That the City Council and Successor Agency: 
A. Receive and file the Fiscal Year 2025-2026 Mid-Year Budget Update;

B. Approve an appropriation in the amount of $195,000 from available General Fund revenues to the Community Development Department's professional services budget account 100402-52500;

C. Approve a $260,000 appropriation from the Successor Agency Low/Mod Income Housing Assets Fund for use toward the North Service Planning Area Navigation Centers; and,

D. Approve a $137,000 appropriation from Opioid Settlement Funds for use toward the North Service Planning Area Navigation Centers.

The Fiscal Year 2025-2026 (FY 25-26) Mid-Year Budget Update is presented to the City Council for review and discussion. The General Fund, which supports most of the City’s core public services, is projected to end FY 2025-26 in a positive financial position with revenues over expenditures of approximately $1.43 million, primarily due to salary savings from a number of vacant positions.

The Mid-Year Budget review is an opportunity for the City to review projected year-end budget performance and to make adjustments as needed. Based on mid-year General Fund revenue performance and department revenue projections through the end of the fiscal year (June 30, 2026), staff anticipates General Fund revenues will close FY 25-26 essentially at budget estimates. General Fund Expenditures are expected to close the year approximately $1.47 million below the FY 25-26 Adopted Budget, reflecting a budget savings of 2.1%, mainly due to savings from vacant staff positions.

Property Tax: Revenues are estimated to end the year at $26 million, which is 1.5% or $378,000, higher than budget.

Bradley/Burns 1 cent Sales Tax: Revenues are estimated to end the year at $13.6 million, or approximately 0.9%, lower than the adopted budget, a decrease of approximately $126,000. It should be noted that current sales tax projections are based on activity through the 3rd Quarter (July 2025 through September 2025). Data from the 4th Quarter (October 2025 through December 2025) will not be available until mid-April and may impact the final sales tax revenue projections for the fiscal year.

Measure V 1 cent Transactions and Use Tax (TUT): TUT is projected to end the year at approximately $14.6 million, or $287,000 (1.9%) lower than budget. Measure V was approved by voters in November 2024 and collection began April 2025. The City’s FY 25-26 Budget adopted in June 2025 budgeted $14.9 million for the TUT.

According to the City’s revenue consultant, HdL, La Habra’s receipts from July through September were 6.8% above the third sales period in 2024. Excluding reporting aberrations, actual sales for this period were up 0.9%. The eight major retail sales areas that HdL examines and that makes up the bulk of sales and transaction and use taxes are bulleted below, along with their analysis of each sector:

The auto-transportation industry saw record-breaking zero emission vehicle sales, driven partly by soon-to-expire federal tax credits.

Business-industry sellers reported a modest increase in revenue when compared to the year-ago period.

Several regional and national chain store closures has had a negative impact on sales tax revenues generated in the general consumer goods category. In La Habra, major closures were related to several companies going out of business, including Joann Fabrics, Amazon Fresh and Howard’s Appliances, not to mention a number of pharmacies that have closed locations in the City and region.

Consumer demand in terms of restaurants-hotels was characterized by a shift towards savings, with diners moving from casual and fine dining to more affordable options like fast food.

Revenue from building-construction faced a significant slowdown marked by project delays, high interest rates and increased material costs.

Fuel-service station receipts were down statewide; however, the reopening of the Costco fuel stations after their remodel likely helped boost the City’s fuel sales for this period. The City’s share of the countywide use tax pool increased 8.6% when compared to the same period in the prior year.

Franchise revenue is projected to come in under budget at $2.3 million this fiscal year, or $159,000 (6.4%) below budget.

Use of Money and Property is projected at $3.3 million, a decrease of 4.1% or $140,000, largely due to the Federal Open Market Committee lowering the federal funds rate, which reduced investment yields for the City’s investment accounts.

Fines & Licenses are anticipated to come in near the adopted budget projection of $3.1 million.

Vehicle License Fees are expected to come in at $96,000, up by $31,000 compared to budget.

