The city will take in about $1.6 million more than it will spend in fiscal 1994-95 under an operating budget approved by the City Council.
The $35.2-million budget also will put aside another $17 million in reserves, a rosy financial picture that put smiles on the faces of council members who approved the spending plan Monday.
"I think it's an optimistic budget," said Mayor Susan Withrow after the meeting. "It's balanced, and I think it shows a bright economic outlook."
The budget puts aside funds to design a new library, renovate storm drains and a war chest to pursue the city's interests in the El Toro Marine Corps Air Station conversion process.
Unlike last year, when city finance officials set aside about $2 million amid uncertainty whether the state would take away tax revenue from California cities, no "worst-case" fund has been established this time.
City Manager Fred Sorsabal said state legislators are unlikely to take money from the cities during an election year.
The balanced budget follows a report last fall that predicted the city would be bankrupt in seven years if spending on projects like the city recreation centers wasn't curtailed.
In the wake of the new budget, Withrow called the earlier report "overblown and imbalanced. It was heavy on projected costs and light on future projected revenues."
City officials said revenue was up about 14% because people are spending more in Mission Viejo, bringing more sales tax income into city coffers.