That the City Council receive and file the Proposed Fiscal Year 2026-2027 (FY 26-27) Budget presentation and direct staff regarding any revisions.

Over the past several months, staff from Administration, Finance, and all City departments have worked collectively to prepare a balanced FY 26-27 Proposed Budget for City Council review. The result is a proposed $186.2 million overall municipal budget, which includes a $72.9 million proposed General Fund operating budget.

The voter approval of the one-cent Measure V local Transactions and Use Tax (TUT) in November 2024 has had a stabilizing effect on the City’s General Fund finances; however, fiscal uncertainty remains on the horizon, namely related to rising energy prices and its potential to have an impact on the cost of food, transportation, retail, materials and supplies. While concerns about the potential economic impacts of tariffs still linger, inflation, which had been mostly contained, appears to be accelerating.

Some economists are expecting a potential cooldown in the US economy later this calendar year, with others are predicting a recession within the next two years. Such a slowdown, if realized, would likely impact the City’s sales/TUT tax revenues, now the City’s largest combined source of General Fund revenue. Property taxes, the City’s second largest General Fund revenue category, are projected to continue modest growth; however, a lethargic home sales market and limited housing supply, combined with relatively high interest rates, could impact this source of General Fund revenue as well.

Despite economic uncertainty, it is anticipated that the City’s longstanding practice of fiscally sustainable budgeting and maintaining stable reserves will enable the City to more effectively weather future fiscal challenges.

The City of La Habra is a mid-sized, full-service city with over 61,000 residents and several thousand retail, commercial and home-based businesses. For over 100 years, the City Councils of both past and present have endeavored to create a caring community centered around the well-being of its residents and local business community, promoting quality of life, and maintaining public safety, through sound governance and strategic fiscal policies.

The City of La Habra wrapped up its Centennial year during the first half of the current fiscal year and continued to make tremendous progress on numerous notable projects. Below are a few key accomplishments from this past fiscal year that demonstrate how the City continues to provide quality services and programs for the people who live, work, and play in La Habra.

Community Services Department

Administration

Child Development

Children’s Museum

Employment and Training

Recreation and Special Events

Social Services

Community and Economic Development Department

Administration (includes Housing and Economic Development)

Planning

Code Streamlining and Improvement Program

Building Safety and Code Enforcement

Administration & Support Departments (City Administration, City Clerk, HR, Finance and IT)

City Administration:

City Clerk's Office

Finance:

Information Technology:

Human Resources:

Public Works Department

Streets Rehabilitation Projects

Transportation & Traffic Safety Improvements:

Water, Sewer & Storm Drain Improvements:

Park Accomplishments:

Facility Improvements

Fire Department (contracted with Los Angeles County Fire Department (LACoFD), and Ambulance Operations (contracted with Falck Mobile Health Corp. [Falck])

Proposed FY 26-27 Budget

The overall FY 26-27 proposed Municipal Budget totals $186,163,123 across all City funds, of which the City's primary operating fund, the General Fund, is proposed at $72,920,250.
The Proposed FY 26-27 Budget analysis will primarily focus on the City’s General Fund, and will include the following:

General Fund
The proposed FY 26-27 General Fund revenue budget is $72.9 million, which is $2.6 million (3.7%) higher than the FY 25-26 amended revenue budget. The increase is primarily due to increased property tax revenues and modest increases in sales and TUT revenues.

The proposed FY 26-27 General Fund expenditure budget is balanced at $72.9 million, and is approximately $2.4 million (3.4%) higher than the FY 25-26 amended expenditure budget. The increase in budgeted expenditures is attributed largely to increases in Police Department operational costs related to higher labor costs, professional services agreements and technology costs. Additionally, Public Works costs have risen, largely due to the opening of two new City parks which have increased water and maintenance costs. Facility maintenance costs and repairs have also increased due to the age of City buildings, along with higher costs for services, materials, and supplies. 

The FY 26-27 General Fund expenditure budget also includes the annual transfer to the City’s Section 115 Trust, also known as the Pension Rate Stabilization Fund (PRSF), to help offset future potential pension cost increases. This critical reserve provides a mechanism for the City to set aside funds that could be invested to specifically help address current or future unfunded accrued liability (UAL) obligations. The City Council’s adopted Pension Policy requires the City to transfer half of the annual savings realized from the issuance of the 2021 Pension Obligation Bonds, estimated at $1.5 million in FY 26-27. As of April 2026, the 115 Trust Fund reserve had an available balance of approximately $15.7 million.

The proposed FY 26-27 budget also includes a transfer of $577,000 to the City’s General CIP fund for investment in capital projects and facility improvements and/or other capital or operational reserves. This transfer line item is included in the Non-Departmental Division of the City Administration budget.

