Walking a tightrope amid uncertain fiscal times, Costa Mesa adopts $200M budget
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Costa Mesa this week adopted a $200-million general fund budget for the upcoming fiscal year that keeps city reserves intact and begins to pay back two fund accounts that were drawn from in previous years to make ends meet.
City Manager Cecilia Gallardo-Daly said the plan reflected a “careful balance of revenues and expenditures, coupled with deliberate cost-containment measures implemented throughout all departments.
“I look forward to discussing in greater detail the budget tonight and welcome your guidance as we continue aligning our financial practices with the city’s visions and priorities,” Gallardo-Daly told the council in a regular meeting Tuesday.
Themed, “Measured Decisions. Meaningful Impact,” the 2026-27 budget dedicates $109.3 million to public safety and includes nearly $34 million in capital improvements without touching the city’s nearly $60.4 million in reserves.
About 73% of the general fund — nearly $146.2 million — will go toward salary and benefits, $8.8 million more than this year’s adopted budget. The city will also spend $9.8 million to fully fund its Capital Asset Needs and IT Replacement funds, required by local ordinance, and cover deferments incurred in the current and last fiscal years.
Accomplishing such feats, however, required a bit of maneuvering as city financiers froze more than a dozen city hall positions to save $2.3 million and are relying on another 38 vacancies, funded but not yet filled, to remain that way so the math pencils out.
City leaders took a look at the spending plan Tuesday, considering a proposal that comes in $13.1 million higher than this year’s adopted budget but is balanced by strong projected revenue.
The finance department further reduced expenditures across departments by 2% to free up $1.7 million, took $500,000 in interest accrued from now-spent federal COVID-era funds to establish a new arts and culture budget and took $800,000 from the city’s shelter, replacing it with opioid settlement money, to fully fund utilities costs.
Adopted in a 5-2 vote, the plan banks on Costa Mesa’s sales and hotel taxes remaining strong enough to defy mounting national economic uncertainty around inflation, fuel prices and the continuing war in Iran.
Nearly half of the general fund budget — more than $93 million — is anticipated to be bolstered by sales tax receipts and the transient occupancy tax, which levies 8% on hotel and motel room stays. Whether this delicate balancing act will hold until the mid-year budget review period, which usually takes place in February or March, remains to be seen.
Budget consultant Kingsley Okereke explained while the general fund is more than $13 million higher than the plan adopted for 2025-26, it’s more reflective of the city’s needs and takes into account a fully staffed police department with 142 sworn positions.
But while Costa Mesa police are funded to the tune of $69.9 million, the city has earmarked $1.9 million for overtime, lower than the department’s historical average of $4 million and far below the nearly $9 million clocked in the current fiscal year.
That fact struck a nerve with Marr and Reynolds, who questioned whether the figures forecast for 2026-27 would materialize in real life, particularly given that the city came in $7 million over budget in the current fiscal year and summarily filled the gap with higher-than-anticipated revenue projections.
“I’m concerned, and I hope council is as well, that there is this sort of opportunity to inadvertently exceed the budget by multiple millions of dollars,” Reynolds said.
City Atty. Kimberly Hall Barlow suggested the city institute internal deadlines that would allow officials access to financial trends before the mid-year review.
“What I would suggest is you get a treasurer’s report every quarter,” she said. “It’s probably a good idea to do a check in on budgets every couple of months and see where we are in our annual amounts in these things, so adjustments could perhaps happen sooner.”
Marr proposed taking another two weeks to fine tune the budget and identify where cuts could be made if the anticipated revenue were to fall short, putting forth a substitute motion, backed by Reynolds, that drew no other supporters.
The remainder of the dais opted to go with the proposed spending plan and make adjustments as needed, noting certain line item overages could be made up for by reductions elsewhere within the same department.
Chavez applauded the city’s efforts to right-size the budget, which he said for far too long has relied on historic vacancies, particularly within CMPD, to make the numbers work.
“Now that staff has completed one of our [council] goals, which is to fully fund PD and fire, we now have to adjust our budget practices,” he said. “I commend you guys for being so dedicated to being accurate, because that will be better for the community in the long run.”
