City might draw $11M from reserves

Just a few months after revenue concerns caused Costa Mesa to cut $8.4 million in expenditures from this year’s budget, the city is staring down another revenue shortage.

Costa Mesa relies most heavily on sales tax to pay its bills, and although no local numbers are available yet, national data show a 10% decline in retail sales for the fourth quarter of this year. If Costa Mesa followed national trends, then its revenues will be $4.5 million less than current projections, according to city financial analysts.

This could mean that Costa Mesa has to dig deeper into its reserves to pay bills.

After recording a $2.5-million surplus from the 2006-07 operating budget, the city was forced to draw $7 million from its savings to finance the 2007-08 budget and may have to take $11 million this year from the $66 million that’s left, said budget officer Bobby Young.

The shortfall could even be worse than that, though, according to a recently published city report.

Sales tax revenues are collected by the state and then returned to local governments.

The state makes an advance payment to the city based on a few early indicators of sales tax numbers. When the real numbers are calculated, the state settles the balance.

This year, the state gave the city 16% less money in advance payments than it did last year from July to January, said Finance Director Marc Puckett.

He attributes the steep decline in Costa Mesa’s advance to the state’s cash flow problem and the fact that the state would often overpay local governments in the past.

“The reduction in their advances is not reflective of what’s happening in Costa Mesa as far as retail sales,” Puckett said.

The real question for Costa Mesa is how much holiday sales at South Coast Plaza and the auto dealerships on Harbor Boulevard dropped. The city probably won’t know that data until March, though, Puckett said.

Mayor Pro Tem Wendy Leece said that the city is going to need to cut expenditures to deal with the problem, and that each department will need to look for additional savings, much like they did after November’s announcement of the $8.4-million budget shortfall.

“It wouldn’t be prudent to take it for a loss. It would catch up with us down the road,” Leece said.

ALAN BLANK may be reached at (714) 966-4623 or at alan.blank@latimes.com.