The City Council Members have their work cut out for them tonight. The agenda has meaty items in and out of the public eye as well as the first review of the proposed 2025-2026 budget, which will eat up a ton of time. Let’s dive in.

Closed Session: Yeah, we’re getting sued

Remember we were musing a few weeks ago whether the tea leaves signaled former city manager Lori Ann Farrell Harrison was suing the city over her abrupt termination?

Well, since that meeting, more evidence has piled up that such a suit is in the works. At the end of one of the longest closed session meetings I’ve seen during my time as a city watcher, the city attorney reported out one action: on a 4-3 vote (Gameros, Buley, Stephens and Pettis lining up against Chavez, Marr, and Reynolds), the city had retained attorney Greg Labate, a partner at Sheppard Mullin Richter & Hampton LLP, in connection with an undisclosed litigation. Mr. Labate is a labor law attorney that specializes in defending clients from workplace discrimination and wrongful termination suits.

And now, we have a closed session agenda that not only references a report on two undisclosed cases, but also notes that the City Council will consider two appointments: a City Manager and an Interim City Manager. Which, unless the City is planning to hire from within, doesn’t make a lot of sense. To my knowledge there hasn’t been any search process initiated for a new city manager. Perhaps these items are to appoint an interim city manager and to brief the City Council on next steps in the city manager hiring process?

So I think it’s pretty clear at this point that the city is getting dragged into an ugly wrongful termination suit. And we may see the Council re-align amongst themselves because of it. So let’s keep an eye on where this goes.

New Business: UCLA to Jack Hammett for the Summer

I’m going to skip over the consent calendar, which is pretty bread-and-butter this time around, and come back to the public hearings in a minute. Other the a small item temporarily re-hiring a retired finance employee, the only new business item is the newsy announcement that the University of California Los Angeles is proposing to use Jack Hammett as its Summer pre-season training camp site.

This proposal looks very similar to the successful contract with the Las Vegas Raiders to rent out Jack Hammett last year. So unless there are some Diehard USC folks on the Council, this one will sail through.

Public Hearings: All eyes on the budget

Yes, there are other public hearing items — the reauthorization of our business improvement area and an appeal from a Planning Commission denial of a cannabis retail store on Orange Avenue are both slated for discussion — but you’ll have to bone up on those on your own time.

Really, this meeting is all about the budget. And mercifully the discussion will be split up into two pieces — one about the budget itself, and another on resetting some of our user fees.

Before getting to each of those, though, let’s do a quick recap how municipal finance works.

On the revenue side, cities can’t make profits and can only raise revenues from taxes, fees or intergovernmental grants. On the tax side, cities levy property taxes (a steady source of revenue that is, for better or worse, capped by Proposition 13), sales taxes, and special revenue taxes like transient occupancy (a.k.a. hotel) taxes. However, in California, taxes are almost never sufficient by themselves to fund city services. The balance then is made up by charging user fees on city services — think anything from the dog license fee to the price to make copies at City Hall to the fee the city charges your car insurance if they have to use the jaws of life to pry you out in the event of a bad wreck — and pursues County, State and Federal grants to fund specific programs and projects, such as the Bridge Shelter. However, while taxes and fees mostly go straight into the general fund, grants usually can be spent only on a specific purpose. So while free money from other governments is great, it’s not a blank check.

On the cost side, the important context to keep in mind is that employee costs (salaries, benefits, insurance, etc.) constitute about 75% of Costa Mesa’s operating budget. Those employee costs are concentrated in our public safety personnel. The remaining 25% is sprinkled across maintenance and operations costs and capital investments.

And finally, the last thing to keep in mind is that Costa Mesa has a special rule that requires at least 5% of general fund revenues to be set aside to fund the Capital Asset Needs (CAN) fund, which has been discussed extensively in these pages. As expected, the Staff is sticking to its recommendation that the CAN requirement be “waived” such that the foregone funds are spread among future budgets over the next ten years.

And with all that background out of the way, I was all set to do a big dive into the good, bad and ugly of the Staff’s recommended approach to both fees and the overall budget. But then something interesting happened.

The Finance & Pension Advisory Committee did all my work for me.

FiPAC nails the assignment

Perhaps catching the spirit of committee and commission re-engagement that seems to moving through the city in the last few months, the Finance & Pension Advisory Committee (FiPAC) called a Special Meeting last Thursday to do what they could to get their recommendations together in time for tonight’s budget discussion.

Although they weren’t able to get their recommendations into the Agenda for tonight’s meeting, FiPAC Chair Tom Arnold managed to deliver them instead as a wonderful public comment (scroll to the last few pages at link). And, most shocking of all to me, he didn’t stop there: Chair Arnold also included a link to his personal recording of the FiPAC meeting, so you can go listen to the entire discussion yourself.

So, how did they do? Well…

The recommendations roll a live grenade into what is usually a convivial, mutual back-slapping affair among City Council and City Staff. Not only did FiPAC decline to support a full waiver of the CAN as Staff has repeatedly requested, it politely demanded that Staff provide options for “reductions in non-capital areas” to maintain critical infrastructure spending. They also pushed back on Staff’s request for increased development fees while pushing them to find other sources of revenue.

It’s a far more remarkable recommendation than it appears at first blush. Consider the following exchange from the FiPAC recording:

FiPAC Member Ralph Taboada: Have you guys thought about options? Let’s say CAN’s not waived. What the options?

Finance Director Carol Molina: The two options would be layoffs, or the reserves, or a combination thereof.

Let me translate: FiPAC knows that asking the City Council to preserve at least some of the CAN funds is asking them to consider layoffs (or at least hiring freezes) or tapping the reserves. And they’re recommending it anyway.

That’s a brave thing to suggest. And honestly, I really wish it hadn’t fallen to the FiPAC to do so. The request for a Staff proposal to put all options on the table, including uncomfortable ones, is precisely what several Council Members up on the dais have asked for repeatedly from Staff during the last month or so of budget discussions.

Yet Staff has simply declined to do that, so here we are. If you listen to the FiPAC recording, you get some sense why: obviously the “l” word, layoffs, or its dark little sister, “hiring freezes”, would be deeply destructive to staff morale. And tapping the reserves isn’t a get-out-of-jail-free card, either; it makes us look fiscally irresponsible, which will hurt our upcoming bond issuance to fund the reconstruction of Fire Station #2.

But, look: maybe we have been fiscally irresponsible. Maybe we did build in assumptions that were too rosy, or maybe we took on too much work with too little staff. And the time to reckon with these problems is now, rather than later. That the FiPAC has to force this reckoning is disappointing but — at least it’s happening.

The FiPAC crushed it and I support their recommendations wholeheartedly. I hope the City Council will listen.