HomeMy WebLinkAboutPH-2 - 26-309 - Proposed Budget - 6/2/2026CITY OF COSTA MESA
Agenda Report
77 Fair Drive
Costa Mesa, CA 92626
File #:26-309 Meeting Date:6/2/2026
TITLE:
FISCAL YEAR 2026-27 PROPOSED OPERATING AND CAPITAL IMPROVEMENT PROGRAM
AND HOUSING AUTHORITY BUDGET INCLUDING ANNUAL REPORTING FOR EQUIPMENT
USE POLICY PER AB 481 AND VACANCY STATUS AND RECRUITMENT STRATEGIES PER AB
2561
DEPARTMENT:CITY MANAGER’S OFFICE, FINANCE DEPARTMENT
PRESENTED BY:CECILIA GALLARDO-DALY, CITY MANAGER,
MARK KHOU, BUDGET & PURCHASING MANAGER
CONTACT INFORMATION:MARK KHOU, BUDGET & PURCHASING MANAGER,
(714) 754-5241
RECOMMENDATION:
Staff recommends the City Council:
1.Approve Resolution 2026-XX,adopting the Proposed Fiscal Year 2026-2027 Operating and
Capital Improvement Program (CIP) Budget; and
2.Approve Joint Resolution 2026-XX adopting the Housing Authority Budget including Economic
and Community Development expenditures for Fiscal Year 2026-2027; and
3.Authorize and approve staffing as follows:decrease of 1.0 FTE for Park Ranger as presented
at the May 12, 2026, Study Session; and
4.Approve Resolution 2026-XX establishing the Fiscal Year 2026-2027 Appropriations Limit for
the City of Costa Mesa at $346,047,694,by using Orange County’s growth for population
adjustment, and the California per capita income growth for inflationary adjustment; and
5.Approve the City of Costa Mesa’s Revised Special Event Rates; and
6.City Council is requested to comply with AB 481 Police Equipment Report and Resolution as
follows:
a.Receive and take public comment on the 2026 Annual AB 481 Report and file; and
b.Approve Resolution 2026-XX Renewing Ordinance No.2022-03,the AB 481
Equipment Use Policy of the City of Costa Mesa,California,governing the use of police
safety equipment; and
7.Approve renaming of the Economic and Development Services Department to the Community
Development Department and approve Resolution 2026-XX,renaming the Economic and
Development Services Director and updating benefits information for Executives (Attachment
16); and
8.Approve Resolution 2026-XX renaming the Assistant Development Services Director
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File #:26-309 Meeting Date:6/2/2026
8.Approve Resolution 2026-XX renaming the Assistant Development Services Director
(Attachment 17); and
9.Receive and file the job vacancy status information required by AB 2561.
BACKGROUND:
The FY 2026-27 Proposed Budget reflects a strong commitment to the City Council,residents,and
community partners in ensuring the delivery of high
-
quality,core public services and fulfilling the City
Council’s highest goals and priorities.City staff have carefully considered the City Council’s priorities
and goals during the development of this Proposed Budget to ensure essential services and
community needs remain fully supported.
While the City continues to benefit from modest revenue growth,particularly in Sales Tax,Property
Tax,and Transient Occupancy Tax,broader macroeconomic forces associated with geopolitical
tensions,supply chain disruptions,fluctuating energy markets,and rising operational costs create an
environment of uncertainty.These external pressures have the potential to affect consumer behavior
and critical municipal revenue sources.In response,the City has taken a measured and proactive
approach:aligning revenue projections with realistic expenditure assumptions and identifying one-
time deferral opportunities that maintain service delivery without impacting core programs.
Despite increasing costs for goods,services,and personnel,the Proposed FY 2026-27 Budget
remains structurally balanced without the use of General Fund reserves,demonstrating the City’s
ongoing commitment to long term fiscal sustainability.This budget ensures that high-quality
programs,public safety services,community amenities,and neighborhood investments continue
uninterrupted for residents, businesses, and visitors.
The theme for the FY 2026-27 Proposed Budget is “Measured Decisions.Meaningful Impact.”Staff
will remain focused on the City’s mission to serve its community,operate efficiently,and maintain
resilience in the face of evolving economic conditions.The City’s ability to sustain strong service
levels reflects the collective commitment of the City Council,staff,residents,businesses,and our
community partners working together to support Costa Mesa’s continued success.
Guiding Principles
The guiding principles that shaped the FY 2026-27 Proposed Operating and Capital Improvement
Budget were established when the City Council conducted a Strategic Planning workshop identifying
key priorities, as well as the Mission Statement for Costa Mesa, as follows:
“The City of Costa Mesa serves our residents,businesses,and visitors by promoting a safe,
inclusive, and vibrant community.”
The City Council Proposed Strategic Plan Goals as outlined below:
·Strengthen the Public’s Safety and Improve the Quality of Life
·Achieve Long-Term Fiscal Sustainability
·Recruit and Retain High Quality Staff
·Diversify, Stabilize, and Increase Housing to Reflect Community Needs
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·Advance Environmental Sustainability and Climate Resiliency
·Maintain and Enhance the City’s Facilities, Technology, and Equipment
In addition to the six goals, the City Council proposed Core Values as part of their Strategic Plan:
·Integrity
·Sustainability
·Innovation
·Compassion
·Inclusion
·Collaboration
The recommendations in the FY 2026-27 Proposed Budget are rooted in the Strategic Plan Goals
and Core Values established by the City Council to promote a safe,inclusive,and vibrant community.
This budget underwent a thorough review and in-depth analysis by multiple levels of staff to ensure
that funding requests support both short-and-long-term fiscal sustainability.
