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Costa Mesa City Council Approves Balanced Budget Amid Decline

Costa Mesa City Council evaluates the budget for fiscal planning.

News Summary

The Costa Mesa City Council has approved a balanced budget of $186.9 million despite a projected revenue decline of $3 million. To address the budget shortfall, several public works projects will be postponed, and the council intends to prioritize essential capital improvements. Alternative financing options were discussed to mitigate the fiscal deficit, and the council is considering strategies to bolster city revenue moving forward.

Costa Mesa – The Costa Mesa City Council has approved a balanced budget for the fiscal year 2025-26, totaling $186.9 million in general fund revenue. The council’s decision comes in the wake of a projected revenue decline of $3 million, primarily driven by decreasing sales tax receipts, which are expected to amount to approximately $75 million.

In light of the budgetary shortfall, the council has made the decision to postpone several public works projects and IT infrastructure upgrades, while still maintaining city reserves and funding for essential capital improvements mandated by local ordinance. The local ordinance requires that 5% of the general fund, or $9.3 million, be allocated to capital improvements.

To address a current fiscal year deficit of $2.9 million, the council utilized an emergency exemption, allowing a temporary suspension of the capital asset needs (CAN) requirement. This enabled city officials to implement measures to balance the budget without severely impacting city reserves. The council reached an agreement to repay the funds not allocated to capital improvements over the next five years.

During the budget discussions, Finance Director Carol Molina presented three options to fill the budget gap. These included waiving the $3 million CAN requirement, delaying $1.8 million in public works projects, or using $1.8 million from a general fund facilities reserve. Additionally, there was the possibility of reallocating $1.2 million that had initially been designated for IT infrastructure upgrades.

Ultimately, the council approved a plan that involves utilizing the IT funds and an additional $600,000 from previous CAN balances, resulting in a 6-1 vote. The choice to delay projects is aimed at avoiding a depletion of city reserve funds during a time of financial uncertainty.

The projects impacted by this postponement include significant upgrades such as improvements to TeWinkle and skate parks, roof repairs for the Norma Hertzog Community Center, and maintenance work for City Hall. Council members expressed their intentions to continue discussions around the budget, with Mayor John Stephens indicating that he required further time to evaluate city contracts and staffing needs.

As the council explored the potential amendment of the CAN ordinance, discussions centered around limiting its applicability strictly to hard infrastructure projects. The council is also considering a mid-year budget review to reassess capital projects and potential financial strategies moving forward.

The city officials recognize that the budget heavily relies on sales tax revenue, and they are actively exploring avenues to enhance income. Among the potential strategies are reviews of the hotel tax as well as service fees, which may serve to bolster city finances.

The upcoming budget process will involve an examination of unfilled job vacancies for possible cost reductions, alongside prioritizing essential capital improvement projects. Further discussions on the budget, along with possible adjustments in response to the prevailing economic uncertainties, are scheduled for April and May.