While the county still has significant reserves to draw on, many cities don\u2019t, with many having already drawn down their reserves to balance their budgets in previous years.\u00a0\u00a0<\/p>\n
What\u2019s Driving the Deficit?\u00a0<\/p>\n
![\"\"](\"https:\/\/www.newsbeep.com\/us-ca\/wp-content\/uploads\/2026\/07\/Irvine-City-Council-Guevara-2025-15.jpg\")
Irvine City Council listens to a public comment during the meeting on May 13, 2025. Credit: BRIAN GUEVARA, Voice of OC.<\/p>\n
While most cities are still managing to achieve a technically balanced budget, which is required by California law, they\u2019re doing it using one-time funding \u2013 like reserves and property sales \u2013 that will eventually run out. \u00a0<\/p>\n
The biggest problem city leaders highlight is that their annual expenses are outpacing the increases to their annual revenue, leading to a gap that keeps growing every year due to a number of factors such as inflation and labor costs.\u00a0<\/p>\n
\u201cFinancial conditions continue to decline due to external factors, particularly in unexpected expenditures,\u201d said Irvine\u2019s Deputy Director of Administrative Services Jonathan Nih to city council members at their June 9 meeting. \u201cEconomic pressures continue to create fiscal challenges as expenditures outpace revenues.\u201d<\/p>\n
\u201cThe key drivers for the higher costs are due to labor, healthcare escalations, inflation and unexpected events.\u201d<\/p>\n
As revenue lags, many city leaders have continued signing off on wage increases for the public sector unions like police and fire, despite questions on how they\u2019ll pay for them.\u00a0<\/p>\n
Several cities also staved off earlier problems by using one-time federal COVID bailout funding leftover from the pandemic to stabilize their budgets or secure one-time projects, but as that money dwindles, they\u2019re having to face the problems they put off years ago now.\u00a0<\/p>\n
[Read: Orange On Track for Bankruptcy in Three Years Without \u2018Radical\u2019 Change<\/a>]<\/p>\n Several cities such as Fullerton and Westminster have faced warnings for years about financial peril ahead from their city staff, while officials in cities like Irvine are just now finding out they have a problem.\u00a0\u00a0<\/p>\n Which Cities Are in the Worst Shape?<\/p>\n Anaheim is in the best shape of Orange County\u2019s three largest cities, facing an over $60 million structural deficit this year they say will be patched by over $120 million coming into the general fund next year when a set of bonds they used to upgrade the resort area are paid off.\u00a0<\/p>\n [Read: Anaheim\u2019s Budget Deficit Eats Half of $120 Million in Expected New Tax Revenue<\/a>]<\/p>\n No other Orange County cities have that kind of bailout on the horizon.\u00a0<\/p>\n This year, Santa Ana faced a $13 million deficit they had to reduce through a series of spending cuts in order to balance out their budget.\u00a0<\/p>\n According to the city\u2019s future financial outlook, Santa Ana is also projected to face a roughly $30 million deficit in the 2028-29 fiscal year just as their 2018 sales tax increase, Measure X, is expected to start to sunset, with budget deficits expected to widen more after that year.<\/p>\n \u201cLooking ahead, expenditures are projected to continue to grow faster than revenues, and this is largely driven by inflationary cost increases, negotiated labor increases, contractual costs and growing pension obligations,\u201d Alex Trinidad, the city\u2019s finance director told council members.<\/p>\n \u201cThe outlook also reflects the schedule of Measure X rate decrease beginning in April of 2029 which contributes to the increasing long term fiscal pressure.\u201d<\/p>\n In Irvine, leaders are grappling with how to address a budget shortfall that could reach $47 million by 2030.<\/p>\n During a city council meeting on June 9, officials also heard a budget update that recapped how the council is already facing a $6 million deficit for the current fiscal year and a projected $9 million deficit for the next fiscal year.\u00a0<\/p>\n [Read: Irvine Officials Deadlock on How to Close Multimillion Dollar Budget Deficits<\/a>]<\/p>\n Irvine City Council members voted to balance the 2025-26 budget with a one-time budget transfer of $6 million from the Asset Management Plan Fund.\u00a0<\/p>\n Officials also voted to address next year\u2019s $9 million budget deficit by keeping some vacant positions, pausing the city\u2019s non-emergency vehicle replacement program and adding a slew of small fees.<\/p>\n Staff said they will return at a special meeting on Aug. 3 to discuss long-term financial planning for the 2027-28 fiscal year and beyond.<\/p>\n \u201cWe can\u2019t keep operating on a deficit and not expect to go into a hole,\u201d Irvine Councilmember Melinda Liu said at the June 9 meeting.<\/p>\n In Orange, officials faced a projected $20 million dollar deficit as they struggled to quell a long-time structural deficit \u2013 one that city-hired consultants warned them last year could lead to municipal bankruptcy if they don\u2019t get a grip on it.<\/p>\n In Fullerton \u2013 a city similar in size to Orange \u2013 officials are expected to adopt a budget in the third end of July, weeks after the state deadline.<\/p>\n City council members there voted to keep spending at the same levels as their current budget until they adopt a new one next month.<\/p>\n The college town is projected to face a nearly $14 million deficit after a multi-million dollar accounting error saw the city run through $10.1 million in unassigned reserves quicker than elected officials expected.