Table 1

Overview of FY 26-27 Proposed GF Revenue Budget

The City’s General Fund primarily relies on two major sources of revenue to fund general municipal operations: property tax and sales/transaction taxes. When combined, property taxes and sales/transaction taxes generate over 77% of the resources dedicated to the City's General Fund. As a result, any long term or persistent impacts to either source of tax revenue could cause significant fiscal constraint for the City's general operations.

 

Chart 1

Property Taxes

Property taxes are a primary source of General Fund revenue, accounting for approximately 37% of the City's General Fund revenue base, and is expected to grow by nearly $1.1 million (4.1%) in FY 26-27.

Mortgage rates remain high relative to the past decade’s average rates, a period when many homeowners and prospective home buyers became accustomed to abnormally low interest rates. Current interest rates, combined with historically high property values in the region, have kept many potential buyers largely sidelined from buying homes, resulting in significantly reduced home sales over the past few years. Should housing prices begin to drop as a result, there could be a meaningful negative impact to City property tax revenues in the future; however, this impact could be partially offset if long-held properties are sold, which would reset their property tax basis to higher valuations.

Sales/Transaction Taxes

Combined sales and Measure V transaction taxes now represent the City's largest combined source of General Fund revenue, comprising 40% of the General Fund revenue budget. This revenue source has always been a cornerstone of the City’s General Fund, but it became the single largest combined source of revenue when voters approved the City’s 1% Measure V local transaction and use tax in November 2024. The passage of this critical local tax measure, accounting for 21% of the General Fund’s revenue base, will allow the City to continue to prioritize public safety, fund critical operations, support its business community, and enhance the City’s retail/commercial corridors to continue attracting a variety of shoppers from both within and from outside the City.

The City’s 1% Bradley-Burns sales tax accounts for 19% of revenues for the General Fund and is projected to bring in $14.1 million in FY 26-27 GF revenue, a 2.8% increase compared to the FY 25-26 budget. The City’s 1% Measure V local TUT is projected to bring in approximately $15.2 million in FY 26-27 GF revenue, which is approximately 1.8% more than the FY 25-26 budget. The City’s sales tax consultant, HdL Companies, has advised that the City (and many other client cities) temper its revenue projections due to continuing shifts in the economy and retail shopping patterns. The City’s sales/TUT revenue estimates used to develop the FY 26-27 budget take these constraints into account.

HdL notes that emerging global risks present growing economic uncertainty, along with tensions in the Middle East that have driven West Texas Intermediate crude oil prices above $100 per barrel. This has translated into sharply higher gasoline prices exceeding $6 per gallon locally. Refinery closures across Northern and Southern California further amplify supply pressures. Prolonged energy price volatility and high costs could force consumers to redirect spending toward fuel costs, reducing discretionary expenditures in other sectors.

Prior to these developments, short-term economic expectations were cautiously optimistic; however, renewed inflationary pressure has led the Federal Reserve to delay anticipated interest rate reductions, limiting consumer flexibility. Stubbornly high fuel prices may also dampen travel and tourism through summer, leaving little room for broad-based sales tax growth in the year.

Overview of FY 26-27 Proposed GF Expenditure Budget

The proposed FY 26-27 GF expenditure budget has been developed to achieve the City Council's goals, priorities and objectives, while holding to the principles of producing a balanced budget and maintaining adequate operational and capital reserves. As discussed above, the total FY 26-27 GF Revenues are projected to be $72.9 million. Departmental GF expenditures are estimated at $72.9 million, which includes previously negotiated labor costs, new labor costs from current negotiations, and increases in the costs of services, supplies, and materials.

The allocation of General Fund resources, by Department, for FY 26-27 is as follows:

A recap of notable increases in the proposed FY 26-27 General Fund budget include:

The FY 26-27 proposed budget includes funding to fill all existing vacant staff positions, as well as two new proposed positions.

Within the City’s Building Maintenance Division, staff is proposing to upgrade an existing filled part-time clerical position to a full-time Clerk position due to workload needs. Currently, the City’s Building Maintenance Division staffing is composed of four full-time employees and one part-time clerk. Staff is responsible for supporting, maintaining and repairing over 25 city-owned buildings and facilities. This proposed full-time clerical position would support the Building Maintenance Division’s field staff’s administrative work and enable them to focus their daily tasks on performing preventative maintenance, making necessary repairs at City buildings, and contracting and supervising specialty repairs needed at City facilities. If this request is approved, the Division will replace its current part-time clerk position with a full-time clerk position and will eliminate the part-time position.

The second position is the proposed addition of a full-time Public Information Coordinator in City Administration. In alignment with the City Council’s goal of transparency and effective public outreach and communication, this position would be responsible for coordinating public information, normal and emergency communications, social media updates and postings, website management across all City departments, and help coordinate and review public information disseminated by other City departments. This position’s responsibilities would include providing regular updates on the City’s various social media and communication platforms and preparing informational and promotional materials for widespread community distribution regarding upcoming programs, projects, events, real-time updates, and news.