Every proposed adjustment has been carefully evaluated based on operational needs,the provision
of essential core services,and the effective implementation of the City Council’s stated goals and
priorities.Together,these goals and priorities form the foundation of this year’s recommendations,
aligning resources with long-term stability and the City’s responsibility to deliver meaningful,reliable
services to the community.
ANALYSIS:
The theme for the FY 2026-27 Proposed Budget is “Measured Decisions.Meaningful Impact.”Staff
will remain focused on the City’s mission to serve its community;be efficient in all services delivered,
while being resilient to the changing economic conditions.This budget provides funding for the
Homeless and Behavioral Health Program,Capital Asset Needs,Information Technology
Replacement Fund,Self-Insurance Fund,and Equipment Replacement Fund,enabling Departments
to achieve shared goals in addressing our most pressing needs and concerns.
Funding requests contained in the FY 2026-27 Proposed Budget help to further stabilize or enhance
critical City operations to better serve the public,and/or provide City employees with the essential
technology,equipment,and overall tools to perform their public service effectively.The Proposed
Budget helps ensure both short-and long-term fiscal sustainability,while committing resources to
achieve the Council’s goals.As the cost of operating the City continues to rise,it was appropriate to
anticipate that overall expenditure would begin to outpace revenues.Hence,the need to continue to
explore new revenue opportunities.
To address and develop a balanced Budget for the Fiscal Year 2026-27,departments reviewed
operational expenses and identified opportunities to reduce or defer expenditures without impacting
core services.Following a comprehensive evaluation of departmental expenses,staff identified
reductions and deferrals (one-time savings)that can be implemented without affecting the City’s
primary services.At the same time,staff continue to evaluate long-term revenue strategies to ensure
the City can sustainably meet its future operational needs.This includes assessing potential revenue
enhancements,monitoring economic trends,and identifying opportunities to strengthen the City’s
fiscal position.Together,these efforts support the City’s commitment to maintaining service levels,
advancing Council priorities, and ensuring long-term financial resilience.
At the FY 2026-27 Capital Improvement Budget Study Session on March 31,2026,and May 12,Page 3 of 21
File #:26-309 Meeting Date:6/2/2026
At the FY 2026-27 Capital Improvement Budget Study Session on March 31,2026,and May 12,
2026,and the FY 2026-27 Proposed All Funds Budget Study Session on May 12,2026,City Council
provided feedback to staff regarding several items to include or adjust in the Proposed Budget.These
items and adjustments have been largely incorporated into the proposed budget.
The FY 2026-27 Proposed Operating and Capital Improvement Budget was also presented and
discussed at the May 12, 2026, Finance and Pension Advisory Committee (FiPAC) meeting.
The agenda reports and videos for March 31, 2026, and May 12, 2026, City Council Study Sessions
can be found here:
March 31, 2026 Agenda Report
Ø FY 2026-27 Proposed Capital Improvement Program Budget Study Session Staff
Report and Corresponding Attachments
<https://costamesa.legistar.com/LegislationDetail.aspx?ID=7962217&GUID=78902821-
May 12, 2026 Agenda Report
Ø FY 2026-27 Proposed Operating and Capital Improvement Program Budget Study
Session Staff Report and Corresponding Attachments
<https://costamesa.legistar.com/LegislationDetail.aspx?ID=8012473&GUID=13AD769C-
Overview of FY 2026-27 Proposed All Funds Budget
The Fiscal Year 2026-27 Proposed Budget is balanced and reflects the operating and capital
spending plans for the General Fund,Special Revenue Funds,Capital Project Funds,and Internal
Service Funds.The total proposed budget for all funds is $245.9 million,an increase of $20.9 million,
or 9 percent,compared to the Fiscal Year 2025-26 Adopted Budget of $224.9 million.Table 1
illustrates these amounts.
Table 1 - Proposed Budget - All Funds
The All-Funds Budget for the City includes both governmental and proprietary funds.Governmental
funds include the General Fund,Special Revenue Funds,Internal Services Funds,and Capital
Improvement Funds.Special Revenue Funds consist of grants and other restricted revenues
designated for specific programs or services,typically provided through Federal,State,or County
agencies.Some of these funds receive ongoing revenue streams,while others are awarded as one-
time competitive grants that require careful monitoring,compliance,and recordkeeping.Proprietary
Funds include the City’s internal service operations,such as equipment replacement,self-insurance
costs,and information technology replacement.These funds ensure that critical internal services are
properly maintained and financially supported over time.Finally,Capital Improvement Funds support
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File #:26-309 Meeting Date:6/2/2026
major capital projects that generally span multiple fiscal years.
In some instances,individual funds may carry accumulated fund balances that can be used as needs
arise or to complete specific projects within required timeframes.As a result,the City’s All Funds
Budget is composed of numerous distinct funds,each with its own accounting and reporting
requirements established by government regulations and, in some instances, by statute.
The City’s General Fund,however,is unrestricted and can be used to provide a broad array of public
services.It is supported by multiple revenue sources,including property,sales,hotel,and cannabis
taxes,as well as user fees,fines,facility rentals,and development-related charges.For Fiscal Year
2026-27,the Proposed All Funds Budget totals $245.9 million,an increase of 9 percent from the
previous adopted year and consists of an increase in all expenditure categories:operating,transfers
out and capital budget.
Operating Budget
Within the FY 2026-27 All Funds budget the total proposed operating budget is $211.7 million,an
increase of $9.2 million,or 5 percent,compared to the FY 2025-26 Adopted Budget of $202.4 million.
