Costa Mesa firefighter Mike Ruhl is welcomed home by his wife Megan and 2-year-old son Bradley at their Mission Viejo townhome. (SCOTT SMELTZER, Daily Pilot / July 5, 2012)

Both sides' arguments appear to be somewhat overblown, local government experts say. Costa Mesa, they conclude, needs substantive financial reforms to continue to provide services, but the problems may not be quite as immediate as those elected officials who are steering the council argue.

"I think it's an overstatement to say that the city was on the brink of disaster," said Tom Wood, a retired Anaheim city manager who reviewed Costa Mesa's situation at the Pilot's request, but "the status quo is not acceptable. And believing that cities can continue to operate without change is just not realistic."

How much needs to be done, and when, remains at the heart of the debate.

How did the city get here?

There appear to be two broad causes for the current economic situation: large spikes in employment costs approved by previous city councils; and a recessionary climate that reduced income, due to a decline in tax revenue. Both made it hard to cover commitments from more sunny times.

Past Costa Mesa council members made pivotal decisions that fueled a decade-long employment spending spree. Between the 1999-2000 fiscal year, and the peak in 2008-09, the total cost of salaries and benefits climbed 45%, in today's dollars, while the number of full-time employees went up by just 5%. Without adjusting for inflation, that cost rose 80%.

And the bulk of those employment funds went to police and firefighters, just as they do in many other cities. The bulk of the public fight, however, has involved non-public safety employees. City managers are currently said to be privately negotiating reforms with the firefighters.

For years, council members prioritized public safety spending while declining to raise taxes. Meanwhile, employee associations bargained hard and won provisions that guaranteed pay and benefit increases. Council members at the time said they were trying to pay competitively with other Orange County cities and, when times were good and tax revenue high, the system appeared sustainable in the long haul.

Yet when the recession hit and tax revenue plunged, employment costs were so high that the city was forced to spend more than $30 million in reserves — about a quarter of its annual $129 million operating budget. Today, the budget is $117 million.

Those decisions to rely on deficit spending, some in the council majority argue today, were simply "kicking the can down the road" to future politicians.

"We aren't paying for what has to be done in the city," said Mayor Pro Tem Jim Righeimer, who has led the reform effort. "What we're saying is, 'We'll just go ahead and operate the city as an employment agency.' "

But that is essentially what cities do, the other side contends: pay salaries to provide services. They see the recession — and the drop in tax revenue — as the main reason for the city's reserve spending.

"People up here have said that the previous council has blown through $30 million," Leece said at an April meeting. "That was reserve money, and we were thankful that we had it because people were not buying things at South Coast Plaza, and people were not buying cars. It was not malfeasance. It was not poor fiscal planning. It was a necessity."

In pre-recessionary times, council members were more than happy to agree to union negotiators' terms. Labor was able to repeal an agreement in 2004 that had prevented raises higher than the rate of economic growth.

In the past, salary hikes were capped by the so-called affordability provision, which limited growth based on Chapman University's annual economic forecast and employment data.

But as the labor market tightened, city leaders were hamstrung by the restriction.

They couldn't compete with their neighbors for certain positions, said Allan Roeder, who served as Costa Mesa's city manager from 1985 until 2011.

The City Council then essentially guaranteed rising salaries: They would either be at the average or median of surrounding cities or at the pace of economic growth, whichever was climbing faster at the time of contract talks.

The same generally applied to benefits. As surrounding cities approved the most generous pension plans, Costa Mesa followed suit. Also, in 2001, the state Legislature signed a bill that made city workers eligible for boosted pension packages.

"We were in a bind," Roeder said.