\u00a0<\/p>\n [Read: Auditors Question if Fullerton is Properly Overseeing Budget<\/a>]<\/p>\n In Huntington Beach, officials adopted a budget that acknowledges a $15.6 million shortfall between recurring revenues and ongoing expenses, with Mayor Casey McKeon repeatedly warning residents they need to find new ways to increase revenue.\u00a0<\/p>\n \u201cWe have structural budget issues we need to resolve,\u201d McKeon said at the council\u2019s April 22 meeting during a debate over a proposed rebranding contract<\/a>. \u201cIf you guys don\u2019t like this proposal, what proposal do you have to fix our structural budget deficit?\u201d<\/p>\n In a written statement, city spokesperson Julie Toledo said the city does not \u201csimply draw down $15.6 million from existing prior-year savings,\u201d and that they were looking to other strategies to help shrink the gap.\u00a0\u00a0<\/p>\n Other cities like Laguna Beach are barely hanging onto a structural balance, with the city this year passing a general fund budget that\u2019s over $360,000 in the black after having one last year that was over $1 million in the red.<\/p>\n Tax Hike Pitches Coming to a City Near You<\/p>\n For most cities facing a deficit, the first tool that city leaders reach for is a tax increase.\u00a0<\/p>\n In Orange, city council members are once again turning to residents to help bail them out of their structural deficit after voters shot down a 0.5% sales tax increase<\/a> in 2024.\u00a0<\/p>\n Last month, elected officials there narrowly voted to place a 1% sales tax increase measure on the November ballot that, if approved by voters, would last 13 years.<\/p>\n If approved, the measure is expected to bring in $37 million in additional revenue to city coffers with city council members promising to make more significant cuts if the measure fails at the ballot box.<\/p>\n [Read: Is Municipal Bankruptcy on the Horizon if Orange\u2019s Sales Tax Measure Fails?<\/a>]<\/p>\n Officials in Orange also placed a separate ballot measure that would raise the hotel tax from 10% to 14% for hotels with 11 rooms or more.<\/p>\n Fullerton leaders have also discussed pitching their residents a sales tax<\/a> hike if they can\u2019t find another way to fix the budget.\u00a0<\/p>\n Amid a poor financial outlook in Santa Ana, city council members are mulling placing a measure on the November ballot that, if approved by voters, would retain the Measure X sales tax increase indefinitely<\/a>.<\/p>\n San Clemente will also have a sales tax on the ballot this year<\/a> \u2014 but it\u2019s specifically meant to raise money to get more sand on the beach, to address coastal erosion, and to fund projects to prevent wildfires in town.<\/p>\n Spending Cuts and Ideas for New Revenue<\/p>\n In lieu of a tax hike, several cities are looking for ways to increase tax revenue or cut spending, but are struggling to find any options that can make up the full gap.\u00a0<\/p>\n Santa Ana City Council members adopted a balanced budget this year in part by cutting $11 million in spending, including slashing $5 million by eliminating vacant positions and reducing spending on part-time employees.<\/p>\n Other sizable cuts included cutting spending on park maintenance and dialing back the Police Activity and Athletic League after school program<\/a>. Officials also slashed five city commissions to save a little over $38,000.<\/p>\n [Read: Santa Ana Officials to Purge City Commissions to Curb $13 Million Budget Gap<\/a>]<\/p>\n Elected leaders are closing the remaining gap by increasing revenue by about $2 million, including a technology cost recovery fee expected to bring in $750,000.<\/p>\n Irvine leaders have instituted hiring freezes, holding some vacant positions and increasing some fees for athletic facilities and payments to the city made using credit cards. Leaders are also considering cutting some library services<\/a> since they aren\u2019t able to currently afford any major library upgrades.\u00a0\u00a0<\/p>\n City leaders also moved forward with a plan to charge for parking at the Great Park, giving residents about four hours free while charging visitors for every hour they stay in a move they hope can bring $3-5 million into the budget annually.\u00a0<\/p>\n [Read: Irvine Looks to Charge For Parking at Great Park in Face of Budget Deficit<\/a>]<\/p>\n In Orange, city leaders balanced the budget by eliminating and freezing $6 million in vacant positions and pulling $15 million from three different spending buckets like the city\u2019s infrastructure fund into the general fund to balance their books.<\/p>\n Huntington Beach leaders have started greenlighting a number of controversial new programs, including trademarking the city logo, pitching city merch, putting ads on lifeguard towers, and even pitched expanding the city\u2019s PR and film programs, but that was ultimately shot down.\u00a0<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/us-ca\/wp-content\/uploads\/2026\/07\/1783430829_216_CivicPictures_2026_April_Grube-3.jpg\")
Two women walk past the City of Orange\u2019s Civic Center in Orange, Calif., on April 16, 2026. Credit: Nora Grube, VOICE OF OC<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/us-ca\/wp-content\/uploads\/2026\/07\/GroupProject_SantaAna_2026_Sawyers-4.jpg\")
Downtown Santa Ana on Sunday, April 19, 2026. Credit: SYDNEY SAWYERS, Voice of OC <\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/us-ca\/wp-content\/uploads\/2026\/07\/CityLandmark_2022_03_Linton-2.jpg\")
Placentia\u2019s Historic Water Tower, constructed in 1935, on March 9, 2022. Credit: CAROLINE LINTON, Voice of OC<\/p>\n