SPECIAL UPDATE! PART ONE — CITY COUNCIL “ADOPTS” A BUDGET—OR DID IT?

Two meetings held last week deserve closer attention from Costa Mesa residents. Because of their importance—and how they connect—this will be a two-part update, so be sure to read both parts.

PART ONE — CITY COUNCIL “ADOPTS” A BUDGET—OR DID IT?

At the Tuesday, June 2, 2026 Regular Meeting, the Costa Mesa City Council voted to adopt a budget for Fiscal Year 2026–2027. On the surface, that may sound routine. But a closer look raises an important question: was a complete and meaningful budget actually adopted? We’ll break down what happened—and what it means.

PART TWO — “SHAPING NEIGHBORHOODS” OPEN HOUSE

The following evening, the City hosted an Open House at the Senior Center titled “Shaping Neighborhoods: Let’s Complete the Plans!” By itself, that might not have drawn much attention. However, coming on the heels of statements made at the City Council meeting—and alongside a warning from the State of California directed at cities like Costa Mesa—the meeting takes on much greater significance. We’ll walk through what was presented, what we learned, and why it matters for you.

Because this is a special update, these summaries focus on the key issues residents should understand—and where action may be needed.

JUNE 2 CITY COUNCIL MEETING.  The Agenda was somewhat light, but that didn’t stop this from being a nearly four-hour meeting. Most of the time was spent on the 2026-27 Budget. The items acted on were:

• Business Improvement Area (BIA) Reauthorization to Levy Annual Assessment

• Fiscal Year 2026-27 Proposed Operating and Capital Improvement Program and Housing Authority Budget

• Award of Contract to Renovate Jack Hammett Sports Complex Fields 1 and 2

All Councilmembers were present.

Closed Session Report. City Attorney Kimberly Hall Barlow reported that the Council considered potential litigation against Priceless Pets, the City’s pet shelter operator. Instead, the Council (motion by Chavez, second by Marr, on a vote of 6–0, with Gameros abstaining due to a conflict) approved terminating the agreement by mutual consent due to performance issues. The Council also directed Staff to pursue emergency contracting with WAGS in Westminster and to issue an RFP for a permanent provider.

Public Comment. One speaker, representing the Toastmasters Club, invited the public to attend their monthly meetings, held on the first Wednesday of each month at Mesa Verde Methodist Church.

Councilmember Comments. Mike Buley (District 1) emphasized community pride and engagement. He noted the significance of election night during the nation’s 250th anniversary year, suggesting lower attendance may reflect voter participation. He also shared positive remarks about Memorial Day events, thanking organizers and recognizing Cornell Elescu for his efforts to preserve military history through the Noble Cause Foundation.

Loren Gameros (District 2) highlighted the upcoming Independence Day celebration on July 3, encouraging residents to attend. He emphasized its large turnout, family-friendly atmosphere, and fireworks display.

Andrea Marr (District 3) wished everyone a happy Pride Month.

Jeff Pettis (District 6) provided updates on community engagement and local concerns. He echoed appreciation for Memorial Day events, including one at Newport Harbor High School, and highlighted the success of his “Eastside Exchange” pop-up as a way to connect directly with residents. He thanked staff for resolving a parks issue involving the installation and removal of boulders at Brentwood Park and noted a maintenance concern regarding a gazebo roof. He also encouraged residents to attend upcoming outreach events and acknowledged Staff’s quick response in correcting a parking signage error on 16th Place that had led to improper ticketing.

Manuel Chavez (District 4) recognized Pride Month and highlighted the recent groundbreaking of Shalimar Park, emphasizing that the long-awaited project is now underway and represents an important milestone for the community. He described the timing as symbolic of renewal and praised the Shalimar neighborhood for its transformation and leadership in addressing long-standing challenges. Chavez underscored that meaningful change comes from within the community and credited residents for their sustained efforts. He also set a goal for staff to complete both Shalimar Park and Ketchum-Liebold Park before his term concludes on December 1.

John Stephens (Mayor) echoed the significance of the Shalimar Park groundbreaking and thanked Parks and Public Works staff for their efforts. He highlighted community engagement opportunities, including a recent ukulele event, and promoted the July 3rd celebration featuring the “Voices in Unity” 250-person community choir, encouraging residents of all skill levels to participate. He also invited the public to attend the “Gospel Voices” event on June 27 at the Barclay Theater.

