Guest Column

Costa Mesa is in a cost-of-living vice

By Jenn Tanaka

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Jenn Tanaka

Everyone knows that in the past few years, everything has gotten more expensive. Inflation has caused grocery bills to skyrocket and rent to explode. Wars abroad have driven up gas prices. Tariffs add dollars and cents to the price of anything touched by the global supply chain. And everyday essentials like electricity and trash disposal seem to go up every month.

But there is a hidden cost, too. Rapid inflation in housing and essential goods doesn’t just price out residents; it also prices out the people city government needs to function. For example, when housing gets expensive enough, fewer cops, firefighters and maintenance workers can afford to live within a reasonable commute of their jobs. The pool of candidates shrinks, and cities start to fiercely compete for whoever’s left. Wages have to go up just to fill seats. At the end of that chain, the resident pays more in taxes and gets less service per dollar for it. Year after year, the city’s capacity to do its basic job gets slowly squeezed out of it.

This is the cost-of-living vice. And Costa Mesa’s mid-year budget update for the current fiscal year, presented to City Council on April 28, shows that vice tightening.

At first glance, everything looks fine. The city expects to end the year with $193.9 million in revenues matched against $193.8 million in expenditures. That looks like a balanced budget, right? Unfortunately, appearances are deceiving. In reality, the city is running $5.4 million over their current budget. It only appears to be in the black, because thanks to the same inflation punishing every Costa Mesa consumer, sales tax revenue came in higher than expected and largely covered the shortfall. The new expenses have been driven by rising insurance premiums, utility costs, and most significantly, labor. Salaries and benefits now consume 73.5 cents of every General Fund dollar.

That labor pressure has been building for years. To take just one department, Costa Mesa – like many other Orange County cities – has struggled to recruit and retain police officers and dispatchers in recent years, and the result has been an escalating bidding war. A hiring incentive program launched in September 2024 now pays up to $25,000 to attract lateral officers, entry-level recruits and dispatchers, plus a $2,000 referral bonus. Since the program started, the city has spent $242,500 in incentive costs, the Police Department has filled 27 vacancies, and it is now fully staffed in sworn classifications.

That’s good news. But, strangely, it’s also bad news. It turns out that under the leadership of former Finance Director Carol Molina, the city had been balancing its books in part by budgeting for positions that simply never got filled. When seats stay empty, salary savings absorb cost pressures elsewhere. But, if hiring picks up and vacancies fall too far too fast, rising costs have nowhere to go. Molina departed the city abruptly earlier this year. One has to wonder if the unraveling of this strategy was one reason why.

The rest of the picture isn’t reassuring either. Property tax revenue is projected to come in slightly below budget despite 5% assessed value growth – which is, again, exactly the problem. Unlike the city’s expenses, property tax revenue lags inflation thanks to state laws that cap assessments. And, while sales tax revenue is beating expectations for now, the conflict with Iran and ongoing tariff uncertainty are real risks to consumer spending. Finally, labor expenses will only continue to climb. The city’s CalPERS unfunded liability payment is set to jump by roughly $2 million next year, to an estimated $33 million.

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To manage all of this, the FY 2026-27 budget is being built around a 5% reduction target across all departments, with instructions to protect core services. But that is the cruelty of the cost-of-living vice in action: As the vice tightens, the cost of maintaining current service levels rises faster than the city’s ability to generate revenue at current tax rates. It puts the city on the defensive just to keep the essentials up and running.

So the city has only two alternatives: Spend the same amount every year and deliver ever-diminishing services, or raise taxes. It’s pretty clear which one this City Council majority will choose. Costa Mesa residents will likely see both a business license tax increase and a Transient Occupancy Tax increase on the ballot this fall.

Skeptics of tax increases will rightly note that city hall is nonetheless reporting a balanced budget. But a balanced budget and a healthy city are not the same thing. The salary savings that used to cushion hard years are going away, converted into real positions with wages and pension obligations that will last decades. And the structural dynamic driving all of it – the slow, but very real tightening of the cost-of-living vice – isn’t slowing down.

New taxes may slow the tightening of the vice for a little while. But city leaders should remember that economic growth, not tax increases, is keeping the finances afloat this year. That’s the only real way out of the vice – expand the tax base faster than yearly expenditures grow. That will take both fiscal discipline and policies that help, rather than hinder, growth.

Jenn Tanaka is a Costa Mesa resident and the principal writer at the Goat Hill Rodeo.