and operated in a manner similar to a private business enterprise. Costs (expenses, including depreciation) of providing water utility services to the public should be financed or recovered primarily through user charges. After completing the water rate study and Proposition 218 Hearing, the City implemented new water rates in 2025. The sale of water is estimated at $7,920,176, and the fund balance includes the General Fund loan proceeds to fund the Gundry Reservoir Roof Replacement & Coating capital improvement project, which will be completed in FY 2027-28. A summary of the Water Fund budget can be found below.
See Attachment I, Table 5. Water Fund
Special Revenue Funds
Special Revenue Funds are used to account for the revenues derived from specific revenue sources, which are legally restricted and usually required by law or administrative regulation to be accounted for in separate funds. Special Revenue Funds are distinguished from enterprise funds in that the services delivered are financed by a Special Revenue Fund (such as streets), and the user does not pay for the service based on actual use. Special revenues are estimated and included in the annual budget, and the City makes every effort to maximize the use of these funds as allowed. These funds are accounted for in the budget as a transfer-in to the recipient fund, as detailed in the Transfer and Special Revenue sections and the CIP schedule.
Community Development Block Grant (CDBG)
CDBG, enacted through the Housing and Community Development Act of 1974, receives and disburses CDBG monies for administration, social service programs, and capital projects. The Los Angeles Community Development Commission estimates the City will receive approximately $221,208 of CDBG funds, which will be used for the ADA Street and Sidewalk Improvements Capital Improvement Project.
Capital Grant Funds
The Capital Grant fund houses initial grant awards from external agencies to be used toward capital projects. Capital grants provide contribution funding to cover all or part of the cost of the City’s capital improvement projects, such as streets, parks, and infrastructure, and it is the City’s priority to pursue and maximize the use of grants on an annual basis.
Vehicle Replacement (Fleet Fund)
The Fleet Fund is an internal service fund intended to fund the replacement of City vehicles and maintenance and repair services. The fund is structured on a break-even basis, where costs are allocated back to each department’s overhead budget. The Fleet Fund’s cash balance is estimated to be $1,803,808 at the end of Year 1. Proposed fleet purchases, based on the City’s Vehicle Replacement Policy, are detailed below.
Vehicles are replaced based on an annual assessment, specifically when these have reached the end of their service life or are experiencing mechanical issues that necessitate a repair beyond the value of the vehicle. The typical replacement schedule varies by vehicle type: police vehicles are generally replaced after four years or 80,000 miles, while City light-duty vehicles are replaced when these are 10 to 12 years old. When feasible and practical, the City utilizes alternative fuel vehicles as replacements.
See Attachment I, Table 6. Vehicle Replacement Fund
Budget Workshop
The City Council approved seven decision packages during the Budget Workshop summarized as shown on the following Decision Package Summary Table. For Year 1, the proposed budget includes the approved expenditures totaling $473,000, comprised of $250,000 in ongoing, non-personnel-related expenditures, and $223,000 of one-time expenditures. The City will fund these decision packages by utilizing $113,000 from the General Fund, $40,000 from the Fleet Fund, $70,000 from the Art Reserve Fund, and $250,000 from the CIP Reserve as funds available. For Year 2, the proposed budget includes the approved expenditures for the Street Tree Master Plan Update totaling $50,000 funded by the General Fund.
See FY 2026-2028 Decision Package Summary Table
Post-Workshop Budget Updates
City Council, City Clerk, And City Treasurer Compensation Discussion
At the City Council Budget Workshop meeting of May 19, 2026, the City Council requested staff bring back an item related to City Council, City Clerk, And City Treasurer compensation. The City Charter Section 304. provides that City Council, City Clerk, and City Treasurer compensation may be periodically adjusted by Ordinance. California State law provides that charter cities are not limited in the compensation that may be paid to members of the City Council. However, the City of Signal Hill City Council has voluntarily followed State compensation levels for General Law cities. Government Code Section 36516(c) establishes compensation levels for city councils based on the population of the city and allows for annual increases equivalent to a five percent adjustment in salary for each calendar year from the operative date of the last salary adjustment. The adjustment is a straight percentage-based calculation, and the five percent increments cannot be compounded.