This includes realigning budgets to reflect more recent year-over-year actuals in some areas.The FY
2026-27 All Funds Proposed Operating Budget is balanced and comprised of several items,
including:
General Fund
·$250,000 increase in the City Manager Department’s City Clerk Division for bi-annual
elections.
·Realignment of $800,000 to citywide utilities for electricity, gas, and water.
·A salary and benefit budget decrease of $158,442 in the Police Department for a full-time
Park Ranger, and an overtime increase of $122,000 for the City’s jail operations.
·$62,000 increase in the Police department Operating Budget to support the City’s Animal Care
services and security services for City Council meetings.
·Realignment resulting in an increase of $79,321 for Part-Time positions in the Parks and
Community Services Department.
·Adjustment resulting in an increase of $70,968 due to CPI for the Parks and Community
Services Department to support the lease agreement with Newport Mesa Unified for the
Balearic Community Center and other operational needs.
·Reallocation of the Emergency Service Coordinator position to a sworn Battalion Chief with a
net $176,603 increase to the Fire Department Proposed Budget.
·A $33,711 increase due to CPI for the City Attorney’s annual contractual agreement.
·$2.0 million increase to the annual CalPERS Unfunded Actuarial Liability (UAL) payment.
·Incorporates a citywide attrition factor set at 2% of the operating budget.
Other Funds
·Fully allocated $190,930 in the Cultural Arts Master Plan (Fund 130) for the Arts Specialist
position.
·Realignment of $800,000 from Opioid Settlement Fund (Fund 227) to Costa Mesa Housing
Authority Fund (Fund 222) to support the homeless population that are impacted by substance
use disorder (SUD).
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·The Gas Tax (Fund 201) has a $350,000 budget increase to support tree trimming and
maintenance along medians and public-rights-of-way.
·$220,000 increase in Measure M2 Fairshare (Fund 416) to utilize annual allocations towards
City’s traffic signal maintenance.
·$508,693 increase in the Self Insurance Fund (602) for insurance premiums.
·$66,000 one-time increase in Drainage Fund (Fund 209) to support legal advertising/filing
fees.
Additionally,departments identified numerous operational cost reductions,mostly one-time deferrals
totaling approximately $1.7 million.
Transfers Out
Transfers Out from All funds total $9.8 million,an increase of $6.3 million.Ordinance No.2020-06,
Section1:2-209 requires the City to contribute 5%of annual General Fund revenues to the Capital
Improvement Fund (Fund 401)and 1.5%to the Information Technology Replacement Fund (Fund
603).In the Proposed FY 2026-27 Budget,Transfers Out from the General Fund total $9.8 million,
with $6.7 million allocated to Fund 401 and $3.1 million allocated to Fund 603.This amount includes
the scheduled annual repayment of previously deferred contributions to the Capital Asset Needs
(CAN) program and the Information Technology Needs, totaling $0.7 million.
Information Technology Replacement Fund
This fund accounts for the accumulation of resources necessary to fund Information Technology
Projects,including hardware and software replacements.As per the City’s Ordinance No.2020-06,
Section 2:Article 9,2-209.4,1.5%of General Fund revenues are allocated to the Information
Technology Needs Fund to provide funding for the City’s immediate and future information
technology needs,including those identified in the Information Technology Strategic Plan (ITSP).In
FY 2026-27 Proposed Budget,$3.1 million will be funded from the General Fund for the Citywide
Computer Replacement Program, depreciation and staffing salaries and benefits related to the ITSP.
Self-Insurance Internal Service Fund
This fund accounts for general liability premiums.The City’s FY 2026-27 Proposed Budget includes
an increase of $0.5 million due to increasing insurance premiums.
Capital Budget
The proposed all-funds Capital Improvement Program (CIP)budget totals $23.6 million,an increase
of $4.6 million,or 24 percent,from the Adopted FY 2025-26 Budget.Of the City’s $23.6 million
Proposed All-Funds Capital Improvement Budget,$15.9 million will be funded through various City
funds and grants.A comprehensive detail of the Proposed CIP Budget was presented to the City
Council at the March 31,2026,Study Session,and further detail is within the CIP section of the FY
2026-27 Proposed Budget Book.In addition to the $23.6 million,the Capital Improvement Program
includes $12 million for the Fire Station #2 Reconstruction project that will be funded through future
bond financing.
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A few key capital projects in the Proposed CIP budget include:
·Costa Mesa Skate Park Expansion
·Harper Park Playground Replacement
·Moon Park Playground Replacement
·Newport Boulevard Improvement (RMRA funds)
·Police Department Real Time Crime Center
·Police Department Chillers Replacement
·Adams Avenue Active Transportation Improvements - Multipurpose Trails
·Harbor Boulevard Rehabilitation Project (RMRA funds)
·Park Security Lighting Replacement
·Bicycle and Pedestrian Infrastructure Improvements
·Clean Mobility Options Program - On-Demand Transit Services
·Fire Station #2 Reconstruction
FY 2025-26 Proposed General Fund Budget Overview
The Proposed FY 2026-27 General Fund budget is balanced and totals $200.0 million,a modest 3%
increase to the revised FY 2025-26 year-end projections.Nonetheless,the proposed budget reflects
an increase of $13.1 million, or 7 percent, from the FY 2025-26 Adopted Budget of $186.9 million.
Table 2 is a summary of the Proposed FY 2026-27 General Fund Operating Budget.
