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Costa Mesa Confronts $3.6 Million Budget Shortfall

Aerial view capturing the essence of Costa Mesa amidst budget discussions.

News Summary

Costa Mesa faces economic challenges as city officials review a proposed balanced budget for the fiscal year that reveals a $3.6 million shortfall. The total budget of $224.4 million prioritizes public safety, allocating over half for this area. Due to declining revenues and increasing mandated expenses, city officials are discussing potential amendments and cuts to manage the anticipated budget issues while aiming to maintain essential services for residents.

Costa Mesa is facing significant economic challenges as city officials conduct a review of the proposed balanced budget for the fiscal year 2025-26, which contains an estimated shortfall of $3.6 million. The proposed budget is themed “Focused. Efficient. Resilient” and totals $224.4 million, reflecting financial constraints and prioritization of essential services.

The budget anticipates $186.9 million in general fund revenue, representing a decrease of $3 million from the forecast of the previous year. Public safety remains a primary focus, with $101.7 million allocated for expenditures in this sector, accounting for over half—54%—of the overall budget. This includes approximately 33.6% earmarked for police services and 20.8% for fire department operations.

Despite public safety being a priority, Costa Mesa is confronting an estimated overall $7 million shortfall, largely driven by a mandated earmark for capital projects that may not be fulfilled as planned. The projected sales tax revenue for 2025-26 stands at $75.1 million, which is $6.4 million lower than the current budget expectations. Although property tax revenue is expected to witness a modest increase of 4%, reaching around $63 million, other revenue sources are showing concerning trends.

City officials project that revenue from fees and charges will amount to approximately $13.2 million, with a transient occupancy tax anticipated at $9.8 million and cannabis tax revenue at $3.6 million. As a response to the budget shortfall, the city is contemplating the deferral of $2.9 million in capital improvement projects, which, however, poses a risk of non-compliance with the city’s Capital Asset Needs (CAN) ordinance. This ordinance mandates that at least 5% of general fund revenue must be set aside for capital initiatives.

In light of the economic uncertainties, council members have discussed the potential for amendments or even repeals of the CAN ordinance. Discussions have also explored options for fee increases for city services as well as revising the existing fee schedule. There is also contemplation around potential cuts in staff positions and consultant contracts to manage expenditures more effectively.

Looking ahead, the council is considering introducing a referendum in 2026 aimed at increasing the transient occupancy tax to enhance revenue collection. The proposed capital improvement program budget of $16.7 million represents a significant decrease of 40% compared to the previous year’s allocation.

The financial outlook for Costa Mesa is further complicated by national economic trends, including potential international tariffs, which are causing uncertainty and impacting local consumer confidence. The city’s finance officer has noted these external factors, highlighting the importance of maintaining fiscal stability.

As the council continues to scrutinize the upcoming budget proposal, a critical focus remains on sustaining a financial buffer while avoiding depleting the city’s reserves, currently estimated at $60 million. Councilwoman Arlis Reynolds emphasized the need for thoughtful consideration amidst these economic challenges, as the city navigates uncertain financial waters.

The outcome of the budget review will significantly shape Costa Mesa’s financial trajectory and its ability to continue providing essential services to its residents. With public safety prioritized, the city aims to address its budgetary constraints while adhering to the mandated regulations.