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Costa Mesa proposes structurally balanced $244.9 million budget; sales tax drives revenue forecast
Summary
City staff presented a proposed FY 2026–27 all‑funds budget of $244.9 million, a 9% increase driven largely by sales tax projections; staff proposed cost‑containment measures, 14 frozen positions and a June 2 adoption target while council pressed for clearer overtime, utility and TOT tracking.
City staff presented the Fiscal Year 2026–27 proposed budget at a May 12 study session, proposing an all‑funds plan of $244.9 million and a general‑fund revenue estimate of about $200 million for FY 26‑27. The plan relies heavily on projected sales‑tax growth and includes transfers to capital and IT replacement funds.
The finance team said the budget rests on several guiding principles adopted by council: strengthen public safety, diversify and increase housing, recruit and retain staff, and maintain city facilities and technology. Mr. Okereke, the city's financial consultant, told the council the economic outlook is uncertain but local sales activity supports the sales‑tax forecast.
Mark, the budget manager, said sales tax is the city's largest revenue source and is forecast at about $82.5 million for FY 26‑27, with property tax at roughly $64 million and transient occupancy tax (TOT) at about $10.6 million. "Sales tax is this city's biggest source of revenue," Mark said in the presentation.
To contain costs, staff proposed a 5% departmental cost‑containment target, a 2% across‑the‑board attrition factor and 14 funded positions to remain frozen in the first year (13 in the general fund). Human resources manager Kasima presented details of position reallocations and the list of proposed freeze‑list positions. Staff said salary savings from vacancies provide flexibility to address unforeseen expenditures during the year.
Council members raised several recurring concerns. Members pressed staff on the realism of reduced operating and utility budgets, noting an $800,000 overrun in utilities in the prior year and asking how contingencies will be handled. Multiple council members requested more granular overtime tracking for police and fire and asked for a midyear check‑in to reassess revenue and expenditures.
On capital finance, staff discussed planned transfers to the capital asset needs and IT needs funds (together about $9.8 million), and described a future bond financing of approximately $12 million for Fire Station 2. Public works director Roger said the Fire Station 2 design is nearing completion and staff will seek bond financing and project award later in the year.
Staff said they will present a formal vacancy report on June 2 and recommended council adoption of the budget at its June 2 meeting, with a tentative second meeting on June 16 if needed.
The council and staff identified several follow‑up items: more detailed reporting on overtime categories; a September check on TOT and travel indicators; clarification of capital project spend capacity; and additional detail on utility and legal expenditure assumptions. The session closed with staff confirming the adoption timeline and promising midyear review.