General Fund Revenue Highlights
The FY 2026-27 Proposed Budget for General Fund Revenues totals $200.0 million,an increase of
$13.1 million,or 7 percent,from the FY 2025-26 Adopted Budget;however,when compared to the
projected FY 2025-26 year-end of $193.9 million,the increase is a modest 3%growth.General Fund
Revenues are typically used to cover public safety,roads,parks and community services,
development services,and other activities and programs for residents.There were many
uncertainties leading into the budget development process,including global conflict,changing tariff
policies,and persistent inflation.These factors remain a concern to the outlook;however,the City
expects modest revenue growth in certain categories.The fiscal year budget commencing July 1,
2026, will be balanced with projected revenues to offset expenses and without the use of reserves.
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Table 3 - General Fund Revenue Estimates
Graph 1 - General Fund Revenue Estimates by Category
Sales and Use Tax:Sales tax is the largest revenue category in Costa Mesa and is estimated at
$82.5 million for FY 2026-27.This is an increase of $7.5 million,or a 10 percent increase from the FY
2025-26 Adopted Budget,but only a modest 2%increase compared to the updated FY2025-26 year-
end revenues estimate of $80.9 million.The City continues to see growth in this category,despite the
economic conditions that would typically dampen consumer spending.
Property Tax:All combined Property Tax revenues are estimated at $64.0 million,reflecting a 2
percent growth over the prior fiscal year budget.
Transient Occupancy Tax (TOT):Transient Occupancy tax revenues are estimated at $10.6 million
next year,reflecting a 7 percent increase to FY 2026-27 Adopted Budget but only a modest 5%
increase compared to updated FY2025-26 year-end estimate of $10.0 million.The previously
adopted revenue budget accounted for a potential slowdown in the travel and leisure segment of
consumer spending.
Fees and Charges:Fees and Charges are estimated at $13.9 million,an increase of $808,349,
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Fees and Charges:Fees and Charges are estimated at $13.9 million,an increase of $808,349,
reflecting a 6 percent growth in FY 2026-27.In FY 2025-26,the City implemented credit card
processing fee of 2.7 percent, which was previously paid by the City.
Measure Q Retail Cannabis Business Tax:On November 3,2020,voters approved the “City of Costa
Mesa Retail Cannabis Tax and Regulation”Measure,also known as Measure Q,which allows
cannabis retail storefront and delivery uses.City Council voted to adopt a 7 percent tax on cannabis
retail businesses.The FY 2026-27 Proposed Budget includes an estimated $3.7 million in cannabis
taxes,an increase of $49,086,or 1 percent from FY 2025-26.Also,as previously approved by the
City Council,the Proposed Budget has two restricted special revenue funds that are financed by the
cannabis retail tax:The Arts and Culture Master Plan Fund (130)and the First Time Homebuyers
Fund (140).
Business License Tax:The City’s Business License Tax was implemented over 40 years ago and the
fees have not adjusted since its inception.The Business License Tax revenues are estimated at
$980,741 for FY 2026-27, a 4 percent increase from FY 2025-26.
FY 2026-27 General Fund Budget Expenditure Highlights
The Proposed General Fund Budget for FY 2026-27 reflects total expenditure of $200 million.Of this
amount,$146.1 million is for salaries and benefits,which represents a modest increase of 0.14%
relative to the FY 2025-26 year-end expenditure projected estimate.On a budget to budget basis,it
is an increase of $8.8 million,or 6 percent,from the FY 2025-26 adopted operating budget of $137.4
million.The General Fund maintenance and operations and fixed assets budget will decrease to
$44.0 million from $46.7 million.The decrease is largely due to the operating reduction requests from
all departments to align expenditures with projected revenues.The remaining $9.8 million represents
the Transfers Out to the Information Technology Replacement Fund and Capital Asset Needs Fund
as described earlier.The FY 2026-27 Proposed Budget for expenditures includes the following
significant items:
·A $3.1 million allocation to ensure compliance with the Information Technology Needs
municipal code requirement of 1.5% of the General Fund revenue.
·A $6.7 million allocation to ensure compliance with the Capital Asset Needs municipal code
requirement of 5% of the General Fund revenue.
·A $2.0 million increase in the annual required CalPERS UAL contribution.
·Adoption of a 2% attrition factor.
·No use of General Fund Reserves to balance the General Fund budget.
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Graph 2 - General Fund Total Appropriations by Department
Table 4 - General Fund Budget by Department
Commitment to the Arts and Culture
At the May 5,2026,City Council meeting,the Arts Commission provided an update on the
implementation of the five-year Cultural Arts Master Plan,accomplishments to date,and next steps
for developing the next five-year plan.As part of this discussion,the City Council directed staff to
continue allocating funding for the City’s arts and culture programs.The City will award a consulting
contract for preparation of the next Cultural Arts Master Plan.Staff initially proposed to return to
Council with funding solutions for both the Arts Specialist position and future programing needs.
Based on feedback provided by City Council and FiPAC,staff was able to identify funding for the Arts
Specialist position,ensuring continued support for arts programming and implementation of the next
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File #:26-309 Meeting Date:6/2/2026
Specialist position,ensuring continued support for arts programming and implementation of the next
phase of the Master Plan.
Staffing Levels
As part of the City’s effort to ensure expenditures remain aligned with projected revenues,staffing
levels were reviewed across all departments,and 14 vacant positions were identified and proposed
to be frozen for the fiscal year.The FY 2026
-
27 Proposed Budget includes 599 full
-
time employees.
On January 20,2026,the City Council approved staff’s recommendation to convert two part
-
time
Concierge positions into one full
-
time Office Specialist II position to better support front
-
line service
needs.
