O.C. Cities Digging Deep to Turn Up Needed Funds : Finances: Recession is cutting revenue as demand for services rises, making it tough to balance budgets.

In Huntington Beach, television viewers soon may be ponying up a few extra dollars to tune in to cable.

In San Clemente, senior citizens and other swimmers are fighting a proposal to close their city pool for nine months of the year.

And even in Anaheim, once considered recession-proof partly because of the tourist dollars attracted by Disneyland, city officials are going to need more than the Magic Kingdom’s pixie dust to make a projected $10-million budget deficit disappear.

“We’re having a tough time, all of us,” said Charles V. Smith, the mayor of Westminster, where officials have had to halt hiring to keep their budget balanced. “It’s going to be nip and tuck.”

These are hard times for many Orange County cities and the people who live in them: Revenue is down, demand for services is up, and in some places only the hard combination of budget cuts and tax increases is making it possible for city officials to make ends meet.

Recession has cut into tax revenue at all levels of government, especially those that rely heavily on sales taxes. Meanwhile, new laws and fees are being imposed on city governments by the state and county, each of which is wrestling with even larger financial problems.

As a result, most of Orange County’s 29 cities are scrambling for ways to raise money and cut programs while still meeting increasing demands for services as they prepare their budgets for the next year.

Many city officials say they cut the fat out of their budgets long ago; they now are down to the bone.

And they worry that their money woes could worsen as state legislators balance their own budget and pass the financial burden to the counties and, in turn, to the cities.

Bill Hodge, executive director of the Orange County Division of the League of California Cities, compares the situation to a spin on Mr. Toad’s Wild Ride, a Disneyland attraction that creates the illusion of an oncoming train.

“Is the train going to hit you?” he asked. “You never know what’s around the next corner. And all the foreshadowing and all the news is bad.”

This is not the first time that city managers, mayors and council members have tackled such problems.

Desperate to close the state’s budget shortfall last year, legislators passed along a slew of last-minute cuts to county governments. But the state also gave counties permission to charge cities for property tax collection and to impose a hotly controversial “jail booking fee.”

As of July 1, local cities will be charged $154 for every prisoner they bring to the county jails--a fee intended to let the county recover the cost of booking inmates.

“We don’t like having to impose that fee,” Supervisor Don R. Roth said. “But we need it if we’re going to keep on providing the services that we do.”

Earlier this week, there was a glimmer of hope when the state Senate voted to raise the utility tax but also repeal the controversial fees. The measure, however, was defeated in the Assembly.

If the jail booking and property tax collection fees stay in place--added to the state’s decision to keep vehicle license fees that would have gone to cities--they will create the biggest hardships on large cities such as Santa Ana.

Those three state decisions alone could cost Santa Ana $5 million, City Manager David N. Ream said.

And the city could lose another $1.5 million, Ream said, if legislators proceed with plans to take revenues collected from fines and other court-related penalties.

“We call it the ‘mug-your-neighbor program,’ ” said Costa Mesa Mayor Mary Hornbuckle, whose city has weathered the dip in the economy well enough to produce an essentially flat budget for next year. “We are the agency that ends up raising the fee or raising the taxes. That makes the feds and the state look great, but it does not address the fiscal problems.”

The Senate’s proposed 2.75% tax on utility bills also would have taken advantage of a fund-raising device that many local cities are hoping to employ in order to balance their budgets.

If the proposed state tax had passed and been added to the 4% levy that already exists in Santa Ana, for example, city officials might have been forced to reconsider their plans to raise utility taxes by 1%.

“That would take us up to 7.75%, and we would have to seriously review the impact on the consumers,” Ream said.

Worsening the problem for most cities is the plight of sales taxes during a recession. As the economy slows, people buy less and sales tax revenue drops.

“When sales tax revenues are down, cities are in real trouble,” said Steve Martarano, a spokesman for the State Board of Equalization. “That’s what’s happening now.”

State figures show that taxable sales in most Orange County cities declined during the final quarter of 1990, just as the recession was taking hold. Overall, those sales were $184 million less in late 1990 than in the same period in 1989.

Sixteen Orange County cities showed a decline in that crucial shopping quarter. Costa Mesa, buoyed by the upscale South Coast Plaza, is the only Orange County city predicting a slight rise in tax receipts in the next budget year. But that income still will be less than before 1989.

Other income sources also are dipping. Hotel tax receipts are down in many places as tourism sags. The slowdown in construction has meant less income from building and planning permits, as well as business licenses.

With less money coming in from usual sources, some cities have turned to budget balancing schemes that would have once been unthinkable.

Although historically opposed to any tax increases, Garden Grove may raise business license fees for the first time in almost 20 years. City officials also are contemplating higher taxes on hotel rooms and street lighting to help meet a $5.6-million revenue shortfall.

Before the state Senate proposed increasing the utility tax, the Huntington Beach City Council tentatively approved a 5% tax on cable television, making it the third Orange County city to charge that fee, following Placentia and Westminster.

Anaheim is also considering taxing cable television service as part of a first-time-ever 5% utility tax. That fee would also be assessed for water, electricity and gas service.

Irvine City Manager Paul O. Brady Jr. said he has been forced to look at other service cuts after residents protested a proposal to cut in half the bus service for senior citizens and the disabled.

In Stanton, City Manager Terry Matz recommended cutting out the only sheriff’s narcotics investigator employed specifically to patrol the city.

After beginning the current budget year with $2 million in a reserve fund--cash set aside for a “rainy day,” San Clemente City Manager Michael W. Parness said his city is facing a $1.2-million deficit with only $100,000 in the reserve fund.

