City leaders in Orange are racing the clock, said consultants hired by the city to evaluate the city’s finances. Without swift action, the city could face bankruptcy in roughly three years.
Their financial projections show a potential $46 million deficit by 2031 if current spending and revenue trends continue, the consultants said.
To prevent a crisis, consultants from Grant Thornton laid out a possible path forward in a report recently presented to the City Council, but it’s not an easy one. They’re calling for a 12% cut to the general fund, a 1% sales tax hike and a fast-tracked push to bring in new businesses. While expanding the city’s tax base could eventually cover rising costs, the consultants warned that immediate action is needed to keep the city afloat.
“I think where we are is we’re at an inflection point for the city. If you do nothing, you have three to three and a half years, and you’ll be at a really bad spot,” Shawn Stewart, a partner with Grant Thornton, told the City Council at its recent meeting.
City leaders had pinned their hopes on a half-cent sales tax hike last November that was projected to bring in as much as $20 million annually for a decade. But voters narrowly rejected it.
Bob Hawkey, a Grant Thornton consultant, said the city has to work on convincing voters that the potential 1% tax hike won’t be about padding the budget, but about ensuring long-term financial stability. If the city moves forward with a ballot measure, residents would likely vote on it in the 2026 general election.
Not everything from the firm’s report was grim. Consultants pointed to the city’s strengths — its prime spot near Disneyland, underused commercial property and potential partnerships with Chapman University — as opportunities that could help Orange get back on track.
“The assets that this city has in many cases are untapped,” Hawkey said. “One of the other things that we did not see — and it is a best practice of cities of your size — is to take about 1.5% to 2% of general fund activities and apply that to economic development funding outreach. The city of Orange largely does not do that.”
“Disneyland would love to see the side where potential hotels could be. They would love to see what transportation options could look like going back and forth to the park. They’d love to see the entertainment zones that would surround it so their guests can have the Disney experience, but they could do it in Orange, at a lower price point, compared to what they could do at Anaheim,” Hawkey added.
According to Grant Thornton, the city’s budget issues stem less from overspending and more from revenue that hasn’t kept up with long-term costs.
“We don’t see the problem with the city as overspending or a bloated government,” Stewart said. “What one of the department managers said was we have a Nordstrom’s appetite and we have to operate on kind of a Walmart budget. And that’s a challenge.”
Part of the shortfall comes from temporary COVID-era funding. The city received two one-time payments of $14 million each, primarily used to hire additional fire and law enforcement staff. Because that money wasn’t ongoing, the positions it funded now strain the long-term budget.
“It’s very clear one-time money was spent in a way where it has a long-term impact,” Stewart said.
Compounding the problem, deferred maintenance across city facilities could create additional challenges over time, Stewart said.
According to Grant Thornton’s estimates, there are about 70 vacant positions in the city totaling $12 million, but the city doesn’t have the budget to fill them all. Stewart told the council, “We need to stop thinking about those … being open.” That means more city services could be reduced unless the financial picture improves.
Already, the city has reduced library hours, canceled summer events, cut funding for holiday celebrations and proposed cutting personnel and overtime.
Economic development has lagged for years, Stewart said. He added that Grant Thornton’s conversations with businesses painted a picture of a city that is difficult to navigate for new ventures. The report says Orange’s “excessive red tape” and onerous planning requirements make the city feel “closed for business.”
“We talked to various businesses that may be attracted to the city, and what we heard was the way the city operates today … if we wanted to bring our business to the city, we’d likely think about other cities in other locations to bring it to Orange County,” Stewart said. “The perception is, it’s difficult to do business here.
“We also talked to people within the city who had businesses,” he added, “and they said that, ‘Unfortunately, we also see it difficult to do business with the city and to work with the city.’”
Consultants urged the city to move quickly to leverage its location and assets. Potential projects include mixed-use developments geared toward students, entertainment zones and hotels to attract Disneyland visitors. Hawkey said the city’s mall could become a hub for residents to live, shop, work and be entertained. He suggested creating a small project management office to help jumpstart these initiatives.
Council reactions to the report were mixed. Councilmember John Gyllenhammer questioned some of the data in the report.
“There is an assumption made on revenue and there is an assumption made on expenses,” he said at one meeting, and later told his council colleagues he believes the three-year bankruptcy timeline projected by Grant Thornton won’t hold up.
“Some of the numbers they’re operating on have assumptions built in that are not realistic,” he said.
Stewart said the consultants based their estimates on steady revenue and expenses, while also factoring in the impact of deferred maintenance on future costs.
“We looked at what we’re projecting out to be your increases in expenses and also the increases in revenue over time,” Stewart said.
Councilmember Arianna Barrios voiced that the council should verify all the figures in the Grant Thornton report before moving forward with any decisions.
Mayor Dan Slater has framed the discussion around opportunity.
“I think it’s finally time we put a stake through the heart of ‘the Orange Way.’ This is clearly not working … it probably did work at one point in time, but it’s time to change it up,” he said, proposing a “new Orange” way focused on business-friendly policies to attract growth and improve sales tax revenue.
The city plans to better leverage being home to Chapman University, which Slater called an important “brain trust.” He said a three-member liaison committee will focus on partnerships with the university.
Councilmembers discussed other potential revenue sources as well. Councilmember John Dumitru asked staff to develop an inventory of all unoccupied, underdeveloped or undeveloped properties and suggested making the full Grant Thornton report publicly available. He also noted that allowing cannabis dispensaries in industrial zones could generate sales tax revenue currently going to neighboring Santa Ana.
Councilmember Ana Gutierrez suggested, with support from Slater, that the council provide updates to residents on the city’s progress by discussing the topic at every meeting.