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Costa Mesa’s State Ranking for Financial Health Under “Moderate Risk”

The city’s “Moderate Risk” ranking for poor pension fund management could drag the city to the financial brink if not carefully monitored.

The fiscal health of Costa Mesa is not the best it could be according to the 2022 California State Auditor’s rankings.

It joins ten other Orange County cities that did not achieve low-risk rankings, mostly because contributions have not been sufficient to meet targets for the promised retirement benefits and pensions for public servants.

The state auditor ranks California cities according to their financial health. This is a list you’d like to be at the bottom of, as the list ranks from high risk to low risk.

While Costa Mesa does not fall into the high risk group for meeting its financial obligations, it’s in the zone between high and low, meaning if not carefully managed in the next year, it could slip into a high risk designation.

So, what does this mean for residents? When a city can’t meet its promised obligations to public service workers, it usually considers two options: raise taxes or decrease spending. As you may have guessed, the former is usually the more attractive, less work-intensive avenue.

Costa Mesa’s financial outlook was impacted by its high risk ranking in its ability to meet its pension and other post-retirement benefit obligations and the current and future funding of the city’s pensions. Pensions as a whole need to be addressed to improve the city’s fiscal health.

The review demonstrated that Costa Mesa desperately needs to increase its annual payments to reduce its pension debt. However, the city’s burden in meeting pension costs has only increased with its recent downward revenue trends. Costa Mesa saw a consistent loss of approximately 1 percent in revenue streams which isn’t good when you consider that expenses are on the rise.

The bigger question is then, could the city’s resources have been better managed?

When a city fails to protect its residents from financial fallout, residents generally look to who’s at the helm. With the talk of a coming recession, residents would certainly want reassurance that the city has sufficient reserves in its general fund.

Every year the California State Auditor conducts the single audit as required by the federal government to determine how well the state’s entities execute federal programs. This audit ensures the billions in federal dollars flow to the state and is a federal requirement for California to receive annual funding.

Part of the overall accounting for the performance of California is the evaluation of the fiscal health of California’s cities.

It is of greatest importance that local governments keep the city’s finances in order, as poor fiscal management threatens essential services that directly impact its residents, according to the auditor’s primer.

Knowing the financial picture of Costa Mesa is beneficial, as it enlightens city officials to factors affecting financial health and gives them the opportunity to address those factors. For residents of Costa Mesa, its information “to advocate for your community and hold city officials responsible.” the primer states.

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