City Manager Comments. Cecilia Gallardo-Daly highlighted the Shalimar Park groundbreaking as a key milestone shaped by strong community input and attended by a wide group of officials, residents, and stakeholders, including Congressman Dave Min. She noted this progress as part of a broader, active year for city parks, including the completion of Brentwood Park renovations, groundbreakings for Ketchum-Liebold Park and the Costa Mesa Skate Park, and ongoing improvements at Tewinkle and Fairview Parks. She also recognized Sergeant Bang Lee’s retirement after 27 years of service with the Costa Mesa Police Department, thanking him for his dedication.

City Attorney Comments. Hall Barlow reminded everyone they still had one hour and 27 minutes to vote and wished us a happy Pride Month.

CONSENT CALENDAR.  None of the items were pulled. Chavez made a motion to approve all the items, which was seconded by Marr. The motion passed unanimously (7-0).

Since it was not yet 7:00 p.m., the public hearing items needed to wait. Old Business was moved ahead in the order.

NEW BUSINESS: There is only one item here: Award of Contract to Renovate Jack Hammett Sports Complex Fields 1 and 2. Staff presented a proposal to repair and rehabilitate Fields 1 and 2 at the Jack Hammett Sports Complex. The fields have become uneven and worn over time due to heavy use and equipment traffic, creating safety and playability concerns. The City chose Scapepros Landscaping to complete the project, which involves leveling and regrading the fields, adding proper drainage, and installing new sod.

The goal is to complete the work by August or early September, ahead of tournaments. The estimated cost is about $470,000, largely funded through the dedicated Jack Hammett Fund, which is supported by fees from outside users like professional and college teams.

Jack Hammett Fields

City Council Questions and Discussion: Councilmembers asked about:

• Funding sources: Staff clarified that outside teams (e.g., Chargers, Raiders, UCLA) previously paid rental fees and covered damage repairs. Those revenues are saved in a special fund that is now helping pay for this project.

• Maintenance frequency: This type of major rehabilitation is infrequent (approximately every 15–20 years) and separate from regular maintenance, which is already budgeted annually.

• Future costs: Staff indicated no similar large expenses are expected in the near term, particularly since other fields (Fields 3 and 4) were upgraded more recently.

Public Comments: None.

Motion and Vote: Stephens said he wanted to make a motion. Chavez seconded it before even hearing the motion. Stephens moved to approve the Staff recommendation. The Council unanimously approved (7–0) the item.

PUBLIC HEARINGS: There were two public hearings:

1.     Business Improvement Area (BIA) Reauthorization to Levy Annual Assessment. The presentation was started by Hadassa Jakher, Assistant to City Manager, who handed it off to Pauline Lombardi-Freeze of Travel Costa Mesa. She spoke about the BIA, known as Travel Costa Mesa, which has operated since 1995 and requires annual City Council approval. The proposed assessment remains at 3%, with 10 participating hotels this year following the withdrawal of one property.

She highlighted the organization’s role in supporting the local economy through tourism and thanked City leadership for their continued support. She outlined key accomplishments over the past year, including efforts to:

• Increase leisure travel and visitation

• Grow social media engagement

• Boost media exposure and public relations

• Expand group sales and bookings

Councilmember Questions and Comments: Councilmembers asked about next year’s revenue projections given economic uncertainty and the withdrawal of the Crowne Plaza Hotel from the program. They questioned how projected growth aligns with having fewer participating hotels.

In response, Lombardi-Freeze explained that forecasts are based on factors such as current booking pace, group business on the books, and hotel performance trends. However, due to the withdrawal and a major renovation at one of the largest hotels, the budget has been adjusted downward, with an expected decrease in revenue compared to the current year.

Councilmembers sought clarification on the extent of the reduction, and Lombardi-Freeze noted that a final percentage is still being developed as the budget is refined.

Public Comments: None.

Motion and Vote: Reynolds moved to approve the item, which was seconded by Marr. The motion passed unanimously (7-0).

2.     Fiscal Year 2026-27 Proposed Operating and Capital Improvement Program and Housing Authority Budget.  The adage “follow the money” still holds. A City’s budget reveals its priorities and reflects how it views and serves its residents. While budget discussion may sound dull, this one was anything but!

After the City Manager introduced the item, several staff members delivered presentations. Below is a summary:

Overview : The presentation covered the City’s proposed FY 2026–27 operating, capital improvement, and Housing Authority budgets, while meeting state requirements (AB 481 on police equipment and AB 2561 on staffing).

Key Themes:

• Balanced budget: Revenues and expenditures aligned without using reserves.