Santa Ana, which for years courted new business development, now proposes to remove the $6,000-per-year cap on utility taxes, which would affect about 50 of the largest businesses in the city. Some of those might see their bills soar to more than $100,000, Chamber of Commerce President Michael Metzler said.

“It’s a painful thing to do because we are very pro-business,” Mayor Daniel H. Young said. “The problem is, we were dealt a hard blow by the state when the state stole $5 million from our local revenues.”

Bad as it is in most cities, however, some are pressing ahead with improvements.

Yorba Linda is boosting its law enforcement budget, Costa Mesa is adding two police officers to its drunk-driving patrol, and Santa Ana hopes to finish street and sidewalk repairs in some neighborhoods.

In Mission Viejo, the city is enjoying a relative boom, due largely to the small portion of its budget that comes from sales taxes.

“I hate to crow about it, but we are in splendid financial condition,” said Mission Viejo Mayor Robert A. Curtis, whose city projects a $2-million operating surplus. “That’s because we’re lucky to have a diverse economic base. A lot of cities are heavily dependent on big-ticket items like automobile dealerships or malls. That’s hurt them.”

Times staff writer Jim Newton contributed to this report.

Where Cities Get Their Money

Orange County cities get their revenue from a limited number of sources in varying amounts. Below a look at two cities and where they get their money.

Costa Mesa Sales tax: 39% Property taxes: 21% Hotel tax, other revenues: 16% Other governmental agencies: 14% Charges for services: 5% Investments: 5%

Mission Viejo Sales tax: 21% Property taxes: 29% Hotel tax, other revenues: 26% Other governmental agencies: 14% Charges for services: 3% Investments: 7% Note: Other revenues include monies from fines, license fees, et al. Source: Costa Mesa finance officials, Mission Viejo budget documents

How Cities Are Coping With the Budget Crunch

ANAHEIM--It is considering a 5% tax on cable television, water, electricity and gas to cover a $10-million revenue gap.

BUENA PARK--The city drew on reserves to cover a $2-million shortfall in operating expenses. A hiring freeze reduced expenditures by about $660,000. No new programs or capital outlays approved.

COSTA MESA--To help make up a $3.8-million shortfall, the city may use a $2.2-million credit from a retirement fund, eliminate $1.6 million in expenditures through personnel attrition and a hiring freeze, and increase city service fees.

CYPRESS--It is proposing a higher hotel tax, increasing city service fees and utilizing redevelopment funding as alternative revenue to make up an $800,000 shortage.

DANA POINT--No cutbacks are anticipated.

FOUNTAIN VALLEY--With a $577,947 shortfall, it is considering a hiring freeze in some departments, reducing city vehicle fleet, leasing old police facility, and delaying about $130,000 in improvements to city-owned recreation center.

FULLERTON--Departments may have to cut expenditures by 7.5%, and a hiring freeze has been imposed. The city would consider a utility user tax if needed to generate income to counter a possible $750,000 to $1.5-million shortfall.

GARDEN GROVE--The city may raise business license fees and increase taxes on hotel rooms and street lighting in view of a $5.6-million shortfall.

HUNTINGTON BEACH--It is considering a 5% cable television tax, increasing fees for city services and utilizing $2.9 million in reserve funds to combat a shortfall of $3 million to $3.5 million.

IRVINE--The city proposed balancing its two-year 1991-1993 budget with $4.2 million of reserves and could cut back landscape maintenance, family services, cultural affairs and recreation programs at Adventure Playground, a popular children’s park.

LAGUNA BEACH--Its $30-million budget should pass with no cuts or tax increases required, in light of a healthy property tax base and sales taxes that have held steady.

LAGUNA NIGUEL--Because it is newly incorporated, the city gets a cushion of state funds for its first eight “start-up” years.

LA HABRA--It will add $330,000 in new or increased city service fees.

LA PALMA--No cutbacks are required.

LOS ALAMITOS--The city passed a 6% utility tax in April to offset a predicted $800,000 shortfall.

MISSION VIEJO--The city predicts a $2-million operating surplus because of its diverse economic base and low dependency on sales tax revenues.

NEWPORT BEACH--It will reduce capital outlays from $33 million to $21 million, with additional reductions expected through personnel attrition and a hiring freeze.

ORANGE--The city deferred capital purchases, enacted a hiring freeze and cut operating expense to counter a $1.9-million shortfall.

PLACENTIA--It covered a $146,000 shortfall by tapping its reserve account, which fell to 4.8% of expenditures although city policy calls for a 7% to 10% reserve, and may cut two police positions by attrition and close a cable television division.

SAN CLEMENTE--The city cut back services and delayed capital improvement projects to counter a $1.2-million shortfall.

SAN JUAN CAPISTRANO--It froze hiring, laid off three employees, required all departments to cut expenses by 1% to make up for an $800,000 shortfall, and may consider selling city property in the historic downtown if problems persist.

SANTA ANA--The city proposes to cover a $5-million shortfall by increasing utility user taxes by 1%, removing $6,000 utilities tax cap, and eliminating personnel through attrition.

SEAL BEACH--To counter a shortfall of at least $875,000, it plans to freeze hiring, increase city service fees and reduce services.

STANTON--It is debating proposals to raise city service fees, assess new taxes and cut recreation budget by half in view of a $1.2-million shortfall.

TUSTIN--It eliminated 10 vacant positions in Public Works Department, saving the city about $275,000 to $300,000 in proposed expenditures.

VILLA PARK--The city does not anticipate any unusual cost-cutting.

YORBA LINDA--No cutbacks or funding shortfalls are anticipated since projections show steady sales tax revenue from the Yorba Linda Auto Mall, Price Club and other commercial establishments.

Researched by JANICE L. JONES / Los Angeles Times