Irvine leaders overspent by $6 million in the past fiscal year and are now facing an uncertain fiscal future, with city staff privately warning council members the problem is only set to get worse in coming years.
It’s the first time Irvine has faced any issues balancing its budget in years, having received dozens of awards for its budget in recent years, including one survey that found them to be the most fiscally stable city in America in 2021.
On Tuesday, council members are set to discuss instituting a hiring freeze and whether or not they should start surveying voters about possibly raising their sales tax.
What’s Driving the Increased Costs?
The overshoot also comes as the city’s taken on a series of massive projects in recent years, including the buyout of the All American Asphalt plant on the edge of Orchard Hills and the invention of the city’s own library system
However, one of the biggest expenses comes from a nearly 30% expansion of full-time staffers at city hall since 2020 amid struggles with inflation.
As Irvine’s full time staff has grown to over 1,100 employees, salaries have surged.
While city leaders spent around $139 million in the 2020-21 fiscal year on staff salaries, they’re now set to spend over $211 million total next year according to the city budget, an over 50% increase.
City Manager Sean Crumby noted that it’s been a time of expansion in a Wednesday interview, but said the city’s reserves are large enough to absorb a $6 million impact without issue as it represents around 2% of the city’s annual budget.
“The city organization has grown significantly and there are a series of economic conditions that’re happening globally,” Crumby said. “We will be locking down the revenues of the future year and proposing a balanced budget for the council to consider adopting.”
It’s the first public acknowledgement the city made of their impending budgetary issues after telling people they were fine less than a month ago.
“Expenditures are also estimated to be in line with budget by the end of the fiscal year,” reads a report written by city staff and published on the city’s website last month.
However, that report also noted that expenses were coming in a little higher than anticipated.
“Expenses have increased due to continued inflationary pressures, unanticipated increases in healthcare costs, and higher service demands to maintain high-quality services in combination with the City’s growth,” staff wrote, also noting they were working to balance out the budget.
The city’s Great Park fund is also running into financial problems, with staff warning they don’t have enough money right now to finish many of the promised projects.
[Read: Will Irvine’s Great Park Run Out of Cash Before It’s Completed?]
What Does the Future Hold?
So far, city leaders aren’t willing to answer the question on whether this is a one time deficit or something residents should get used to seeing.
Crumby confirmed the city does have long term economic projections looking at the city’s anticipated revenue and expenditures, but would not publicly release them when asked by Voice of OC, noting the soonest they’d be released is likely next month.
“We have been running projections. There’s no budget numbers to report because there’s no budget adopted,” Crumby said, referencing the possibility of future deficits.
Council members have received a private briefing on those projections according to Councilwoman Melinda Liu, who said she’d been told they could be looking at a worst case scenario of a shortfall around $9 million next year and larger gaps in the following years.
“The worst case scenario could be pretty bad but obviously we’re making adjustments now,” Liu said in a Wednesday interview. “I do think we need a structural adjustment to get ahead of it.”
Councilman James Mai is asking his colleagues to discuss the issue at their next meeting on Tuesday, saying they need a hiring freeze and a public presentation on those projections.
“This is a moment that requires clear leadership, operational discipline, and full transparency to the public. The City must approach these challenges with a focus on facts, accountability, and responsible solutions,” Mai wrote.
Councilwoman Kathleen Treseder said the city has to look at a possible spending cut in a statement..
“For some time now, I have been advocating for reduced spending at the city,” Treseder wrote. “Now we don’t have a choice. We must cut expenditures and balance our budget.”
Mayor Larry Agran said he wasn’t concerned about the budget gap, calling it “very manageable,” in a Tuesday statement.
“As always, we’ll produce a balanced budget,” Agran wrote. “I don’t know of any other sizable city in the country that is financially stronger than Irvine.”
California cities are required by law to produce balanced budgets, but cities like Orange and Fullerton have used a series of budget tools to help the budget breakeven while dipping into reserves amid questions on their long term fiscal stability.
[Read: Fullerton Plays Hot Potato With Budget Crisis]
While those cities technically adopted balanced budgets, officials are still grappling with deficits as spending routinely outpaces revenue.
Agran also noted they don’t have future “deficits” – just projections.
“We don’t have ‘deficits.’ We have 2, 3, and even 5-year projections that (properly) include some very conservative revenue assumptions,” Agran said. “This helps us to plan ahead — not get ahead of ourselves — in our budgeting.”
Is a Sales Tax on the Horizon?
It remains unclear if voters could be asked to vote on a potential sales tax increase, with Mai asking to shut down any survey of voters to see if they’d support one.
“Do not proceed with any public opinion survey or outreach related to potential tax increases without prior City Council discussion and direction,” Mai wrote. “This type of use of taxpayer funds is inappropriate.”
Fullerton and Orange are now weighing asking their residents for a sales tax increase to balance out their budget.
Noah Biesiada is a Voice of OC reporter. Contact him at nbiesiada@voiceofoc.org.
