Costa Mesa Sees Projected $30 Million Budget Deficit Caused by Coronavirus

JULIE LEOPO, Voice of OC

Businesses on Newport Blvd. in Costa Mesa on May 18, 2020.

Costa Mesa officials this week announced they are looking at a projected $30 million deficit caused by the Coronavirus pandemic.

City Council members on Tuesday night directed staff to move funding away from capital projects, postpone improvements to the city’s technology and software systems as well as dip into reserves to address the loss in revenue they will face the next fiscal year.

City staff are also looking into department cuts of either 5, 10 or 15 percent.

Councilwoman Andrea Marr acknowledged that the city was limited by how they could balance the budget but expressed some concerns with cuts.

“No matter which way you cut it, if you’re cutting people or if you’re cutting services, or if you’re cutting departments,” Marr said.  “It’s resulting in a net loss of services for the citizens.”

While a majority of the council voted in support of directing staff to adjust the proposed budget, Councilman Allan Mansoor voted against it.

“What’s the incentive to cuts when we’re not even opening up businesses yet I know we already opened some,” Mansoor said. “Some of these cuts could be significantly less if we were to start opening up some business.”

Mayor Katrina Foley said there are 20 business sectors open already.

Sales tax revenue in the city is expected to decrease by nearly $9 million for the 2020-21 fiscal year with other losses in revenue coming from parking tickets, hotel taxes and summer programs. The city has already approved a $10 million reduction to the current year’s budget to address the revenue shortfall caused by the economic disaster. 

Costa Mesa isn’t the only city hit by revenue lost. City officials estimate $7 billion in losses across Orange County. A Voice of OC review last month found that according to each city’s estimations, the combined total losses for the cities of Irvine, Newport Beach, Huntington Beach, Brea and Fullerton comes to over $44 million for the current fiscal year. 

As the pandemic worsens the economic situation, city staff has begun to focus on reducing next year’s budget as well as reduce city spending.

This could mean furloughs for staff employees. 

About 70 percent of the city’s overall budget goes towards labor costs, according to city officials. The City Manager is currently negotiating a 10 percent furlough with city employees.

Over 50 part time city employees have already been layoffed. More layoffs may occur depending on how successful the city is bringing down the budget.

City Manager Lori Ann Farrell Harrison said the goal is to reduce layoffs and cuts to service as much as possible when balancing the budget.

“Adding to the unemployment rates would be counterproductive and so they’re compounding effects with every additional person that is out of work, so that there’s an exponentiality to unemployment that we want to avoid,” Harrison said.

“We’re not the kind of city that has fat on the bone and so it’ll be difficult to put together a budget that is going to reduce spending without there being an impact on services.”

In order to further reduce next year’s budget, the city will allocate less money for capital projects and redirect it towards operations. The city will also postpone replacing outdated technology systems for six months to save $900,000 to be used to address the deficit. 

The city could also spend the over $14 million reserve created in 2015 specifically for declared emergencies. $7.5 million or a month of operating revenue is expected to be utilized for this fiscal year alone.

The city is also waiting on federal stimulus money to help address revenue losses caused by the pandemic. A $3 trillion stimulus package, that still needs to be approved by the House of Representatives and Congress, could provide $1 trillion as part of the Heroes Act to cities across the country to deal with revenue losses.

All 34 mayors in the county and the county board of supervisor are all in support of the Heroes Act that would bring more relief money to the county and the cities.

Councilwoman Sandra Genis said even before the pandemic the city has “not been managing our money well” and that last year’s budget had structural problems.

“We just need to tighten our belts and I’m glad in some ways that we realistically are finally doing so. This is very drastic belt tightening but I think we need to realize even without COVID-19 we would be in budgetary problems,” Genis said.

“Let’s not kid ourselves that everything would be sunshine and roses if it weren’t for COVID-19. It would not be.”