Costa Mesa studies $28.7 million CIP, staff seeks temporary CAN waiver to cover $3.6 million shortfall

City staff on April 22 presented the Costa Mesa City Council with a proposed fiscal-year 2025–26 capital improvement program (CIP) totaling $28.7 million and asked the council to consider temporary deferrals and a one-year exception to the city’s Capital Asset Needs (CAN) rule to address a $3.6 million shortfall for FY 2024–25.

Finance Director Karol Molina told the council that the city’s all-funds budget for the current fiscal year is about $240 million and that the general fund is roughly $189.9 million. “The waiver of the CAN does require a super majority vote, which means we would need at least five city council members to vote in favor of the waiver,” Molina said, explaining the vote threshold for any exception to the ordinance.

Public Works Director Raja Setharaman and division managers then reviewed projects by category and funding source, noting that the CIP is financed from a mix of federal, state and local grants and restricted funds and that many projects are multiyear. City Engineer Sung Yang highlighted the citywide street improvement program (including grind-and-overlay, slurry seal and parkway repair), saying the current program covers about 10.1 lane miles — an amount he likened to the length of I-405 between two regional interchanges — and is intended to keep the pavement condition index near 85.

Why it matters: the CAN municipal code ordinarily requires a fixed transfer of general-fund revenue into capital (roughly 5% of general fund receipts). Staff said the city faces a near-term shortfall of about $3.6 million for FY 2024–25, and proposed covering $2.9 million of that by temporarily deferring approved capital projects and reallocating $700,000 by shifting street-sweeping costs from the general fund to gas-tax revenue. Without an approved exception, staff said the city would otherwise need to find alternate budget cuts.

Key numbers and next steps - FY 2024–25 general fund: approximately $189,900,000 (staff figure) - Reported shortfall for FY 2024–25: $3,600,000 - Proposed adjustments to close the shortfall: $2,900,000 in temporary deferrals of approved capital projects; $700,000 reallocation of street-sweeping funding from general fund to gas tax - CIP proposed for FY 2025–26: $28,700,000 from multiple sources, including roughly $6.9 million in grants and $12,000,000 in bond financing earmarked for Fire Station 2 - Ongoing/previously authorized projects: staff listed about 102 projects totaling roughly $93 million that remain active or yet to start

Staff said the Council would have a formal agenda item on May 6 to continue discussion and that any waiver or deferral would require council action (a super-majority vote to waive CAN in whole or in part). Staff also noted that FIPAC (the Finance, Investment & Pension Advisory Committee) reviewed the staff recommendations in April and supported a CAN exception for 2024–25 while asking that a small set of projects (cast-iron drain repipe at City Hall, an air-handler replacement and a heater replacement) be excluded from deferrals.

Major projects highlighted - Fire Station 2 reconstruction: staff described a replacement facility of roughly 9,400 square feet with expanded living and apparatus spaces and an on-site temporary operations compound during construction. Bond financing of about $12 million is proposed; staff expects the bond process to take three to four months with funding available 30–60 days after council authorization and an estimated two-year construction timeline once broken ground.

- Citywide street improvements and Harbor Boulevard rehabilitation: staff described annual pavement work, slurry seals and parkway repairs; the Harbor Boulevard rehab (MacArthur to South Coast Drive and Geisler to Baker) is expected to use RMRA (Road Maintenance and Rehabilitation Account) funds with roughly $3 million allocated.

- Adams Avenue active-transportation projects: several Adams Avenue segments were described as federal-grant-funded projects to add bicycle and pedestrian facilities, including the intersection improvements at Adams and Pine Creek near Orange Coast College (recently receiving an award as construction nears completion).

- LED sports-field lighting and tennis/pickleball upgrades: staff described an LED conversion for sports fields (citing a roughly $2.6 million project cost and large energy/maintenance savings over time) and resurfacing and conversion of some courts to regulate-size pickleball courts.

Public comments and community requests Residents and community groups used the public-comment period to press for pedestrian safety and neighborhood projects. Costa Mesa Unidos and petitioners presented over 125 signatures seeking a new crosswalk and safer pedestrian access at Center Street and Placentia Avenue; speakers asked the city to conduct Spanish-language outreach in District 4 and to hold multiple local meetings. Roberto, representing Resilience Orange County, thanked code enforcement and staff for recent alleyway improvements and described community-led outreach on the Plummer Street alleyway.

Several speakers opposed a proposed signal and $600,000 allocation for Belfast and Fairview Road (project listed in the CIP as a traffic-signal improvement). Residents said outreach was inadequate, cited higher crash counts at nearby McCormick Lane and asked Council to defer or remove the signal from the FY 2025–26 list for further study.

Parks and facilities The Parks & Community Services Commission (PACS) reviewed parks projects on April 10 and supported staff recommendations for limited park spending in the next year, while urging additional funding for Westside Park development. Staff said $250,000 of unspent funds remain in an account for Westside Park, and also proposed a $250,000 allocation for senior center interior refurbishments (paint and carpet), which some council members urged should not be deferred because of ongoing senior needs.

Budget context and policy questions Council members and several public commenters pressed staff and the city attorney for clarity on when and how the CAN municipal code’s ‘‘emergency exception’’ may be used and whether an official fiscal-emergency declaration is required. City Attorney guidance presented during the meeting said the code offers two options: (1) limited re-use/loan of capital-asset funds (requires a super-majority vote), and (2) an emergency exception tied to certain conditions (economic downturn, disaster, or other unforeseen circumstances), which also requires a super-majority vote; staff said no separate formal declaration is required beyond the council deciding the factual threshold has been met.

Council priorities, follow-up and scheduling Councilmembers asked for more detail before taking final action in June and asked staff to provide a written plan showing how any deferred CAN amounts would be replenished, as required by the code. Staff reiterated the calendar: a May study session item and formal adoption of the 2025–26 operating and capital budget by June 30.

Quotes - "The waiver of the CAN does require a super majority vote, which means we would need at least five city council members to vote in favor of the waiver," — Karol Molina, Finance Director. - "The CIP budget is financed from multiple funding sources. Federal, state, county, and local funds contribute… and many of the funds have restrictions so you cannot move them between types of projects," — Raja Setharaman, Public Works Director.

Ending Councilmembers asked staff for detailed backup before any final vote, including a clear plan for replenishing deferred CAN funds, project-by-project cost details for proposals recommended for deferral, and updates on bond timing for Fire Station 2. Staff said it will return with the requested information and a May agenda item before the formal June adoption deadline.