Staff also proposes to upgrade and/or downgrade certain other existing positions in order to better align positions with duties and more effectively provide service. The following are the proposed changes, resulting in no net increase in number of employees.

Community Services

Finance Department

Human Resources

Public Works

 

As is typical for most established, full-service cities in Southern California, public safety (Police, Fire and Ambulance combined) continues to be the City’s single largest spending priority in the proposed General Fund budget, accounting for 68% of total General Fund resource allocation, which is in line with the historical allocation of General Fund resources for City operations. All other non-safety departments combined account for 32% of resource allocation.

The FY 26-27 Proposed Budget for total public safety expenses increased by $1.9 million compared to the FY 25-26 Amended Budget. The Police Department’s FY 26-27 Proposed Budget accounts for over $1.85 million of this increase in spending, with $673,000 of that amount funding labor costs associated with the second year of the negotiated labor contract.

The Los Angeles County Fire Department agreement increased by only $123,000, or 0.3%, over the FY 25-26 Amended Budget; however, it should be noted that LA County has not yet concluded their labor negotiations with IAFF Local 1014, which represents 3,200 fire personnel. Once completed, it is anticipated that any newly negotiated labor costs will be passed on to contract cities, including La Habra, as provided in the terms of the City’s contract with LA County Fire.

The City’s ambulance agreement with Falck decreased slightly by $106,000, or -0.2%, over the FY 25-26 Amended Budget. The City had budgeted more in FY 25-26 based on higher than average surge pricing in FY 24-25.

Table 3

Future Fiscal Challenges

Fiscal uncertainty in the near term is affecting the economy at all levels. The gains on Wall Street are not necessarily being reflected on Main Street. Individual investment portfolios and the stock market are currently at elevated levels, experiencing new highs with Artificial Intelligence dominating the conversation and driven by a relatively small number of outsized technology companies representing a large percentage of the gains. On the other hand, consumers are feeling the effects of inflation, increasing fuel costs, higher unemployment and factors that create conditions conducive to a recession or possibly stagflation.

In April 2026, the Federal Reserve held its key interest rate unchanged in a range between 3.5% to 3.75% as it considered the challenge of balancing the threats of persistent inflation and a softening labor market. Due to higher inflation readings, many economists are anticipating a Federal interest rate hike at the end of this calendar year or next year, contrary to consumers’ desire for lower interest rates. An interest rate hike could further slow down real estate sales activity, which could then further impact City revenues and funding sources, such as Property Tax revenues and the state’s Permanent Local Housing Allocation (PLHA) funding allocations to cities.

Small businesses in California continue to contend with higher post-pandemic labor and material costs, along with state mandated policies and regulations that make it less attractive or viable to operate in California. Higher interest rates also create challenges for small businesses to obtain loans to start a business, make major improvements to existing businesses, and/or expand. In La Habra, there are currently a number of retailers that have gone out of business, leaving empty storefronts. This is a challenge that the City’s Economic Development Division staff is focused on as they work to help property owners fill those empty storefronts.

The City of La Habra also operates a Child Development Program that is completely funded through State grants through the Department of Education and Department of Social Services. This critical local program provides early childhood education, nutrition, and childcare to the La Habra community, particularly for residents who are low-income. In past years, grant funding has typically increased; however, this year funding levels remained flat. This is also the first year since the pandemic that the City will not be “held harmless” and must meet student enrollment thresholds to receive the full grant funding allocations.

Additionally, the City operates and provides the overall programming and supervision of the countywide "Ready S.E.T. OC" Program, funded through the Orange County Workforce Development Board's Workforce Innovation Opportunity Act (WIOA) via a federal grant. The grant-funded services allow the City to assist a wide variety of residents in both La Habra and throughout the county. If these grant funds are curtailed or eliminated in the future, the City Council may need to evaluate what, if any, of these programs should receive direct City General Fund support in order to continue, or if the programs should be discontinued. Staff will continue to monitor the status of various grant funds dedicated to these and other City operated programs and will report to Council in the future if there are any significant changes that require Council consideration and policy direction.

An additional area that staff is closely monitoring is the status of labor negotiations between Los Angeles County and the International Association of Fire Fighters (IAFF) Local 1014. Although the two sides have reached tentative agreement for fringe benefits, they have been negotiating salary increases since December 2024. Future salary and benefit increases for this bargaining unit are not currently reflected in the LACoFD Fire agreement with the City and, as a result, the FY 26-27 budgeted amount only includes a modest 1.95% contract cost increase. It is expected that, once negotiations are complete, LACoFD will be assessing a significantly higher increase to their annual contract with the City to take into account what are likely to be significantly higher negotiated labor costs.