Within the Development Services Department,the Proposed Budget reflects a reallocation of the
Chief of Code Enforcement position to a Senior Permit Technician to strengthen building counter
operations.In addition,the Department plans to underfill an Assistant Planner position with a
Planning Technician to provide needed support at the customer service counter.The Proposed
Budget also includes full funding for the Parks and Community Services Department’s Senior Center
Community Outreach Worker,ensuring continued support for senior services and community
engagement.
Within the City’s public safety departments,the Proposed Budget includes several key staffing
adjustments.In the Police Department,the Budget reflects the reduction of one Park Ranger
position,along with the reallocation of a Public Safety Dispatcher position to a Public Safety Dispatch
Supervisor to enhance training and operational support.In the Fire and Rescue Department,the City
is requesting the reallocation of a vacant Emergency Services Coordinator position to a sworn
Battalion Chief to better address operational needs.
Table 5 - Change in Staffing Levels
Department Job Title FTE
General Fund
Police Park Ranger (1.00)
Police Public Safety Dispatcher (1.00)
Police Public Safety Dispatcher Supervisor 1.00
Development Services Chief of Code Enforcement (1.00)
Development Services Senior Permit Technician 1.00
Fire & Rescue Emergency Medical Services Coordinator (1.00)
Fire & Rescue Fire Battalion Chief 1.00
Grand Total All Funds Impact (1.00)
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Table 6 - Budgeted Citywide Staffing Levels
The Proposed Budget will also include a reallocation for the full funding for the Parks and Community
Services Department Senior Center Community Outreach Worker to the General Fund.A portion of
the costs for this position was funded by CDBG (Fund 207) in prior years.
Executive Resolution Update to Comply with CalPERS
Pursuant to Government Code section 20636 “compensation earnable”for CalPERS “Classic
Members”is defined as the pay rate and special compensation of the member and also requires all
items of special compensation be contained in a written labor policy or agreement that has been
adopted by the employer’s governing body and include the conditions for payment for the special
compensation item,and cannot reference another document in lieu of disclosing the item of special
compensation.Examples of “special compensation”include,but are not limited to,special
assignment pay,holiday pay,bilingual pay,recruitment and retention incentive pay,and certification
and education pay.On January 20,2026,the City Council approved compensation updates for the
Police Chief and Fire Chief which includes Longevity (Recruitment and Retention Incentive)Pay.
CalPERS has requested that the City update its Executive Employees resolution to clarify that the
Longevity Pay applies to both the Police Chief and Fire Chief and that the City add effective dates
into the resolution for certain items of special compensation including items that were previously in
existence.
Proposed Department Name Update
The Economic and Development Services Department is requesting a department name change to
“Community Development”Department to reflect its broader service base and purpose.This
department performs a wide breadth of functions,manages all privately-owned property in the City
through the complete life cycle of the built environment.This includes reviewing new construction,
managing land uses for new and existing buildings,overseeing operational details,housing and
community program assistance,ensuring property maintenance and code compliance,and finally,
permitting demolition.
The name change to “Community Development”would reflect the broader service base and purposePage 12 of 21
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The name change to “Community Development”would reflect the broader service base and purpose
that the department provides to the City of Costa Mesa.This change would also include a title
change for the Economic and Development Services Director to “Community Development Director”
and a title change for Assistant Development Services Director to “Assistant Community
Development Director.”
Commitment to Public Safety
The FY 2026-27 Proposed Budget allocates $109.3 million as the City’s commitment to public safety,
comprising both the Police and Fire Departments.Public safety budgets account for approximately
55 percent of the General Fund Proposed Budget,with 35 percent allocated to the Police
Department and approximately 20 percent to the Fire and Rescue Department.Of the 599 citywide
full-time personnel, approximately 38 percent are sworn positions.
The Police Department budget includes 142 full-time sworn personnel,with one new non-sworn
Custody Officer in the Proposed Budget.Additionally,the Police Department manages the Animal
Services and Enforcement Program.
The Fire and Rescue Department consists of 86 full-time sworn personnel.The Department is
requesting to reallocate a vacant Emergency Services Coordinator position to a Battalion Chief to
address operational needs.
These are some of the proposed actions that demonstrate the City’s ongoing commitment to the
public’s safety.The strong support of the City Council,along with the engagement of residents and
community partners,continues to promote healthy,sustainable neighborhoods and balanced
economic activity. Together, these efforts help maintain the high quality of services the City provides.
General Fund Reserves
The City continues to demonstrate strong fiscal prudence and controls on spending. The combined
commitment for emergency reserves, including the declared disaster and economic reserves, is
indicative of financial discipline. The General Fund reserves currently at $60.9 million exceed the City
Council policy of $55 million.
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Table 7 - General Fund Reserves Balance (in millions)
Fund Balance Category
FY 2022-23
Audited
FY 2023-24
Audited
FY2024-25
Audited
FY2025-26
Projected
FY2026-27
Projected
Nonspendable 460 630 883 883 883
Restricted
Pension & OPEB 3,178 3,367 2,092 2,092 2,092
Committed
Declared Disasters 14,125 14,125 14,125 14,125 14,125
Self Insurance 2,000 2,000 2,000 2,000 2,000
Economic Reserves 9,000 9,000 9,000 9,000 9,000
Assigned
Compensated Absences 6,209 5,982 5,982 5,982 5,982
Police Retirement 1,737 1,572 1,572 1,572 1,572
Workers Comp 2,000 2,000 2,000 2,000 2,000
Facilities Reserve 2,000 2,000 2,000 2,000 2,000
Strategic Plan Projects 2,000 2,000 2,000 2,000 2,000
Unassigned 16,328 17,686 19,307 19,407 19,407
Total Fund Balance 59,037 60,362 60,962 61,062 61,062
FY 2026-27 Housing Authority
On January 17,2012,under the California Housing Authorities Law,Health,and Safety Code section
34200,et seq.(“HAL”),the City Council established the Costa Mesa Housing Authority (“Housing
Authority”).Also,on that date by resolution,the City Council selected the Housing Authority to serve
as the “housing successor”and to assume the housing assets,duties,functions,and obligations of
the former Costa Mesa Redevelopment Agency (“Former Agency”) as of February 1, 2012.
