COSTA MESA – In exchange for a few more years of security in a faltering economy, Costa Mesa’s city employees agreed to pay a few percentage points on their salary toward a state pension program.

Police will pay 5 percent of their salaries to a state pension program; municipal workers will pay 7.5 percent; new hires will be eligible for retirement at age 60 with 2 percent of pay for each year of service.

The contract extension approved Tuesday night may sound mild, but the debate over the deal was the most ferocious that many residents could remember.

In one sense, it was the story of what didn’t happen.

Over the years, Costa Mesa got rich off one of the world’s greatest malls and a cluster of car dealerships.

The city government offered an array of services, and paid its employees well – as well as any city in Orange County.

It was nearly impervious to the pressures to raise taxes that other cities face. Bed taxes and business license fees weren’t raised. Special districts weren’t formed to collect taxes.

The sales taxes from South Coast Plaza and other businesses were enough.

With so much money coming in, “we got happy and sassy and we didn’t do anything” to prepare for tough times, Councilwoman Wendy Leece said.

The recession changed all that.

The city cut $25 million from its operating budget over the last two years, and it still burned through its reserves.

Four years ago, it spent around $20 million on street repairs; this year, it’ll spend just under $2 million, most of it grant money.

The parks no longer get fertilized, and the buildings get virtually no repairs.

More than 100 employees were laid off, and still, the budget for this year predicted a deficit of more than $9 million.

Almost everything that could be cut has been, except for one: pay.

As programs were cut, the percentage of the budget going to salaries and benefits climbed drastically. That percentage has been one of the highest in Orange County for decades, but in the last four years it’s gone from 65 percent of the budget to somewhere in the mid-80s.

Councilman Eric Bever said Tuesday that the city is now using 89 percent of its operating budget on salaries and benefits.

In recent years among Orange County cities, only Newport Beach and Brea have spent a comparable percentage on salaries. Other full-service Orange County cities spend percentages in the 50s and low 60s on salaries and benefits.

The statewide average is 47 percent, according to the California Local Government Finance Almanac.

That set the stage for Jim Righeimer, a planning commissioner running for City Council, who has made public employee salaries the central issue of the campaign. The police union, in turn, has attacked Righeimer with direct mail, mobile billboards, and a website.

According to salary figures the city published this week, 358 of the Costa Mesa’s 600-plus full-time employees in 2009 received more than $100,000 in total compensation.

Pension costs drive those figures upward. Police Chief Christopher Shawkey, for example, cost the city $320,000 that year — $90,000 of that was for his pension.

The City Council’s composition will change after Tuesday’s election; there’s a real chance that the new council will take a more aggressive approach to negotiations with the unions. Not only could Righeimer be elected, but Katrina Foley, a union defender, is running for school board, and would apparently have to step down from council if she wins.

Hence the timing of a special meeting called one week before the elections to vote on three- and four-year contract extensions for the city’s employee associations.

The residents who were opposed to the extension wanted the council to wait until after the election to reach a deal with the unions, in the hope that salary and pension costs could be cut further.

But the contract extensions were approved on a 3-2 vote, with Bever and Mayor Allan Mansoor opposing.

The employee contributions will shave around $3.6 million from the city’s deficit, bringing it to a projected $6 million. But the extensions are likely to result in more layoffs, officials said.

City Manager Allan Roeder said that expenditures on salaries would need to be cut by 18 percent to balance the budget. If bigger pay cuts are off the table, that leaves layoffs.

Bever predicted 50 to 100 layoffs.

“We are going broke and risk losing many of our valuable employees,” he said.

Councilman Gary Monahan noted that previous collective bargaining efforts, when the city was richer, had been less contentious.

“When you have money, it’s a lot easier,” he said.

His objection was to the length of the contracts in a faltering economy.

He asked police union president Allen Rieckhof what would have been wrong with a two-year contract.

“We needed some security for our membership,” Rieckhof said.

Rieckhof also mentioned the cost in staff time involved in renegotiating every year.

Members of the public were split over the contracts.

Local blogger Martin H. Millard challenged Leece, who said she’d been pressured by county Republican officials to oppose the contracts. Millard compared the complaint to an atheist joining a church and then denouncing the pressure to believe in God.

Former Mayor Sandra Genis supported the contracts, saying that Costa Mesa shouldn’t be a test case for pension reform.

“I for one resent people trying to make Costa Mesa a petri dish for California.”

Resident Greg Ridge denounced attempts to cut salaries.

“We are trying to shrink the size of government down to where we can drown it in a bathtub,” Ridge said.

Howard Hull, a 49-year resident of Costa Mesa, said he had experience managing funds for the state pension system, and “what we have here is unsustainable.”

The sustainability of the state’s pension system has been a major issue for Republicans.

In February, the Pew Center on the States put out a report saying, “as of the middle of 2008, there was a $1 trillion gap” between the state’s pension liabilities and its available funds. In comparison, the entire California budget for the current year is $86 billion.

The pension issue is what drew the attention of the county GOP, which earlier this year decided to take on public safety unions, despite the party’s traditional alignment with law enforcement.

Party officials said Leece had promised to support pension reform a few weeks ago, after she nearly lost the party’s endorsement over a vote last year to allow firefighters to retire five years early with a 20 percent pension increase – an arrangement known as 3% at 50.

They emailed her, reminding her of a promise to support 401(k)-like retirement plans for new hires.

During the meeting, Leece asked about changing the retirement package offered to new hires to a defined contribution retirement package, such as a 401(k).

City Attorney Kimberly Hall Barlow mentioned legal restrictions on doing so, saying that “we would have to establish a whole separate retirement system.”

That “whole separate retirement system” could be as simple as 401(k) accounts, according to a recent ruling by the California Court of Appeal.

In 2004, the governor signed into law a bill creating an alternate retirement system for some new state hires. It was immediately challenged, but the court upheld the law, ruling that “future employees do not have a vested right in any particular pension plan.”

“A promise not to change the character of a pension program as to new employees is a fundamental constraint on the freedom of action of the Legislature,” the court said. “Accordingly, we will not interpret a collective bargaining agreement as containing such a promise unless we have no other reasonable choice.”

The mayor, Allan Mansoor, said that the council was limited by state law.

“This whole system, the way it’s set up, is not good,” he said.

Foley said that the solution was more revenue, and less dependence on sales taxes from car dealerships and South Coast Plaza.

She called for the creation of “some kind of economic development commission” to develop plans to attract businesses.

Contact the writer: jcassidy@ocregister.com or 714-796-7922