Hermosa Beach City Council will receive a fiscal outlook tonight, framing the 2026-27 budget process around an annual structural deficit of roughly $3.2 million and a strategic shift away from balancing the budget with one-time funds.

The staff presentation marks the opening of the budget cycle and is the first of seven items the Council will consider before adopting a final budget on June 23.

Hermosa Beach · FY27 budget

A structural deficit, no longer hidden

Council study session, April 28, 2026

FY27 structural deficit

$3.2M

Recurring costs exceed recurring revenues. The FY26 budget was balanced with one-time funds. By staff's own assessment, that approach is not sustainable.

General fund reserves

$10.6M

20% target, one-time use only

Year-end carryforward

FY 2025-26, down from $5.8M in FY 20-21

The widening gap

General fund operating budget, FY26 to FY31 ($ millions)

Costs are projected to grow 4 to 6 percent annually; revenues 2 to 4 percent. The structural gap widens each year of the forecast.

Cumulative deficit, FY26–FY31

$19.3M

Sum of forecast annual gaps if no corrective measures are taken. Nearly twice the city's current general fund reserves.

Pushing costs up

LA County fire contract

+26% over 3 years, ~$1.8M

Lifeguard + beach maintenance

$4.9M/yr, currently parking-funded

Pensions and labor

+4.9% / +3% per year

Police overtime

$1.18M est FY26, up from $900K in FY24

On the table

STR tax enforcement

Up to $5M retro, ~$1M/yr ongoing

Sales tax measure

~$1M per ¼¢, voter approval

Parking measures

$1.5–$2.0M, in progress

Department reductions

Up to 10% scenarios in development

Looming, not in the operating forecast

$20M

City Yard, no funding source

$50M+

Pier project, long-term

$8–12M

Annual basic CIP need

Source: City of Hermosa Beach FY27 Budget Study Session staff presentation, April 28, 2026. The Hermosa Review.

The structural problem

Staff describe the deficit as the gap between recurring revenues and recurring costs. The core message is that the city has been balancing budgets with surpluses, vacancy savings, and federal pandemic relief, and those one-time sources are now exhausted or unreliable.

Post-COVID budgets relied on roughly $4.6 million in emergency (ARPA) funding, ongoing vacancy savings, and Capital Improvement Program delays to close gaps. Those funds were redirected to insurance, fleet replacement, and capital project deficiencies. Staff conclude that "temporary balance masked structural issues."

Vacancy savings have run between $1.3 million and $1.5 million annually for at least five years, equivalent to 4.7 percent to 6.5 percent of budgeted personnel costs. Staff describe that figure as a structural budget gap rather than genuine savings, and warn that small staff size means vacancies directly affect service delivery.

Carryforward funds, used to seed CIP, equipment replacement, and the insurance fund, have steadily declined. The city carried forward $5.8 million in unspent funds in FY 2020-21 and $3.8 million in FY 2021-22. The figure for FY 2024-25 is $2.24 million. The figure projected for FY 2025-26 is zero. This reflects an improvement in infrastructure project completion, but means that reserved funds for those works have now been used up.

What costs are doing

Staff project recurring costs growing 4 percent to 6 percent annually, with revenue growth of 2 percent to 4 percent. Property tax is forecast to grow 3 percent to 4 percent, with sales tax and transient occupancy tax growing 1 percent to 3 percent.

The five-year forecast shows General Fund expenditures rising from $57 million in FY 2025-26 to $70.9 million in FY 2030-31. Revenues are projected to reach $66.9 million over the same period. The gap widens each year.

Labor costs are projected to rise 3 percent annually and pension costs 4.9 percent. The Los Angeles County fire contract is rising 26 percent over three years, an increase of about $1.8 million. The county also provides lifeguard services at roughly $3.4 million annually and beach maintenance at $1.5 million annually, both currently funded through parking structure revenue share rather than directly from the General Fund. Staff flag exposure if those revenues decline or costs increase.

The presentation identifies two major capital obligations not reflected in the operating forecast: a City Yard replacement estimated at roughly $20 million with no identified funding source, and a pier project carrying a $50 million-plus long-term obligation.

CIP needs alone run $8 million to $12 million annually at the low end for basic infrastructure, according to the presentation, and current funding relies heavily on unpredictable state and county special funds.

Police overtime keeps climbing

Estimated FY 2026 police overtime is $1.18 million, up from $1.03 million in FY 2025 and $900,588 in FY 2024. Staff describe police overtime as structural, driven by 24/7 minimum staffing and response time requirements that require backfill. Public works overtime is estimated at $178,579 in FY 2026.

Reserves

The General Fund reserve target was raised from 16 percent to 20 percent in FY 2023-24. Current reserves stand at roughly $10.6 million. Staff describe reserves as a one-time tool for financial stability, not budget balancing, and note the 20 percent target falls within the 15 percent to 25 percent range typical for cities.

Measures already in motion

Several revenue and operational measures are in progress. Parking rate and program changes are projected to generate $1.5 million to $2 million. Parking citation increases are expected to add $400,000 to $600,000. A fee and cost-recovery update on the same Tuesday agenda is projected to generate roughly $1 million. Business license enforcement is projected at $100,000.

On the operational side, staff cite an ERP system upgrade, recreation software implementation, parking citation system improvements, and enhanced data and performance tracking. Departments are being asked to develop reduction strategies of up to 10 percent. Vacancy management is being applied position by position.

Staff estimate the combined potential impact of revenue and reductions at $2 million to $7 million-plus, with explicit acknowledgement of service trade-offs, delayed programs, and workforce capacity constraints.

Future revenue options

The presentation lays out several policy-level revenue options for Council direction.

Short-term rental tax enforcement is identified as a near-term opportunity, with up to $5 million in potential retroactive collections and roughly $1 million in ongoing annual revenue from transient occupancy tax and business license enforcement. The figures follow the Koerner v. City of Hermosa Beach ruling that found the city's STR ban unenforceable in the coastal zone.

A local sales tax measure is included as a Council policy option. Each quarter-cent increment would generate roughly $1 million annually and would require voter approval.

Other options include dynamic parking pricing in the beach and downtown areas with peak weekend and summer rates, optimized leases on city-owned property, and modernization of the Landscaping and Street Lighting assessment district. That assessment has been unchanged since 1996 and now requires a roughly $400,000 annual General Fund subsidy. Staff also flag stormwater funding, where an outdated fee drives a $700,000 annual General Fund subsidy. Both assessment changes would require a Proposition 218 process.

A long-term section of the presentation raises the possibility of targeted 'upzoning' to relax height and density limits in key corridors, with the stated goal of growing property, sales, and tourism tax revenue.