Section 34176.1 establishes certain limitations on expenditures by housing successors;thus,each
fiscal year,the Housing Authority’s funding is limited in two categories:(1)administrative costs,
including covenant monitoring, and (2) homelessness prevention and rapid rehousing.
Homeless Outreach
The Homeless Outreach program combines the City’s Network for Homeless Solutions with the
Housing Authority’s Homeless Prevention and Rapid Rehousing Program.Both programs serve the
same function and offer a broad range of services to homeless individuals,such as assisting with
housing options;creating a social service registry;establishing a network of nonprofit and faith-based
organizations;providing outreach services;and reconnecting new individuals experiencing
homelessness to their families and services in their city/state of origin.
Costa Mesa Bridge Shelter
The Housing Authority accounts for all shelter operating activities,including shelter operator contract,
utilities,external rents,maintenance,and other operational costs.In March 2021,the Costa Mesa
Bridge Shelter on Airway Avenue was completed.The permanent shelter serves as a temporary
home for as many as 100 men and women in need.It is intended to help unsheltered individuals and
residents who are affected by homelessness.
Additionally,in 2024,the City received a three-year award for the Behavioral Health Bridge Housing
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Additionally,in 2024,the City received a three-year award for the Behavioral Health Bridge Housing
(BHBH)in the amount of $3.6 million from the Orange County Health Care Agency (OCHCA)to
provide emergency shelter and behavioral health services at the Costa Mesa Bridge Shelter.The
program implements a wide range of behavioral health care services,including housing navigation,
workforce development, case management, and housing retention.
The Housing Authority’s FY 2026-27 budget consists of funding from a variety of resources with
distinct purposes.This includes rental income,loan repayments,grants,subsidies,and
contributions/donations.
Table 8 - FY 2026-27 Proposed Housing Authority Budget
FY 2025-26
Adopted
FY 2026-27
Proposed
Total Resources $6,020,822 $5,681,355 ($339,467)-6%
Total Appropriations $6,020,822 $5,681,355 ($339,467)-6%
Increase/(Decrease)
Amount/Percentage
FY 2026-27 Appropriations Limit
Article XIII B of the Constitution of the State of California requires that the City establish annually an
Appropriations Limit.This appropriations limit determines the maximum amount of specific tax
revenues which an agency is allowed to spend.Pursuant to Article XIII B and its implementing
legislation,the total annual appropriations limit must be calculated by adjusting the prior year’s
appropriations limit for changes in the cost of living and population growth.
For the FY 2026-27 calculation,the City uses the population growth of the County of Orange of
0.37%since it yields a higher population growth factor,and the growth in California per capita
income as its inflation factor as provided by the State Department of Finance (DOF).
As a result,the City’s budget is $169.2 million less,or 51.1%below the proposed Fiscal Year 2026-
27 appropriations limit.Therefore,the City is well within its appropriations limit established pursuant
to section 7910 of the California Government Code and will not exceed this limit during Fiscal Year
2026-27. Below is the calculation utilized for the appropriations limit.
CITY OF COSTA MESA
CALCULATION OF APPROPRIATIONS LIMIT
FOR FY 2026-2027
The City's Appropriations Limit for FY 26-27 is calculated as follows:
Step 1 Appropriations Limit for FY 25-26 330,924,446$
Step 2 Multiply the FY 25-26 Appropriations Limit by the cumulative growth
factors for changes in the California per capita personal income and the
population change for the City of Costa Mesa.1.045700
Appropriations Limit for FY 26-27 346,047,694$
*CALCULATION OF CUMULATIVE GROWTH FACTORS:
Personal Income Factor 1.0495
Orange County Population Change 0.9963
Costa Mesa Population Change 0.9920
*(1.0495 x 0.9963) =1.0456
Per capita Cost of Living converted to ratio (4.95+100/100)1.0495
Orange County Population converted to ratio (-0.37+100/100)0.9963
Costa Mesa Population converted to ratio (-0.8+100/100)0.9920
* The City has the option to utilize the larger of the annual percentage change of the City or the County.
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CITY OF COSTA MESA
CALCULATION OF APPROPRIATIONS LIMIT
FOR FY 2026-2027
The City's Appropriations Limit for FY 26-27 is calculated as follows:
Step 1 Appropriations Limit for FY 25-26 330,924,446$
Step 2 Multiply the FY 25-26 Appropriations Limit by the cumulative growth
factors for changes in the California per capita personal income and the
population change for the City of Costa Mesa.1.045700
Appropriations Limit for FY 26-27 346,047,694$
*CALCULATION OF CUMULATIVE GROWTH FACTORS:
Personal Income Factor 1.0495
Orange County Population Change 0.9963
Costa Mesa Population Change 0.9920
*(1.0495 x 0.9963) =1.0456
Per capita Cost of Living converted to ratio (4.95+100/100)1.0495
Orange County Population converted to ratio (-0.37+100/100)0.9963
Costa Mesa Population converted to ratio (-0.8+100/100)0.9920
* The City has the option to utilize the larger of the annual percentage change of the City or the County.
