Manhattan Beach maintains a "structurally balanced budget" and has the highest possible AAA bond rating from both Standard & Poor's and Moody's, according to a statement issued by the city this week.

The statement, headlined "Setting the Record Straight," takes aim at critics of city spending on the internet:

"Recent statements circulating online have suggested that the City of Manhattan Beach is facing a '$10+ million deficit.' That claim is incorrect."

Instead, the city's statement says, "The City's General Fund remains structurally balanced, with ongoing revenues exceeding ongoing operating expenditures by approximately $2.7 million."

The key word in the city's statement is "ongoing." 

City staff are focusing attention on what many might consider the plain meaning of a "deficit:" when revenues don't pay the bills. Their point is that operations are more than covered by revenues. Hence, no deficit – in fact, there's a hearty surplus.

But the new budget also includes transfers of more than $11 million from the General Fund to specific non-operational purposes, which do drag the overall picture negative. 

The city statement notes that the Fiscal Year 2026-27 budget, adopted June 2, "includes one-time investments and capital projects that temporarily reduce the City's fund balance through the use of reserves. Those planned expenditures do not represent an operating deficit."

The difference is referred to as a (negative) "use of fund balance" of $8,825,292 on the city's "financial transparency" website, which includes budget documents, graphs, charts and other information.

So, to be fair to critics, even if the city's budget does not reflect an "operating deficit," it does reflect a plan for the city to spend more than the amount of revenues coming in. 

The city's full, adopted budget makes reference to the "bigger picture" on the General Fund and uses the term "deficit," saying, "Overall, the FY 2027 General Fund budget outlook projects a $8.8 million reduction in fund balance/budget deficit" (page 34). Another summary of the budget refers to a "projected decrease in fund balance of $8,825,292" (page 31).

That use of the word "deficit" may not be a contradiction of the city's statement about structural "balance," but these other references do show that it depends how broadly one views the General Fund budget.

Where This Budget's Major Transfers Go

There are three main numbers to understand in sorting through the surplus/deficit question. 

1) Surplus: $2,716,946 (difference between operating revenue and operating expenses)

2) Insurance reserve transfer: $6,000,000

3) Capital improvement transfer: $5,000,000

Take $11 million away from a $2.7 million surplus, and you get most of that difference that ends up with a "use of fund balance" of $8,825,292. (Street lighting and some other capital expenses make up the rest.)

The city's public statement references a "one-time $6.0 million transfer to the Insurance Reserve Fund," adding, "That fund has been underfunded for several years." 

The city indicates that some of that money will be recovered in future years, but there is no effort to book that income, because the timing and amounts are unknown.

Another $5.0 million was transferred to the Capital Improvement Projects fund (CIP), the same amount as last year. In the two prior years, only $1 million was transferred to CIP. 

City council seems to more or less feel an obligation to transfer about $5 million to CIP due to voters' passage of Measure MMB in Nov. 2024. The measure added a half-cent sales tax in Manhattan Beach, keeping all the revenue local. City leaders pledged that most money raised would be spent on local infrastructure and improvements. 

This past year, the MMB sales tax enhancement out-performed expectations, bringing in about $6.6 million, well over the $5 million projected during that campaign.

Neither of these sizable, multi-million-dollar transfers represents money "spent" in the same way that most other budget expenditures are, which is why transfers get their own category.

In fact, prior budgets did not factor in transfers so prominently. In February 2026, the city adopted a new policy that puts transfers like these upfront in the overall budget picture.

Council member Steve Charelian, who served 35 years in the city's finance department and was most recently its Finance Director, applauded the change in budget framing.

"Municipal finance is constantly evolving as governmental accounting standards change," Charelian told MB News. "The goal is to stay current with those standards and continue improving the quality, clarity and transparency of the city's financial reporting."

Apply the same accounting and display methods to prior years, and it looks like the city has run deficits for years. Here's an image from the city's "transparency" page:

Much like the new fiscal year, each prior year showed "structural" or operational surpluses, but when transfers are factored in, the budget appeared to run in the red between $2 million to almost $6 million.

