Orange officials are promising to take another hard look at the city’s budget again and make more cuts if a proposed one-cent sales tax measure fails in the fall – a tax increase city hired consultants previously said was needed or the historic town could face bankruptcy.
This week, city council members voted 6-1 to adopt their 2026-27 fiscal year budget after eliminating and freezing $6 million in vacant positions and transferring $15 million from three different spending buckets to balance their books.
Councilwoman Arianna Barrios said it’s the last budget they can transfer in money to cover deficits and the city could face the potential of bankruptcy in under two years.
She successfully called on her colleagues to include language in the budget to assure residents they would retackle the budget if voters reject their proposed sales tax measure – something they did two years ago.
“Hope is not a strategy,” Barrios said at Tuesday’s city council meeting, adding later that if they do nothing they’ll end up in another financial crisis.
“We want to show our residents, our businesses, and our voters that we are deadly serious about – we see the problem, and we are going to do something different, we are not going to do things exactly the same way.”
City staff said before any transfers in or out of the general fund, the city still faced a $4.4 million deficit but now expects to have a $1.1 million surplus with the transfers.
City Manager Jarad Hilldenbrand said they can review the budget again anytime and that while bankruptcy wasn’t imminent, he warned it could happen in the near future.
“We’re not going off the fiscal cliff tonight, tomorrow, six months from now, but it’s certainly on the horizon, right. We’ll pay attention to what happens in November,” he said.
Councilman John Gyllenhammer, who opposed the sales taxes, was the dissenting vote and said he could not vote in favor of a deficit budget – pointing to the $4.4 million despite it being covered by transferred money.
He also said the city was not nearing bankruptcy and going insolvent was a decision the council would actively have to make by not pulling back on expenditures.
“We are not around the corner of bankruptcy,” Gyllenhammer said. “We’re still looking at a four and a half million dollar deficit and we cannot spend like that. We will spend ourselves into a need for more revenue.”
Councilman Denis Bilodeau, who also opposed the sales tax, also said it is not accurate to say the city is facing bankruptcy soon.
“Throwing around the B word, I think, is a bit much. The city is nowhere close to insolvency,” Bilodeau said “We’re looking at a deficit of $4.4 million so obviously we’re a long way off from throwing around the bankruptcy word but that being said the council needs to be diligent.”
Councilman Jon Dumitru said they have been scaling back their budget for years and thanked staff for their sacrifices.
“I think this is the third year in a row we’ve mandated reductions in budget – third or fourth maybe. It isn’t something new,” he said. “It is difficult for everybody and it’s not lost on us.”
Officials are also deferring over $3 million in infrastructure projects.
Sales Tax Measure & Budget Woes in OC
The vote comes after months of deliberation on a sales tax measure and other ways to generate revenue including increasing hotel tax revenue amid a long time structural deficit and threat of looming bankruptcy if officials don’t bring their finances in order.
Last week, Orange City Council members quietly and narrowly approved one day after the primary election placing a one-cent sales tax measure on the November ballot that, if approved by voters, would last 13 years and bring in around $37 million annually.
[Read: Orange Officials Place 1% Sales Tax Measure on November Ballot After Indecision]
Last month, officials also placed a separate ballot measure that would raise the hotel tax from 10% to 14% for hotels with 11 rooms or more.
A smaller sales tax measure already failed at the ballot box in Orange in 2024 and this time around elected officials struggled to reach consensus on how long the sales tax increase if voters approve it this November.
Meanwhile, Santa Ana City Council members are likely to place a measure on the ballot to maintain the temporary sales tax increase approved by voters in 2018 called Measure X as they face their own projected multi-million dollar deficit.
It’s not just Santa Ana and Orange struggling with a poor financial outlook, officials in other cities in the county like Fullerton are warning of a bleak financial future.
So are county leaders themselves.
Orange County CEO Michelle Aguirre told the Board of Supervisors that same day they had to cut 5% spending across all county departments and will have to use $75 million in one-time funds to balance the county budget.
“These monies will not be available to help balance the budget next year, so there is more work to do, including additional reductions to close that $75 million gap,” Aguirre said at Tuesday’s supervisor meeting, adding they have already cut over 400 vacant positions since 2024.
“Simply put, we have exhausted all resources available to us, but we are resilient.”
Hosam Elattar is a Voice of OC reporter. Contact him at helattar@voiceofoc.org.
