The Orange County Register's Watchdog column recently stated that, based on the State Auditor Controller's report, every city in Orange County generated a profit, except for one: Costa Mesa.
"Facts are stubborn things," the saying goes.
Fiscally speaking, these are the bleakest of times. And the city's public safety employee unions are demanding concessions at Costa Mesa's weakest moment. Are our police and fire unions tone deaf, greedy or ignorant of the facts?
It is time to step back from the negotiating table, assess where the city really stands, and include our soon-to-be elected council members in the process.
Costa Mesa is going broke the old-fashioned way: It is spending more each year than it receives in revenue. The city's $50 million unreserved savings has dissipated in less than three years. Capital improvement funds have been reduced by more than 80%.
Costa Mesa faces a $9.5-million budgetary shortfall. All variable costs have been cut to the bone. Now it is time to make serious staffing decisions, like cutting salaries and pursuing more layoffs.
In fiscal 2007-08, the city, experiencing its highest revenue to date of $103 million, spent $82.7 million to compensate 611 staff members. Staffing consumed 80% of the operating budget and translated into an average cost of $135,352 per employee.
In fiscal 2010-11, revenues are down 20%, or roughly $20 million. Consequently, 113 employees, or roughly 18.5% of staff, have either taken early retirement or been laid off, with the vast majority retiring.
In 2010-11 Costa Mesa has budgeted revenue of $83 million and staff costs of $74.3 million for the remaining 498 staff members. Staff costs now represent 89.5% of the operating budget at an average cost of over $149,146 per employee.
It is difficult to fathom that during the worst economic decline in recent history, while the city initiated austerity plans and reductions in staffing, the cost per employee actually jumped by $13,844 each, which reflects more than a 10% increase.
The bottom line is not pretty. According to City Manager Allan Roeder, Costa Mesa's reserves have been reduced to a level that barely covers the city's self-insurance, equipment replacement, and the like.
In his budget message to the City Council, Roeder wrote: "Continued use of fund balance at this level is unsustainable."
In fact, Roeder has also confirmed that if conditions don't change, cash flow could become a problem within the next year.
The capital improvement budget (street repairs, etc.) is funded in the amount of $3.8 million, or 4% of total revenue; it usually is 13% percent of our budget. Our neighbors in Huntington Beach fund a mandated 15% for capital improvements every year. Regrettably, Costa Mesa has slashed the capital improvement budget more than 80% at a time when salaries and pensions have gone up more than 10% on a per employee basis since 2008.
We acknowledge that the city has — and needs — good employees to keep things running smoothly, but with staff costs consuming 89% of anticipated revenue in 2010/2011, less than 11% ($9 million) remains available within our annual budget with which to fund all other costs.
Cities traditionally budget staff at 50 to 70% of revenue to allow 30 to 50% for maintenance programs including: streets, city buildings, infrastructure, equipment and fleet replacement, utility and fuel costs, insurance and community improvements. As such, the 11% we currently have to work with to address all these costs is an absurdly low amount.
What options does the council have to generate additional funds to meet the city's obligations? The proposed Transient Occupancy Tax increase, on the November ballot, and proposed business license fee increases touted by the unions as the cure-all will not even dent these realities. The unions' proposed tax increases require voter approval before they can be implemented, thus casting more doubt on their usefulness in this case. The council has no ability to immediately increase revenues.
Based upon traditional budgeting approaches, cost reductions in the range of 20% to 30% ($17 million to $25 million) are needed via staffing reductions, compensation reductions or contracting out services. This will keep all aspects of our city running properly, and that is without the cost of replenishing the $50 million in lost savings.
These are difficult times, but failing to take decisive action will leave our city significantly worse off over the long run.
We both love our city and hope everyone involved can work together to solve these dire fiscal issues. The county has already reduced its workforce by nearly 1,000 positions.
It's time for fiscal leadership. And the unions hold the key. Their bantering and badgering to conclude negotiations before the election is a bullying tactic that needs to stop. The next City Council has to live with the ramifications of the negotiations for the next four years, and they, not departing council members, should be owners of it.