FY 2026-27 Special Event Rates
Regarded as one of the most livable cities in the County,Costa Mesa offers community celebrations,
festivals,and parades that provide opportunities for social activity,cultural experience,creative
expression,and engagement in public life.Being named the City of the Arts,special events benefit
the community through exposure to artistic and creative innovation,while providing entertaining ways
to relax and enjoy life.
Each year,the City hosts,sponsors and/or coordinates with other agencies and local organizations
to hold programs and activities that our local citizenry enjoy and love.These activities include the OC
Fair and the OC Marathon, to name a couple.
A majority of events require public safety,public works,community development,and/or parks and
community services staff.As such,the City costs out an hourly rate for the City personnel
requested/needed to staff these events.The City takes into consideration a position’s hourly rate and
corresponding benefits attributed to the position/classification.
2026 Annual AB 481 Police Safety Equipment Report
Per AB 481,law enforcement agencies are required to submit an annual report to the governing body
on the use of the equipment,any complaints regarding the use of the equipment,results of any
internal audits on the use of the equipment,annual costs of the equipment,quantity possessed by
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internal audits on the use of the equipment,annual costs of the equipment,quantity possessed by
the agency, and any intent to purchase new equipment in the following year.
Items deemed to be AB 481 equipment are used as a component of best practices for law
enforcement agencies throughout the country.These tools have been tested in the field and used by
law enforcement agencies to enhance both citizen safety and officer safety.Loss of these items
would jeopardize the welfare of citizens and peace officers within the Costa Mesa Police Department
(CMPD).
The term “military equipment,”as used in AB 481,does not necessarily indicate equipment that has
been used by,or obtained from,the military.Pursuant to AB 481,items deemed to be “military
equipment”include,but are not limited to,unmanned aerial or ground vehicles,armored rescue
vehicles,command and control vehicles,tactical robots,specialized firearms and ammunition,less
lethal 40mm projectile launchers,long range acoustic devices,flashbangs,“tear gas,”and pepper
balls.
CMPD is committed to using the most up-to-date tools and equipment to safeguard the citizens of
Costa Mesa.Many of the items deemed to be AB 481 equipment are utilized by CMPD,and law
enforcement agencies across the country,in order to specifically reduce risk to community members.
These items provide peace officers with the ability to safely resolve volatile situations,which
otherwise might rise to the level of a lethal force encounter.Items listed in this report,and
accompanying AB 481 Equipment Use Policy,also provide CMPD’s peace officers with vital tools
that facilitate compliance with its comprehensive use of force policy.
Other items deemed to be AB 481 equipment include specialized rifles.Specialized rifles allow peace
officers in rare and unpredictable circumstances to address lethal threats from a greater distance and
with greater precision.
There is significant interest in ensuring law enforcement continues to have access to equipment that
will provide peace officers as many options as possible to safeguard lives,ensure safety,de-escalate
volatile circumstances,and protect civil liberties.The use of the tools identified below are vital to
CMPD’s mission and will continue to be strictly regulated through internal processes and oversight.
Staff seeks to authorize the CMPD’s continued use of the specified equipment based upon the
attached Annual AB 481 Report.The report addressed each item responsive to the requirements of
AB 481 and includes a list of equipment prescribed under AB 481,including information regarding
the description,cost,quantity,capabilities,purpose,authorized use,lifespan,fiscal impact,training,
and legal and procedural rules for each item.A majority of these particular items were in place prior
to the implementation of AB 481.
2026 Annual AB 2561 Vacancy Status Report
Effective January 1,2025,Assembly Bill 2561 modified the Meyers-Milias-Brown Act (“MMBA”)to
update Government Code section 3502.3.This modification introduced new requirements for public
agencies to annually report vacant positions,recruitment,and retention efforts.The annual report
requires presentation of the status of vacancies and recruitment and retention efforts during a public
hearing before the governing board at least once per fiscal year.The presentation of vacancies must
be done prior to the adoption of the agency’s final budget.The public agency must also identify any
necessary changes to policies,procedures and recruitment activities that may lead to obstacles in
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necessary changes to policies,procedures and recruitment activities that may lead to obstacles in
the hiring process and allow bargaining units to also make a presentation.If vacancies within a single
represented bargaining unit meet or exceed 20%of authorized full-time positions in that bargaining
unit,the City must provide additional information regarding vacancies and recruitments if requested
by that bargaining unit.
In Fiscal Year 2025-26,the City of Costa Mesa is authorized for 593 full-time employees (excludes
Council Members).In FY2025-26,eight positions were temporarily frozen,resulting in 585 positions
available to fill.The City’s overall vacancy rate as of May 2,2026,is currently 7.86%.The vacancy
rate for each bargaining group is summarized below:
*Does not include 7 Council Members and FY 2025-26 frozen positions
Vacancies within the City arise from a range of factors, including retirements, internal promotions,
resignations, and terminations. From May 3, 2025 to May 2, 2026, the City filled 38 full-time
positions. During this same time frame, 48 full-time employees separated from the City.
Employee retention remains a central focus and priority for the City. The City Council included the
recruitment and retention of high-quality employees as one of the City Council’s Strategic Plan
Goals. However, maintaining a competitive compensation package continues to be a challenge as
other agencies continue to update their compensation and benefits.
