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When titans clash! Auditors disagree mildly over Costa Mesa finances

The union’s auditor came to town last week,* and all the union got was a bill for some $17,000** and a clearer sense that its war against the residents of Costa Mesa is purely philosophical.

The Orange County Employees Association had hoped the auditor would land the lethal blow. Instead, granted full access to Costa Mesa’s books, auditor Steve Foti concluded—just in time for the dramatic June 21 budget vote—that the city might be saving too much money for such eventualities as capital expenses, employee absences, and self-insurance.

That’s it. No demon-possessed Republicans with heads doing high-speed 360s atop roast beef-swollen necks. No Councilmember Jim Righeimer working feverishly under a small cone of light to plan the destruction of “working families.” No Mayor Gary Monahan going so far as to push one city maintenance worker from the roof of City Hall. No “hidden pots of money,” as union spokesperson Jennifer Muir puts it. Just a bespectacled auditor from San Francisco clearing his throat to alert us to the fact that the city might have saved more than is necessary in some areas of the budget.

Muir and her colleagues at Orange County Employees Association HQ in Santa Ana immediately seized on the auditor’s meager finding as evidence of the council’s perfidy—and as a kind of treasure chest that must be tapped in order to fund pensions and benefit packages that (polls suggest) most of us believe are excessive.

We believe that because we’ve watched successive budget deficits suck down the very reserves Foti says are “above average.” Indeed, just a month ago, Moody’s, the international credit rating agency, downgraded Costa Mesa’s credit precisely because the same reserves are too low.***

The philosophical disagreement between Foti and Moody’s isn’t some yawning chasm across which no mere mortal could possibly see the other side. Moody’s said the city is slightly under-reserved; Foti said Costa Mesa’s reserves put it on the high side of normal. It’s only the union that tries to magnify this honest disagreement into an apocalyptic showdown between the unionized forces of Jesus Christ on a white unicorn or man-faced sheep vs. a multi-headed Whore of Babylon operating inside City Hall.

It’s possible we side with Moody’s—and therefore with the city council majority—because we actually hang around Costa Mesa. We can see what Foti probably didn’t: that years of rising pensions and healthcare for city employees has robbed the city of its ability to fund streets, parks and such buildings as City Hall.

You can see the misplaced priorities if you take a walk, as we did this week, across the athletic fields at Estancia High School—the hard-packed dirt and weeds next to the bathrooms that serve the adjacent stadium. In a city notoriously short of parks, schools playgrounds have become the default practice fields of many organized youth sports and adult leagues. For a fee, the Pop Warner and AYSO kids can stomp Estancia’s sod into something like asphalt. And they do. This is no verdant glen, no playing field of Eton; it’s Tom Joad’s Oklahoma. There are, as one local put it, “simply too many feet.” Why? Because the kids have got no place else to go, because—after paying for salaries and pensions—there’s no cash left for new parks, and little money remaining to support existing parks.

The city’s own brief experiment in keeping up athletic fields ended two years ago when, financially strapped, the City of Costa Mesa made a choice: it could continue to weed, water and fertilize its Farm Sports Complex, or it could cut the maintenance expense, let the field return to its natural/fallow weedy state—and push the savings into pension and healthcare for city workers. It chose the latter. That decision is now etched in the landscape, a kind of horticultural “drop dead” from the Orange County Employees Association to Costa Mesa’s kids.

Ditto for the city’s streets—already crappy, and now by some estimates just five years from failure—and for its City Hall, where such renovations as air-conditioning and heating are delayed year after year, and dismissed recently by Muir’s high-priced union PR team as luxuries: “[F]east your eyes on the proposed budget released by the city last week. According to the official budget, millions in new paint and carpet is still planned!” Still planned, still unfunded.

So, we thank Mr. Foti for confirming that the city “is better than average where they’re sitting financially at this point,” though “not in a great financial position.”

We think that means we’re better off than many other cities (hello, Vallejo!), but could be doing much better. If so, we think so, too. We’d like to start by living within our means. That would indicate an end to unfunded—unfundable—pension and benefit programs that force us to sacrifice the streets and parks that make Costa Mesa livable.

Streets? Parks? They may as well be dipped in gold and filled with cash so far as the OCEA is concerned. Instead, the union would have us tap reserve accounts to fund the ongoing costs of employee pensions and benefits. But that’s a one-time solution—the sort of sleight-of-hand business savvy that created the U.S. housing bubble and subsequent economic meltdown; the kind of negligent budgeting that had California add costly programs based on the expectation that the late 1990s run-up in dot-com stocks would last forever. What happens next year when, because Costa Mesa has still failed to cap the city’s obligation vis-à-vis ongoing employee costs, the operating expense has risen again—and this time there are no reserves to tap? When we’re confronted with failing parks, streets and buildings? Faced with declining sales tax revenue?

Moody’s, of course, will go nuts. It’s the one thing their May report warns against. “WHAT COULD MAKE THE RATING GO DOWN?” it asks in admonitory upper-case letters. It answers its own question in upper/lower-case letters that seem like a ghost whispering a laconic warning: “Continued operating deficits. Further tax base decline.”

At that point, one imagines, we’d have neither the sustainable city we want—the leafy, well-paved metropolis we envision—nor the cash to pay for employee pensions and benefits the union says are essential. We’d have the worst of both worlds: potholed streets, closed parks, a City Hall in such disrepair that there will be no roof from which to jump, and no pension funds to mail retirees. On the other hand, we’ll all be miserable together. Which is nice.


* We’re speaking figuratively here. He spoke with reporters via telephone.

** Steve Foti told Republic of Costa Mesa web editor Janelle Flores that “the Costa Mesa project was bid at $17,500 (about 100 hours) due to the scope of work that was requested.” We’re not clear that that was the final bill.

*** Unlike some cities, Costa Mesa is unusually dependent on sales tax revenue; Moody’s said the city’s “weakened financial profile” was a result of “above average exposure to volatile sales tax revenue and low reserves given its revenue structure.” Translation: cities that rely on sales taxes from, say, South Coast Plaza are almost naked when the economy goes cold as this one has; such cities would be wise to put on a sweater.