Charelian observed, "For many years, the city's financial reporting received clean audit outcomes and financial reporting and budgeting awards, and transfers were disclosed using a consistent accounting format."

"That said," Charelian continued, "financial reporting should continue to improve over time by adopting new, modern practices. The new reporting approach is an ongoing effort to enhance financial reporting and provide clearer information to the public."

Charelian added that it's important when comparing prior years to consider changes in revenue and transfers after FY 2025. The Measure MMB funds were not yet available in FY 23-25, and in two of those years the city was pouring money into the storm drain fund, before a new assessment – approved by voters – took care of funding by adding about $70 per parcel. 

What About That '$10M+ Deficit' Claim?

The city's press release and much of the "transparency" website focus on the city's General Fund, which – as noted above – is on the scale of $120 million.

It's the general fund that is either in surplus ($2.7 million) or deficit (-$8.825 million) depending on perspective. 

But why are critics talking about a $10 million deficit?

They're talking about a different budget.

The Citywide/All-Funds budget is much larger, but contains a number of less-discretionary or non-discretionary accounts, revenues and expenses. This comprehensive budget is on the scale of $200 million.

Most budget discussion focuses on the General Fund, because that is where policy makers and city council have the widest discretion. 

The Citywide/All-Funds budget includes an array of grants and restricted funds that must be spent in a particular way, plus the city's "Enterprise Funds," something like businesses within the budget that have their own income and expenses (water, sewer and parking, for example). Some of these funds run surpluses, some deficits. 

Considering the whole of the "citywide" picture, a net additional deficit of $1.263 million carries forward, dragging that $8.825 million "use of funds balance" to $10.088 million. 

Worth noting is that the very first critiques of the city budget to emerge in May cited a reputed $10.9 million deficit – again using the "citywide" budget and the initial proposed budget figures, prior to adoption of a final budget for FY 26-27.

How Reserves Are Maintained and Tapped 

If the overall city budget – general fund or "citywide" – runs negative, the balance comes out of reserve funds. 

Broadly speaking, the city could draw from any of three reserve funds: its main "policy reserve" (a "last resort" fund that is kept near 20% of revenues), the "economic uncertainty" reserve ("rainy day fund") and an unreserved savings account.  

City council made a big decision in June to empty out the "economic uncertainty" reserve for this budget, using all $4 million in the account. Nearly $5 million was drawn from the unreserved account.

The adopted budget document states, "When economic conditions improve, or any unexpected one-time revenues become available, [the] Economic Uncertainty Reserve may be re-established."

At the end of the new budget year, total reserves should total about $25 million, according to the adopted budget – almost all in the "policy reserve" fund.

City Revenues, Expenditures Growing

Data show that General Fund revenues rose 11% between 2024-25's $107 million and what's anticipated for 2026-27 ($119 million). FY 24-25 revenues outpaced the budgeted $99 million by about $8 million.

Meantime, data show that the city's General Fund expenditures (except transfers) were $101.4 million in 2024-25, and are budgeted to reach $116.7 million in 2026-27 (+15% over 2024-25).

(The chart below uses the ~$128M total that includes transfers.)

General fund expenditures for FY 26-27. From the city's adopted budget document.

That growth in costs, along with the disputed "deficit" for the latest budget, has fueled criticism aimed at how the city chooses to spend money, how it hires, pays and manages staff, and how it's coping with long-term pension obligations. 

That discussion will only heat up as two seats on city council are up for election in November, with several candidates challenging incumbents Amy Howorth and David Lesser, who are expected to defend their seats.

Council member Charelian seemed optimistic about the budgeting challenges ahead, although cautious in light of some of the steps needed to finalize this year's budget.

“Our city has earned its reputation through disciplined financial management and an unwavering commitment to protecting taxpayer resources," he told MB News.

"The city has a history of budgeting conservatively. As long as it keeps spending controlled and aligns expenditures with revenue growth, our long-term financial outlook should remain stable."

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UPDATE: A prior version of this story mixed "citywide" revenues with general fund expenditures when comparing income/expenses in recent years. This version limits the comparison to the general fund, indicating a revenue increase of 11% and expenditure increase of 15% over the same period.