In the past year, the City has continued its efforts to recruit and retain high quality employees,
including:
Ø Began negotiating successor agreements with the Costa Mesa Police Association
(CMPA),Costa Mesa Police Management Association (CMPMA)and the Costa Mesa City
Employees Association (CMCEA)
Ø Updated compensation to align with the market for select CMCEA classifications and
expanded select classification series to provide for professional growth within the series
Ø Continued to offer hiring incentives and employee referral incentives for Police Officers
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Ø Continued to offer hiring incentives and employee referral incentives for Police Officers
and Dispatchers
Ø Utilized the internship program to create a pipeline for identifying and nurturing local
talent and partnering with Coastline Regional Occupation Program (ROP)to place interns
in order to enhance interest in working for local government
Ø Continued efforts to enhance City’s branding as an employer of choice through social
media and enhancing employees’ onboarding experience
The City continues to monitor vacancies and assess strategies to assist in recruiting and retaining
high quality employees.
FY 2026-27 Proposed Budget Study Session
At the May 12,2026,City Council Study Session,the City Council provided feedback in review of the
FY 2026-27 Proposed Budget.This included the request to fund 1 FTE position dedicated to the Arts
program,information on staffing levels,additional information regarding Transient Occupancy Tax
revenue projections,and information about Capital Improvement projects,specifically Transportation
and Streets.Lastly,it was requested by City Council for Staff to return with a mid-year update for FY
2026-27
Finance and Pension Advisory Committee (FiPAC)
On May 7,2026,Finance staff presented the FY 2026-27 Proposed Budget to FiPAC.The
Committee commented on the proposed citywide attrition factor and inquired about frozen positions
and how they are accounted for in the attrition factor.The Committee commented on whether
additional funding was needed for the increasing cost of utilities as the actual year-over-year
expenditure has exceeded what has been budgeted in previous years.Further,the Committee
inquired whether Police overtime has been budgeted to reflect actual historical costs.
The Finance Department returned to FiPAC on May 13,2026,for further discussion and
recommendations to City Council.The committee deliberated and made the recommendation to
support staff’s recommendations for the FY 2026-27 Proposed Operating and Capital Improvements
budget with two requests.These requests were first,to move all legal expenses in various General
Fund departments to the City Attorney’s department;and second,for staff to provide semi-annual
capital project status updates.Additionally,FiPAC noted several areas of concern such as overtime,
reserves,and the reduction in maintenance and operation budgets.These areas will be tracked and
updates will be provided to FiPAC in the upcoming year.
Based on feedback provided by FiPAC and the City Council,staff reallocated $0.8 million in
operational expenditures to address rising utility costs.The FY 2026-27 Operating and Capital
Proposed Budget reflects these adjustments to right-size the utility budget to align with actual
expenditures.
Mid-Year Review
The Budget Division will return to the City Council at mid-year in FY 2026-27 to present an updated
budget-to-actuals report.This review will provide an opportunity to assess the City’s financial
performance,evaluate revenue and expenditure trends,and recommend any adjustments needed to
ensure continued alignment with Council priorities and fiscal sustainability throughout the remainder
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of the fiscal year.
ALTERNATIVES:
The City Council can provide alternative direction to staff on the FY 2026-27 Proposed Operating
Budget through June 30, 2026.
FISCAL REVIEW:
The Proposed FY 2026-27 Operating and Capital Improvement Budget provides the funding and
expenditure plan for all funds.As such,it serves as the City’s financial plan for the upcoming fiscal
year.The City Council will be kept apprised regarding actual operating results for the General Fund
through a quarterly financial report and the Mid-Year Budget Review.The Mid-Year Budget Review
will include an update of the fiscal year’s projected revenues and expenditures,and any
recommended adjustments, if necessary.
LEGAL REVIEW:
The City Attorney’s Office has reviewed and approved this report as to form.
CITY COUNCIL GOALS AND PRIORITIES:
This item supports the City Council goals:
·Strengthen the Public’s Safety and Improve the Quality of Life
·Achieve Long-term Fiscal Sustainability
·Recruit and Retain High Quality Staff
·Diversify, Stabilize, and Increase Housing to Reflect Community Needs
·Advance Environmental Sustainability and Climate Resiliency
·Maintain and Enhance the City’s Facilities, Technology and Equipment
CONCLUSION:
The Proposed FY 2026-27 Operating and Capital Improvement Program Budget represents the
strong commitment of our City Council to its residents and community partners,and promotes
healthy,sustainable neighborhoods and balanced economic activity,which facilitates and aids staff in
continuing the provision of quality of services.
Staff recommends the City Council:
1.Approve Resolution 2026-XX,adopting the Proposed Fiscal Year 2026-27 Operating and
Capital Improvement Program (CIP) Budget; and
2.Approve Joint Resolution 2026-XX adopting the Housing Authority Budget including Economic
and Community Development expenditures for Fiscal Year 2026-27; and
3.Authorize and approve staffing for the following as follow:decrease of 1.0 FTE for Park
Ranger as presented at the May 12, 2026, Study Session; and
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4.Approve Resolution 2026-XX establishing the Fiscal Year 2026-2027 Appropriations Limit for
the City of Costa Mesa at $346,047,694,by using Orange County’s growth for population
adjustment, and the California per capita income growth for inflationary adjustment; and
5.Approve the City of Costa Mesa’s Revised Special Event Rates; and
6.City Council is requested to comply with AB 481 Police Equipment Report and Resolution as
follows:
a.Receive and file the 2026 Annual AB 481 Report and take public comment; and
b.Approve Resolution 2026-XX Renewing Ordinance No.2022-03,the AB 481
Equipment Use Policy of the City of Costa Mesa,California,governing the use of police
safety equipment.
7.Approve Resolution 2026-XX renaming the Economic and Development Services Director and
updating benefits information for Executives (Attachment 16); and
8.Approve Resolution 2026-XX renaming the Assistant Development Services Director
(Attachment 17); and
9.Receive and file the job vacancy status information required by AB 2561.
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