Extreme Budget Makeover in Costa Mesa as Revenues Collapse

by: ocprogressive

Thu Apr 16, 2009 at 08:59:38 AM PDT

What many fail to realize is that Orange County's economy for the last several years has relied on two major factors - massive equity withdrawal from existing homes and a finance/real estate industry that has disappeared.

At the national peak in Q4 2006, taking money out of homes was as high as 9% of disposable income, and 6% of income. Here it was higher because the values were higher, and this was ground zero for the really evil rocket scientists doing things like negative amortization option mortgages.

Add the Great Recession into the mix, and we're looking at double digit declines in retail sales, with no new jobs on the horizon to provide a recovery. If anything, we'll continue to lose jobs in local government, retail, and services.

The recessionary economic environment has significantly affected primary revenue sources for the City. Sales tax revenues, the city's largest single source of revenue, have declined 12.43% from the prior fiscal year. Further, the current year revenue estimate of $49.1 million was adjusted downward at mid-year to $44.2 million and it appears at this time that fiscal year 2008-2009 sales tax collections will fall short of that estimate.
Also, Transient Occupancy Taxes (TOT) have declined 10% from the prior fiscal year. Estimated TOT revenues for fiscal year 2008-2009 were also revised downward by $585,000 at mid-year and it appears that TOT revenues will fall short of the revised mid-year revenue estimate as well.

Property tax revenues have been flat, increasing by only 1.3% from the prior fiscal year. The flattening of property tax revenue collections in the current fiscal year is the first indication of the effects that the stalled housing market is having on the local economy. Due to the lag between establishment of the assessment roll and development of the tax roll, the full effect of the decline in property values on property tax revenues will not be known until the Spring of 2010.

Since revenue reports lag by months, Costa Mesa, like other cities, has been using up their fund balance reserves, so there's little flexibility beyond cutting into the future.

Costa Mesa's plan includes asking for Federal stimulus money to fund ten police positions.

Bubbling Cauldron talks about this in depth.

If you think there's something unique about Costa Mesa, think again. Every city's budget uses the same revenue sources. The mix may be different, but it will be a rare city that isn't cutting into core police and fire services.

And from what I'm hearing, 2010-11 looks worse as cities as tax revenue estimates prove optimistic, cities have fewer fund balance reserves to deploy, and local governments may be forced to start kicking in substantially more for PERS contributions.

What is bad for Costa Mesa is the refusal of the majority of the City Council to even consider trying to broaden their revenue sources.

With Alan Mansoor now posturing as a candidate for Assembly for Van Tran when he terms out, you'll see the no-tax pledge prevent any moves that might help cut police and fire services to the residents of Costa Mesa.