Costa Mesa council adopts budget option using IT reallocation and capital fund balance; vote 6–1

After hours of presentations and public comment on the proposed fiscal year 2025–26 operating and capital budget, the Costa Mesa City Council on Tuesday approved a funding approach that redirects initial IT depreciation funds and uses capital fund balance to pay for near‑term capital projects without drawing on the city’s general fund facility reserves.

Finance Director Carol Molina summarized the proposed FY 2025–26 all‑funds budget at $224.4 million and a general fund budget of roughly $186.9 million. Molina and staff told council the proposed operating budget is structurally balanced and includes full funding for labor commitments, pension contributions and a public safety focus that directs roughly half the general fund to fire and police operations.

A central debate at the meeting concerned the municipal ordinance commonly called the CAN (Capital Asset Needs) that directs the city to set aside a percentage of general fund revenues for capital projects and IT replacement. Council heard a range of input from the Finance, IT and public works departments and from the Financial and Investment Policy Advisory Committee (FIPAC).

Public works Director Raja Setharaman and other staff presented a short list of capital projects — including repairs and small‑scale facility upgrades, skatepark repairs and TeWinkle Lake work — that staff said could be started quickly if additional one‑time funding were available.

Council members questioned tradeoffs between preserving strong reserves (a factor that rating agencies consider for municipal bond borrowing) and advancing deferred maintenance and capital projects. Molina explained that bond rating analysts assess reserve levels, budgetary flexibility and liquidity, and warned that depleting reserve categories could affect interest costs and borrowing capacity.

After deliberation, council ultimately adopted a hybrid approach that the city manager described as a way to fully fund near‑term capital needs without tapping the facilities reserve. The adopted plan reallocates $1.2 million scheduled for year‑one IT depreciation to the capital account, uses $600,000 of capital fund balance, and preserves the city’s identified facility reserve. Council added direction to return at midyear with the results of the facilities needs assessment and a review of the CAN ordinance so the body could revisit the policy and priorities with better information.

Councilmember Mike Perez made the motion to approve the set of actions; the motion carried 6–1, with Mayor John B. Stevens voting no.

What council approved tonight includes: - The FY 2025–26 proposed operating and capital budgets as presented, with adjustments described above. - Direction to staff to bring back the facilities needs assessment results and to review the CAN ordinance and potential refinements as part of the midyear report. - Continued monitoring of revenue performance (sales tax was noted as a near‑term pressure) with a midyear check on reserves and capital priorities.

Public comment at the hearing urged investment in parks and neighborhood improvements and asked council to consider equitable access to programs. Staff will return to council at midyear with updated budget projections, facilities assessment results and potential adjustments to the CAN policy.