Fees & Charges revenues are anticipated to end the year at approximately $5 million, which is $285,000 (6.1%) higher than budget estimates. This is primarily due to significant increases in various fee revenues associated with higher than anticipated residential construction activity in 2025. Non-residential new construction also continues to trend higher, although slightly lower than 2024 levels. The robust construction activity currently occurring in the City has necessitated a request to increase the Community Development Department’s professional services budget to provide sufficient consultant support to help process the additional project workload. This additional cost is being offset by the additional fee and permit revenue that the construction activity is generating.

With regard to budgeted expenditures, departments in total are estimating that their overall General Fund expenditures will end the fiscal year approximately $1.47 million below their adopted expenditure budgets, representing a savings of approximately 2.1% compared to budget. Most of these savings are the result of a number of budgeted positions that are either currently unfilled or that were vacant for some period of time during the fiscal year before being filled. At fiscal year-end, it is estimated that Police, Fire and Ambulance costs (Public Safety) will comprise about 68 percent of what the City will spend this year in the General Fund.

Other major budgets in the City, such as the Capital Improvement Projects (CIP), water and sewer funds, and others, are generally expected to end the fiscal year at their approved expenditure budgets, with associated revenues tracking to budget projections.

The CIP Budget includes funding from multiple sources, such as the General Fund, special revenue funds, and enterprise funds, and includes approximately $51 million in projects for this fiscal year. Projects already completed include:

The City’s non-General Fund budgets have no notable changes from the FY 2025-26 Adopted Budget. Tables 4, 5, and 6 illustrate projects for Agency/Authority Funds, Enterprise Funds, and Internal Service Funds respectively.

After careful review of revenues and expenditures, staff recommends the following mid-year budget adjustments:

Community Development Department:
As discussed above, there has been a significant increase in the amount of building activity in the City so far this fiscal year. In order to provide timely and effective customer service support for both private homeowner projects, as well as new residential and commercial developments, it has been necessary to utilize more consulting support to augment staff. This increase in consultant costs is in direct relation to the increase in building activity, which has increased the demand for contract plan check and building inspection services. The increased activity has also resulted in increased plan check, permit and building fees that will help offset the increased cost to provide both staff and contract services. 

The amount of plan check activity and revenue at mid-year has already exceeded the $342,000 budgeted for the entire fiscal year. Staff is recommending the City Council consider approving an appropriation of $195,000 from these available General Fund revenues to the Community Development Department’s professional services budget, account 100402-52500, to fund additional contract consultant capacity associated with Building and Safety contract staffing through fiscal year end. Should the demand for services decrease, the Department will be able to reduce the amount of consulting support accordingly and not incur unnecessary costs.  

Additionally, Staff recommends the Council approve a $260,000 appropriation from the Successor Agency Low/Mod Housing Fund and a $137,000 appropriation from Opioid Settlement Funds for use toward the North Service Planning Area Navigation Centers. The North Service Planning Area (North SPA) is comprised of the cities in Northern Orange County who jointly operate regional Navigation Centers located in the cities of Buena Park and Placentia to serve the unhoused. The Navigation Centers were originally funded by the Permanent Local Housing Allocation (PLHA), which are funds from the State’s Department of Housing and Community Development (HCD) program meant to be a permanent funding source for local governments to provide affordable housing, rapid rehousing, and emergency shelter operations. The PLHA is funded by real estate transaction fees meant to increase housing and reduce homelessness. However, as there have been significantly fewer real estate transactions over the past two years, there has been an associated drop in PLHA funding. Staff recommends the Council approve utilizing special revenue funds from the Successor Agency Low/Mod Housing Fund and the Opioid Settlement Funds to help fund the City’s commitment to the operating costs for the two Navigation Centers. Doing so will reduce the need to allocate the City’s General Fund resources for this obligation. It should be noted that the Opioid Settlement Funds have narrow eligible uses for the City and the State has approved cities to use those funds to support Navigation Center operations as an acceptable use.

