Costa Mesa seeks to fill $3.6M gap in current budget, as threat of federal cuts looms
Costa Mesa officials are considering scaling back on promised public works projects and eliminating unfilled job vacancies to cover a $3.6 million revenue shortfall in this year's budget, as the threat of federal cuts looms on the horizon.
The fate of several civic positions and programs was considered Tuesday during a council study session, during which finance director Carol Molina delivered a mid-year update on the city's $189.9-million general fund budget.
Molina said while most sources of income were tracking with assumptions made during the 2024-25 budget adopted last June, sales tax revenue was weaker than projected.
Finance staff anticipated receiving $81.6 million, but current trends suggest by the end of the fiscal year, receipts may total as low as $75.2 million.
'This is mostly attributed to slowdowns in consumer goods and in our auto sectors primarily,' Molina said of the $6.4-million gap.
Other revenues are slightly stronger than forecast, including the cannabis tax at an additional $100,000, and other smaller streams that will net an additional $400,000, while expenses pencil out $2.8 million lower than budgeted.
To cover the $3.6-million deficit, finance staff proposed refinancing $700,000 of the city's annual street sweeping costs, using gas tax revenue instead of general fund money, and implementing a soft hiring freeze starting April 1, during which nonessential vacancies would be eliminated.
For the remaining $2.9 million, Molina offered the council some options. The city could defer an equivalent amount of capital projects slated for this year's budget, targeting items of lesser importance or ones not yet begun.
Some of those projects include $100,000 for butterfly gardens, nearly $1 million in City Hall improvement projects, a $250,000 commitment to improving streets and an HVAC system at the Costa Mesa Senior Center estimated at $725,000.
Another option would be drawing from the city's general fund reserves, which have grown steadily in recent years as income has eclipsed expenditures.
The city has cached nearly $56.8 million — above a council recommendation to maintain a minimum balance of $55 million — including $9 million of economic reserves intended to address economic instability.
While a short-term fix, that could leave the city short in the event the federal government moved ahead with a potential freeze of funding commitments, a Trump administration move paused by a legal challenge.
'We may need to tap into these resources to fill in some of the funding gaps that we may experience if we do get federal funding reductions,' Molina warned.
She described three major programs that rely on federal funding, including the Community Development Block Grants (CDBG) and the HOME Investment Partnership Program, which together provide nearly $1.4 million in code enforcement staffing, public service grants and capital projects, like a new roof at the Senior Center.
The city also receives federal grants for infrastructure projects, street improvements and other active transportation programs, including a pedestrian safety festival. This year's earmarks total more than $13.4 million.
Council members expressed a desire to take a deeper look at the city's capital improvement project (CIP) list and staffing vacancies to see what's essential and what might be culled.
'The fact is there is a bit of a slowdown of the economy, there is fear of a recession, and so as a city we need to do everything we can to be responsive to that without cutting so deep to the bone that we are unable to provide the things we are known for as a city, the things that make us great,' said Councilwoman Andrea Marr.
Mayor Pro Tem Manuel Chavez said he hoped city leaders would use what could be considered a crisis as an opportunity to be more efficient and look at ways to increase revenue.
'About 75% of our budget is employees. If we're seeing positions not be filled, maybe it's time for us to look at those and say if we need them or don't need them. [And] there are items on the CIP that no one on the council is championing, because they were from a prior council,' he said.
'I look at this as an opportunity for us as Costa Mesa to really look at ourselves and our processes and see how we can tweak things to improve our services.'
City staff plan to bring back a prioritized CIP list, along with vacancies and data on city fees that could be raised to reach parity with nearby cities, to future budget talks slated for April and May.
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