LOS ANGELES — The Southern California city of Costa Mesa has sent pink slips to around half of its workers as it weighs outsourcing a range of services to corral spending.
City Council members earlier this month green-lighted a plan that could send about 200 city workers packing and outsource dozens of services — from the entire fire department to city jail services — to help plug a $1.4 million budget gap.
The main concern prompting the council’s move appears to be Costa Mesa’s $130 million in unfunded pension liabilities, mostly tied to public safety workers.
Council members during a recent meeting blamed past councils for the budget problems they blame on high employee salaries and pensions.
Bobby Young, the city’s budget and research officer, said the projected $1.4 million shortfall for the current fiscal year is the lowest in the last three years.
“We are still in a state where we probably have a little bit more work to do to close up the budget deficit,” Young said, adding that the city is studying its liabilities for retiree medical benefits.
The Orange County city of 113,000 spent $7.3 million more than its $89 million of general fund revenue in fiscal 2010, according to its most recent audited financial report.
Costa Mesa has already slashed spending. In June, it cut 50 full-time and 26 part-time positions in addition to 71 positions left vacant in the previous fiscal year.
The city also reduced salaries by 5% through unpaid furloughs and early retirement incentives, and postponed or cut capital projects and reduced a number of services.
The city has yet to determine the potential savings from outsourcing and adopted the recent resolution in order to meet a six-month notification requirement in employee union contracts, allowing time to develop a more detailed plan, or to negotiate concessions.
City Council members have said other options besides outsourcing are also still on the table.
As a result of the poor economy, the city’s sales and transient occupancy taxes decreased 11%, or $4.6 million, in fiscal 2010 and 25%, or $17.6 million, compared to two years earlier.
Costa Mesa had $69 million in outstanding debt as of June 2010.
City officials have also blamed financial pressures the federal, state and county governments have placed on municipalities.
“Since the early 1980s, these governmental units have passed on to municipalities a myriad of unfunded mandates or service-regulatory requirements and also have eliminated or redistributed significant sources of revenues,” according to the fiscal 2010 CAFR.
Despite the fiscal challenges, Costa Mesa’s credit rating remains in safe territory with a AA rating from Standard & Poor’s and a Aa2 from Moody’s Investor’s Service.
In a comment published Monday, Fitch Ratings noted that labor costs have more potential impact on the credit of local governments than on higher levels of government.
“As a rough estimate, all-in labor costs equal 70% of total local government spending on operations. This makes clear that labor will be an important part of the equation for local governments seeking to keep spending within the level of available resources,” Fitch managing director Richard Raphael wrote.