City Life: The root of the budget crisis

The roots of Costa Mesa’s estimated $16.4-million budget deficit are deep and extend far beyond the current recession, which is being used as an excuse for years of poor fiscal planning.

In defense of the City Council we hear, “Well, it’s a recession; other cities are also in trouble.”

That sounds like the kid who excuses bad behavior by saying all his friends were doing it, too. Residents should be demanding more business acumen and accountability from their representatives.

But faced with this deficit, the City Council is focused on cutting the budget.

Budget cuts have their place, to be sure. Tough economic times can often become a rationale for cutting fat without risking any political support. But budget cuts are not a strategy for long-term growth and prosperity.

In most bureaucracies, programs and people cut from budgets often return with the corresponding rise in revenue. So the only real product of cuts is short-term relief followed by restoration of the cut people or programs. That creates an economic roller coaster that makes long-term planning difficult and causes tremendous disruption in nearly every department of the city. Cuts lower morale, which affects productivity.

For the City Council, budget cuts create the illusion of taking meaningful steps when all they are doing is kicking the real problem down the street.

The solution is to establish strategies that will ensure long-term growth and prosperity. Budget cuts need to be coupled with the development of revenue-growth opportunities; that is, the City Council should be looking at ways to generate ongoing, sustainable revenue through increasing business development.

Instead, the attention of residents is being diverted from the budget crisis and toward the subject of illegal immigrants. This is a stall tactic until the recession ends and we all resume our shopping at South Coast Plaza.

Developing long-term revenue strategies is difficult and takes people with the gray matter to think about the city three, five or 10 years out. Budget cuts are easier because residents have been tricked into thinking that that’s what you do in tough times. One of the root causes of the city’s budget crisis has been its reliance on emotional decision-making instead of rational thought. A good example is the council’s failure to support raising the city’s transit occupancy tax (TOT), which is applied to the hotel bills of the city’s visitors.

Costa Mesa’s 6% transit occupancy tax (TOT) is the lowest in Orange County.

To find the rationale for raising the TOT, we can look at Anaheim, Newport Beach or Irvine, all of which have higher TOTs than Costa Mesa. Anaheim, the county’s No. 1 destination city, has a TOT of 15%. If Anaheim’s TOT had been hurting their economy, it would have lowered the bed tax years ago. But it has not been lowered because visitors do not choose a city or a hotel based on the transit occupancy tax.

It’s a nonissue.

But the unwarranted fear of raising taxes and the irrational, emotional commitment to a “no new taxes” ideology have substituted for what should be a sound business decision. Raising the TOT will have no negative effect on residents. Had it been raised years ago, it would have generated millions of dollars, which could have avoided or certainly drastically reduced the current budget deficit.

Now, more than any other time in the city’s history, residents need strong economic leadership. They need strategic planners, not grandstanders who propose tactical solutions to long-term challenges, or who don’t propose any solutions at all.

The City Council can start by giving residents a detailed list of the ways in which its developing fairgrounds partnership with Facilities Management West is going to generate revenue for the city.

Costa Mesa may survive this crisis without declaring bankruptcy, an option that is not as far-fetched as some might believe. But without this strategic economic planning, the city will be going through this entire process again a few years from now.