Although Measure V addressed the City’s imminent budget challenges from the increase in the Los Angeles County Fire Department fire services contract and what would have been the sunset of the prior Measure T, there continue to be challenges to General Fund revenue. HdL is forecasting sluggish but stable economic performance in the region, and the potential for broader economic shifts related to national tariff policies, trade agreements, interest rate levels, and inflationary pressures.

Statewide, consumers appear to be more cost-conscious and are prioritizing value, both in goods and services like restaurants. A notable statewide trend is the decline in revenue from fuel-service stations—marking the 10th out of the last 11 quarters with negative year-over-year change. While lower gas prices may encourage spending in other categories, potential oil refinery closures in the coming year could keep per-gallon prices elevated. The broader incorporation of alternate fuel and electric vehicles is also impacting fuel demand and sales. Fuel sales at service stations are a major component of sales tax revenue for the City and is an area that staff will continue to monitor.

HdL also notes the food and drug sector continued its downward trend as grocers remitted lower tax payments. Drug store filings have declined throughout the year, driven partly by increased consumer access to medications through e-commerce platforms and a contraction in physical store footprints due to over-saturation and chain bankruptcies. While medication is largely exempt from sales tax, cities have benefited from the sale of ancillary taxable products at drug stores, so the closures of drug stores in communities can have meaningful impacts to customer choice, jobs and sales tax revenues. Additionally, large retail vacancies in La Habra have occurred over the past year or more from the closing of major retailers such as JoAnn Fabrics, Howard’s Appliances, and Amazon Fresh which also impact sales tax revenues, shopping choice and local employment.

An operational challenge for the City and its ability to continue providing quality service is the number of staff vacancies across virtually all departments. There are currently 16 full-time positions and 37 part-time positions vacant. That said, it is important to note that full-time vacancies are down from 36 vacancies at the same time last year due to Human Resources redoubling its efforts on recruiting. Part-time vacancies are up from 29 part-time positions vacant in the City at the same time last year, especially as many prospective employees are seeking full time work.

Similar to many local governments in the region, the City has experienced high levels of attrition over the past several years due to retirements and resignations.

Some positions, particularly those requiring specific degrees and certifications, such as engineers and building inspectors/officials, can be very challenging to fill, so the City has been temporarily backfilling certain vacancies through the use of contract consultants. This has been effective in providing timely, professional and experienced personnel to serve the public, but the City’s focus is to recruit and retain qualified full-time employees for these positions.

Staff is beginning to prepare the draft FY 26-27 budget with the City in a secure financial position, however, market and economic uncertainties continue to challenge the stability of the municipal revenue environment in Southern California. Staff will continue to monitor City budgets and will adjust projections as needed for both the balance of the current fiscal year, as well as in preparation of the FY 26-27 budget.

There is no impact to receive and file the FY 25-26 Mid-Year Budget Update.

It is recommended that the City Council approve the requested mid-year budget adjustments, including $195,000 to be appropriated from available General Fund revenue and allocated to the Community Development Department's professional services budget in account 100402-52500 to fund additional contract consultant costs associated with the City's Building and Safety Division.

The Successor Agency Low/Mod Income Housing Assets Fund and Opioid Settlement Funds both have limited allowable uses. Staff recommends the Council appropriate $260,000 from the Successor Low/Mod Housing Fund and $137,000 from Opioid Settlement Funds for use toward the City’s obligation to help fund North Service Planning Area Navigation Center operations and reduce the impact on the City’s General Fund.

The final calculation and allocation of any potential year-end General Fund carryover will be made after the end of FY 25-26 when final revenue and expenditure performance for the fiscal year will be recorded and reported to the City Council as part of the City’s annual audit process.

GENERAL PLAN RELEVANCE:
LU 17.1 – Adequate Community Supporting Uses
ED 9.1 – Balance Fiscal Practices
ED 9.2 – Long-Term Infrastructure Viability

CITY COUNCIL GOALS & OBJECTIVES:
Goal 2, Objective A: Closely monitor revenues, expenditures, and fiscal trends to ensure the City's long-term fiscal stability.