Orange City Council members received a stark warning from their accounting consultants last week: they’ll be facing bankruptcy in three years if they don’t increase sales tax, cut 12% of their general fund and bring new businesses into the city. 

Without any changes, the city will have over $40 million in debt by the end of 2031, according to a new study from Grant Thornton, a consulting firm hired by the city. 

“We have a Nordstrom’s appetite and we have to operate on a Walmart budget,” said Shawn Stewart, a principal from Grant Thornton, at the July 22 city council meeting. 

It’s a crisis decades in the making according to their study, which found the city lagging anywhere from one to three decades behind in economic development and highlighted that the city’s revenue is only increasing 3% every year while its expenses increase 15%. 

The problem only grew worse when city leaders used one-time $28 million COVID bailout funding to hire over 39 new staff, a luxury that Stewart said the city can’t afford. 

“One time money was spent in a way that has a long term impact,” Stewart said. 

Bob Hawkey, the other consultant from Grant Thorton, also said the city needs to pass a sales tax and “immediately” rein in spending if they want to avoid bankruptcy, warning that without both spending cuts and new revenue there wasn’t a way out. 

“These are the undeniable economic facts as we saw them,” Hawkey said.

Orange leaders already tried to pass a 0.5% sales tax increase during the 2024 election, but the measure failed after the county’s automobile dealer’s association spent over $369,000 on advertising for voters not to pass the increase. 

Read: Orange Sales Tax Increase Election Night Results 2024

While the city council unanimously agreed the budget was in a precarious position, not everyone agreed just how bad it could be. 

Councilman John Gyllenhammer said he “sees it a little bit differently” and that he wanted to “qualify” any warnings about a near-future bankruptcy. 

“I understand there’s a lot of opinions on this one,” Gyllenhammer said. “There’s significant ramifications to that statement.” 

Stewart disagreed. 

“Councilmember, I know we’ve had conversations where you have a different view. I respect you can have a different view. But you have your own finance function projecting. You have our projections. Everything’s kind of pointing the same direction,” Stewart said. 

“At a certain point you either have to determine I’m going to believe my finance function, I’m going to believe an objective, outside CPA firm, or I’m going to hold to my own assumptions,” he continued. “You’re welcome to do whatever you’d like to do.”

City council members and Hawkey threw out several ideas for new revenue, including partnerships with Disney and Chapman University. 

“That’s something the city should immediately pursue,” Hawkey said, referencing partnerships with both entities, adding that the Outlets at Orange mall could be a “potential gem.”   

Stewart also encouraged city council members to zone as much property as possible for commercial purposes to earn more tax revenue as state leaders are calling for them to zone for additional housing. 

“You should be able to get a higher return on commercial than on residential as far as the tax base goes,” Stewart said. “You need more commercials to be the tax base for the city. If you eliminate the land you do have and turn that into residential you won’t be able to.” 

Read: Sacramento Warns Orange For Trying to Quietly Sidestep Housing Law

Councilman Jon Dumitru said the city council is “kind of handcuffed” to making a fast decision to save the city. 

“This has to be really clear to everybody where we’re at,” Dumitru said. “It’s not a wish, want, or pie in the sky trying to fund stuff. It’s just to keep the city alive.” 

Noah Biesiada is a Voice of OC reporter. Contact him at nbiesiada@voiceofoc.org.