Consultant: Costa Mesa relies more heavily on sales tax than neighbors

COSTA MESA — The city’s heavy reliance on sales-tax revenue makes the municipal budget vulnerable to the economy’s ups-and-downs, city administrators said.

At a Tuesday budget session focused on revenue, city staff said more than 44% of the city’s revenue, or $41 million, comes from volatile sales-tax revenues.

Moreover, about half of the city’s sales-tax revenue comes from general consumer goods — such as furniture, clothing and electronics — where storeowners quickly see a dropoff in retail sales in an ailing economy, said Lloyd de Llamas of The HdL Cos., the city’s revenue consultant.

On average, California cities only rely on consumer goods for about 27% of their sales-tax income, Llamas said.

Costa Mesa’s preliminary budget projects a 7%, or $2.71 million, increase in sales-tax revenue this year.

HdL offered a slightly lower projection of just above 6%, but city officials maintained that state trends show 7% is a safe estimate.

The city’s other major revenue streams are property taxes, about 22%; vehicle license fees, nearly 10%; transient occupancy tax (TOT) from hotels, 6.3%; and the business license tax, .9%.

About 100 other fees and charges make up the remaining 17% of city revenue, or $16.1 million.

The recently increased TOT is projected to bring in about $5.9 million during the next fiscal year compared with two years ago, when the TOT generated $4.3 million.

The underwhelming revenue from the city’s business license tax was a sticking point for residents, who called on the city to raise how much it charges Costa Mesa businesses to operate.

The city charges a $200 maximum for businesses across the board. So a large store like Nordstrom in South Coast Plaza could pay the same business license tax as a mom-and-pop store on the Westside.

That tax generates about $850,000 annually in Costa Mesa, but neighboring cities pull in much more —$2.2 million in Huntington Beach, $3.9 million in Newport Beach and $10 million in Santa Ana.

Costa Mesa voters would have to approve any such tax hike during next year’s elections, and any increased revenues wouldn’t be fully realized until late 2013 or 2014.

Though revenue is slowly improving, city officials said Costa Mesa is projecting a $3.3-million budget gap that will not be plugged by reserves, which are at historic lows.