Summary

The proposed $72,920,250 FY 26-27 General Fund’s operating budget is balanced and expenditures do not exceed revenues. All staff positions are fully funded in the budget, and internal service charges are assessed to departments at levels sufficient to maintain internal reserves and equipment maintenance and replacement costs.

The City’s non-General Fund budgets overall remain relatively stable with noteworthy changes in a few funds. The Water and Sewer Operations utility funds adjusted rates in January 2025 and have sufficient funding for operations and to allocate to capital projects. The proposed budget reflects a nearly $1.5 million increase in the Water Fund budget for planned water capital projects, including the Water Mainline Replacement Program and the Foothill Zone Consolidation Project.

The proposed FY 26-27 Capital Improvement Projects (CIP) budget includes the addition of 36 new projects funded by a variety of sources, including the General Fund, totaling approximately $15 million in new spending. This includes a $577,000 transfer from the General Fund operating budget (Non-Departmental) to the CIP to help fund several non-grant funded facilities improvement and special projects in the upcoming year. When combined with prior fiscal year capital projects that the City Council has already approved, City staff will be working on a total of 72 capital or special projects (streets, parks, utilities, facilities, etc.), totaling over $50 million.

A number of improvements planned for FY 26-27 include arterial street rehabilitation projects and traffic safety improvements, funded by multiple sources. The largest budget increase was in grant funding from multiple sources, which rose from $4.7 million in the amended FY 25-26 to $9.7 million in the FY 26-27 budget. This increase includes $3 million to help fund an anticipated Union Pacific Rail Line Bikeway Easement acquisition, and $1 million for improvements to the City-owned child care facility at 1440 W Whittier Blvd., along with $119,950 towards a new Community Center EV charging station.

The City’s Gas Tax fund spending is anticipated to increase by $4.2 million from $3.3 million in FY 25-26 to $7.6 million in FY 26-27, in part due to carryover funds. This will help fund the City's Annual Arterial Street Rehabilitation projects and Annual Alley Improvement projects. Major facilities and infrastructure improvements that are also included in the upcoming fiscal year’s budget includes Senior Center Renovations, furniture and equipment purchases, and completing renovations of the City’s Community Center Grand Ballroom. Park projects include shade structures and irrigation system upgrades at Vin Scully Centennial Park, along with funding for design work at Portola Park.

Currently, the most significant constraints to successfully completing many of these projects is the high workload assigned to existing City engineering staff who are overseeing a large number of projects. Additionally, the high cost and reduced availability of qualified contract engineer/project management consultants to assist staff, as well as the continued high cost and limited capacity of qualified contractors to bid on projects at price points the City is willing to pay are also impacted project timelines.

Within the City’s Children’s Museum Enterprise Fund, staff is proposing to add a new full-time Museum Supervisor position, which would be responsible for the day-to-day on-site management of Museum programming and operations.

Within the Community Services grant funded Employment and Training Division, funded by the Workforce Innovation and Opportunity Act federal funds, Community Services is proposing to reduce two Case Manager positions and convert those to part-time positions to allow more flexibility in terms of scheduling and coverage.

Within the City’s state grant funded Child Care Division, staff is proposing to add three new full-time positions. They include a new Lead Teacher and two new Teachers. It should be noted that, if approved by City Council, these positions will only be filled if there is sufficient grant funding available to do so, as well as if the program is meeting its enrollment targets.

In addition, the following departments are requesting to modify the following budgeted positions to more appropriately align duties with positions. If approved, there will be no impact to the General Fund, with the exception of the Associate Civil Engineer position which is allocated across a number of funds, including the General Fund. It should also be noted that these proposed changes will result in no net increase or decrease in the number of employees currently budgeted for.

Community Services - Child Development Fund

Community Services – Employment and Training Fund

Public Works – Fleet Management Internal Service Fund

Public Works – Utility Authority Water Fund

Public Works – Engineering (allocated to multiple projects and funds)

Staff recommends that the City Council receive and file the proposed FY 26-27 municipal budget report and presentation, and direct staff regarding any modifications.

None at this time.

Final fiscal impact will be calculated upon further direction by the City Council and will be presented to the City Council when it considers and approves the City's FY 26-27 municipal budget at a public hearing that will be scheduled at the June 15, 2026 City Council meeting.

The proposed budget presentation is consistent with the following areas of the General Plan:
ED 9.1 -- Balanced Fiscal Practice

It is also consistent with the following City Council Goals and Objectives:
Goal 2, Objective A: Closely monitor revenues, expenditures and fiscal trends to ensure the City's long-term fiscal stability.
 
Attachments
FAS FY 26-27 Budget Pres Att 1 
FAS FY 26-27 Budget Pres Att 2