• Priority focus: Public safety, quality of life, and infrastructure.

• Cost control: Ongoing efficiency and cost-containment efforts.

Economic Outlook:

• “Cautious optimism” amid inflation and economic uncertainty.

• Modest revenue growth (~3% overall):

  • Sales tax: 2–3%

  • Property tax: ~2%

  • Hotel tax: ~5%

Budget Snapshot:

• Total budget: ~$245.9M (+9%)

• Operating: ~$211.6M (+5%)

• CIP: ~$23.6M

• General Fund: ~$200M revenue and expenditures (balanced)

Revenues are projected to grow modestly with a 3% overall growth:

• Sales tax: ~$82.5M (+2-3%)

• Property tax: ~$64M (+2%)

• Hotel tax: ~$10.6M (+5%)

Proposed General Fund Revenue

Spending Priorities:

• Police: ~$69.9M (35%)

• Fire: ~$39.4M (20%)

• Public Works: ~$22.8M (11%)

Capital Improvements: Investments in streets, parks, facilities, and technology, including:

• Fire Station #2 renovation

• Road and alley upgrades

• Park improvements and skate park expansion

• Emergency communications upgrades

THINGS TO KNOW: Chavez suggested that the City create an asset management program, or AMP, like the City of Irvine. Irvine put aside $60 million as an additional reserve fund. Technically, those are general fund dollars, but Irvine uses the interest from the $60 million to improve its facilities. He said, “That’s a really smart way for us to look at long-term facility maintenance.”  The reason he knows about this is that he works as the Chief of Staff for Irvine Councilmember William Go, who got in trouble with the FPPC. See Instagram bio below.

Manuel Chavez Instagram biography

It is no wonder he voted against an ethics policy that would prohibit him from lobbying and voting for items involving the City of Irvine. He should have recused himself from the contract with Irvine for the use of beds in our homeless shelter!

Workforce and Staffing:

• Vacancy rate ~6% (38 positions).

• Ongoing recruitment efforts with targeted incentives.

• Budget actions include freezing 14 positions, applying 2% attrition savings, and limited staffing adjustments.

Public Safety Staffing:

• Police: Fully staffed (142 sworn).

• Fire: Hiring underway to fill 8 positions.

Additional Items and Fiscal Health:

• Continued funding for arts and culture, including a new master plan.

• Housing Authority funded (~$1.3M) for homelessness services.

• IT and capital asset funds fully funded.

• Strong reserves (~$61M total, ~$19M unassigned); no reliance on reserves and well below the state spending limit.

General Fund Expenditures

Council Questions and Key Issues:

Funding Sources:

• New items funded with one-time or redirected dollars:

  • Arts program: ~$500K from interest on prior ARPA funds.

  • Utilities (~$800K): Shifted from general fund to opioid settlement funds.

Key takeaway: Funding relies on one-time or redirected funding, not ongoing revenue.

Sustainability Concerns:

• Council (especially Reynolds) cautioned that one-time funds are being used for ongoing costs (staffing, utilities).

• Staff acknowledged these are short-term solutions requiring future adjustments.

Revenue Assumptions:

• Concerns about optimistic projections (sales tax, hotel tax).

• Staff stated forecasts are data-driven (through March) but noted ongoing uncertainty.

Homeless Program Funding:

• Loss of a partner created a ~$1.3M gap.

• Temporary plan: use fund balance and pursue new partners or grants.

• Council flagged continued funding uncertainty.

THINGS TO KNOW: With respect to funding for the Costa Mesa Bridge Shelter, during the presentation (at about the 2:22 mark), Budget and Purchasing Manager Mark Khou stated, “I don't know what the amount of the Newport Beach contract was annually. The Newport Beach portion of support was approximately $1.3 million. This budget is going to be carried this year with fund balance, so the Housing Authority Fund does have some available fund balance, but we do look forward to establishing new partnerships to help generate that lost revenue from Newport Beach, as well as potential revenue from some from the approval of the housing plan and that could make us eligible for some state bill grants again, and so that that would bring in approximately potentially $800,000 to $1 million once that goes into effect.”

For the past four years, we’ve been told that Housing Element certification is just around the corner. At this point, assuming it will be approved within the next year—and that grant funding will begin flowing again—is not grounded in reality. We should not be relying on that uncertainty to fund ongoing operations like the Bridge Shelter.

In fact, we learned the very next day that the California Department of Housing and Community Development (HCD) does not like the fact that the City’s Housing Element is still noncompliant (see below), which further underscores the risk of this assumption.

