Report Warns Mission Viejo of ‘Fiscal Crisis’ : Finances: Heavy spending threatens budget disaster, it says. Recreation centers in jeopardy.

Just two years ago, with $20 million in reserve, this city was rich enough to consider giving rebates to its taxpayers. Now, a new financial report says heavy spending threatens a budget disaster.

The city faces a “fiscal crisis . . . and must take dramatic action to reverse current trends to avoid the future substantial reduction or elimination of city programs and services,” says the report by financial consultant Fieldman, Rolapp and Associates of Irvine.

The report has sparked sharply different reactions from city officials.

“I think our financial condition is very, very critical,” City Councilman William S. Craycraft said Tuesday. “I don’t think our citizenry is aware of how serious the situation is.”

However, Mayor Robert D. Breton commented: “This report greatly overstates the situation. It seems so calamitous in its exaggeration of eminent financial doom.”

In the worst case, the city could have a budget deficit by next year, and its remaining budget reserve, now placed at $14 million, would be drained in five years, according to the 18-page report.

Under a more optimistic scenario, an operating deficit would not develop until 1995.

“The most dramatic finding is that the city will not have enough operational revenues to cover operating expenditures in the near future . . . expenditures have continued to increase more rapidly than revenues,” the report stated.

Since 1991, the city has spent nearly $10 million from its general fund and reserves on four projects, including an animal-control shelter, land for a library, the U.S. World Cup Soccer training field, and architectural work for a civic center that was rejected by voters last year.

The report identified the city’s four recreation centers as another major drain on the budget.

Although the city got the centers in a land exchange, the cost of running the facilities is about $1.45 million annually, although memberships are sold to use swimming pools and weight rooms.

The recreation centers may be the first casualty of the report. The council has already directed staff to look for ways to sell or lease the centers.

“We might have more pools here than we need,” said Councilwoman Sharon Cody. “One thing’s for sure, we can’t use taxpayer money to subsidize these kind of projects any more.”

She called the report “a wake-up call. It’s something I am taking very seriously.”

In 1991, the newly incorporated city had $20 million in reserves under a state law granting tax breaks to help new cities get started. The council considered giving rebates to Mission Viejo property owners, but decided to use the funds for city projects in the community of 84,000 residents.

Coming at a time when revenue-strapped cities were laying off workers and cutting programs, the talk of rebate raised eyebrows throughout the state.

Today, although $14 million is left in the reserve fund, much of it is earmarked for projects like storm drain replacement, slope and median repair and construction of a new library for which land already has been bought.

The report was the third issued by Fieldman, Rolapp in the past 18 months. The first two also warned the council about spending, but the new report is the first to predict a looming budget deficit.

The financial consultant didn’t return phone calls Tuesday.

Mayor Breton said that despite the spending, the consultant’s past reports urging caution have been followed by the council.

“This has been written as if we have been going off on a spending binge and weren’t cognizant of the warning signs,” he said. “We have known all along that the recreation centers are a substantial investment, and we had planned to review the costs after a year.”

As for the city’s major new projects like the library, Breton said such projects needed to be built for the new community.

“We are not operating in a panic mode,” Breton said. “We have built in contingencies in our financial plan for the city.”

He’s not worried, saying higher tax revenues are expected from planned retail and commercial projects, including a 289,000-square-foot outdoor shopping mall in Mission Viejo.

But Craycraft, who has often criticized the council over spending, said the report shouldn’t be downplayed.

“We hired these people,” he said. “This is a company that we’re paying to bring us bad news. That’s about as independent as you can get, and we’d better listen to what they have to say.”

Because of the report, parks and recreation maintenance, which at $6 million annually costs more than police protection in Mission Viejo, will likely be cut back, said Cody and Breton.

The report suggests that the city can increase revenues by imposing utility taxes, user fees and tax assessment districts. Craycraft said he’d prefer the city sell or lease most of the property it has purchased in the past two years.

But either way, Mission Viejo residents might have to get used to browner lawns, uncut grass and fewer overall services, Cody said.

“I think Mission Viejo residents need to adjust their expectations,” Cody said. “Let’s be very clear about this: (City Hall) can’t do it all. We have a wonderful community with a lot of nice amenities but we can’t pay for everything. Those days are over.”