The Government Code provides that a salary adjustment may only become effective upon the beginning of a new term of office of one or more of the members of the City Council. The next term would commence after the November 3, 2026, General Municipal Election results are certified, and as a result, the increase would be effective December 8, 2026. Since the last increase occurred December 10, 2024, the City Council, City Clerk, and City Treasurer salaries may increase by ten percent (i.e. 5% per year x 2 years = 10%). Based on this calculation the maximum adjustment for the City Council Compensation would equate to an increase of $79.44 for a new monthly compensation level of $873.84 per month.
The City Clerk and City Treasurer salaries may be increased by $48.20 per month. This potential increase would bring the monthly salary to $530.24 per month as follows:
Staff recommends the City Council provide direction to staff to draft respective Ordinances summarizing desired increases for the City Council, City Clerk and City Treasurer compensation
City Council Development Budget
The professional development budget for City Council members was set at $2,750 per member in FY2015-16, and increased to $3,000 in FY2017-18, where it has remained unchanged. For the Biannual Budget, staff received direction to review and recommend adjustments to the City Council's Council Development allocation. Following this review, staff considered a proposed total development budget of $20,000, which provides approximately $4,000 per council member to better support Councilmember development.
FY 2026-27 (Year 1) Appropriations Limit
In November 1979, the voters of the State of California approved Proposition 4. The Proposition created Article XIIIB of the State Constitution placing limits on the amount of revenue that can be appropriated each year. Proposition 111 amended Proposition 4 in 1990 by allowing cities to choose their annual adjustment factors for inflation and population growth.
The Appropriations Limit is computed annually by applying the greater of two change factors to the limit from the previous year. The adjustment factor for population is determined by either the change in percentage for the City or the County of Los Angeles. For inflation, the factor consists of the percentage change in California Per Capital Income (supplied by the State Department of Finance), or the percentage change in the local assessment roll due to the addition of local non-residential new construction.
The factors used in this year’s calculation were the change in California Per Capita Personal Income and the County’s change in population. The City reserves the right to adjust the Appropriations Limit later in the year. The impact of applying these factors is to increase the City’s appropriations limit to $108,018,196. The City’s tax proceeds are substantially under the established Appropriations Limit for Year 2.
Conclusion
The City’s long-standing fiscal practices, including careful consideration of future needs and strategic long-term planning, have helped Signal Hill maintain a positive and stable financial position. Staff prepared the budget aligned with the City’s Strategic Plan and with a continued focus on responsible resource allocation, service delivery, and long-term fiscal sustainability. Consistent with the City’s conservative budgeting philosophy, staff incorporated current and anticipated economic conditions into revenue and expenditure estimates, including ongoing inflationary pressures, elevated borrowing costs, and the potential for slower revenue growth during the two-year budget cycle.
The City remains well positioned to navigate these conditions. Signal Hill has a strong financial foundation, healthy reserves, and a demonstrated record of prudent fiscal stewardship. While staff continues to take a cautious approach to short-term forecasting, the City also recognizes opportunities for improved economic performance as borrowing costs ease, consumer confidence strengthens, and investment income revenues remain strong. As always, the Executive Management Team will continue seeking opportunities to improve efficiencies, manage costs, pursue outside funding, and respond effectively to external economic conditions that may impact available resources. Staff will also continue building on the accomplishments that have created fiscal stability for the City, while preserving a high quality of life for residents and supporting the local business community.
Signal Hill has consistently maximized opportunities while meeting challenges, delivering valuable municipal services, and advancing important capital projects. As the City looks ahead, it will continue to rely on conservative fiscal policies, forward-thinking leadership, strategic planning, and sound fiscal management to maintain its strong financial position and support the community’s long-term success.
Attachments:
A. Draft FY2026-2028 Operating and Capital Budget
B. Annual Operating Budget Resolution
C. Appropriations Limit Resolution
D. Exhibit A to Appropriations Limit Resolution
E. Resolution Approving City-Wide Pay Schedule
F. Exhibit A to City-Wide Pay Schedule
G. Resolution Approving Part-Time Salary Ranges
H. Exhibit A to Part-Time Pay Schedule
I. Staff Report Tables