Adding to the concern, the City entered into an agreement with Irvine to offset shelter costs by renting beds. However, Irvine has not needed as many beds as anticipated, leaving the City to cover a larger share of operating costs than expected.

Overtime budgeting issue (MAJOR ISSUE):

Key Tension:

• Police estimate ~$4M in overtime vs. ~$1.9M budgeted.

• Fire budgeted ~$2.7M vs. prior $3–5M spending.

Staff Explanation:

• Historically offset by vacancy savings—no longer reliable with near-full staffing.

• Plan to cover gaps through vacancy savings, 2% attrition, cost controls, and mid-year adjustments if needed.

Council Concerns:

• Potential $2M+ shortfall, especially in police overtime.

• Approach relies on uncertain savings and “hope and adjust later” strategy.

• Risk of needing reserves or cuts mid-year.

Oversight and Fixes:

• Prior year exceeded budget by millions, raising concerns about controls.

• Staff noted budgets are managed at the fund level; proposed earlier and more frequent reporting.

“Transition Budget” Context:

• Shift away from relying on vacancy savings toward more realistic staffing costs.

• Creates short-term uncertainty and need for close monitoring.

Other Risks Identified:

• Uncertain homeless funding.

• Use of one-time funds for ongoing costs.

• Reliance on mid-year fixes instead of upfront solutions.

Potential Mitigation Options:

• Use reserves as a buffer.

• Delay/reduce capital or IT funding.

• Adjust spending mid-year with more frequent check-ins

Bottom Line: Staff views this as a manageable transition year, while Council sees elevated risk from optimistic assumptions and uncertain funding.

Public Comments: First up was Ralph Taboada, who stated that the budget was not unanimously approved by the Finance and Pension Advisory Committee. He supports quarterly budget reviews with the Council to track finances in real time. He raised concerns about inconsistent vacancy figures (38 vs. 52) and emphasized the need for transparency and consistency. He also warned that relying on vacancy savings to fund overtime is no longer sustainable as staffing levels increase.

Taboada opposes eliminating Park Ranger positions, citing public support for expanded ranger presence. He suggested delaying budget approval, freezing additional positions, and avoiding cuts to infrastructure or fee waivers.

I echoed appreciation for staff efforts but expressed concerns about key assumptions, including uncertain revenue projections and the likelihood of delayed housing-related funding. I also strongly opposed eliminating the Park Ranger position, given rising safety concerns in parks and clear public support, and recommended preserving the role by deferring other expenses if necessary.

Councilmember Comments: City Councilmembers expressed general support for adopting the proposed budget while acknowledging its challenges and uncertainties. The Mayor and several members praised Staff for producing a balanced budget during difficult financial conditions without relying on reserves, highlighting a shift away from past dependence on vacancy savings and emphasizing the value of maintaining full staffing and services.

Some noted that budgets are inherently fluid and can be adjusted over time, expressing confidence in staff and favoring adoption alongside ongoing monitoring through quarterly reviews. However, some Councilmembers raised concerns about unclear assumptions around vacancies, attrition, and potential cost increases, particularly in public safety, and advocated for a more cautious approach.

Motion and Vote: Councilmembers generally supported adopting the budget despite its uncertainties. Several praised staff for delivering a balanced budget without using reserves and for shifting away from reliance on vacancy savings.

Some emphasized that budgets can be adjusted over time and supported adoption with ongoing monitoring, including quarterly reviews. Others raised concerns about unclear assumptions around vacancies, attrition, and rising public safety costs, calling for a more cautious approach.

Marr and Reynolds proposed delaying the vote to allow for further clarification and potential cuts, but the majority rejected the delay and approved the budget, favoring continued oversight and mid-year adjustments. The final vote was 5-2, with Marr and Reynolds voting “No.”

THINGS TO KNOW: While the budget has been adopted, significant uncertainty remains around its underlying assumptions. It is unclear whether it is structurally sound or if mid-year adjustments will be needed to keep it balanced.

Potential fixes—such as deferring repayment to CAN and IT funds or drawing on reserves—are not ideal and point to underlying gaps. A more prudent approach may have been to delay adoption to allow additional time to refine the numbers.

Ultimately, whether this budget holds together will depend on how these assumptions play out. I hope we are not returning to a “ready, fire, aim” approach to fiscal planning.

IT DOESN’T STOP HERE. READ PART TWO OF OUR SPECIAL UPDATE TO STAY INFORMED.