As the City of Santa Barbara makes its way through budget planning season, the initial optimism about a budget that came in with a much more manageable deficit has since been overshadowed by concerns about the city’s reserve funds.
The city was originally expecting a deficit of $14.6 million before city staff put together a plan to reduce the deficit — without major program cuts — to a more palatable figure of $3.4 million. This budget planning magic was made possible through hundreds of small changes, revenue increases, reallocations, and other options that created a combined savings of more than $11 million.
Budget Manager Natalija Glusac said city staff came up with more than 300 options for improvements, and the city narrowed down the list to about 200 items that were pursued for further implementation.
“I’d really like to take a second to stop to commend city staff for their creativity and their willingness to not just think outside the box, but imagine a world where there was no box at all, and collectively come up with these really terrific ideas,” Glusac said.
The solutions include $3.6 million worth of permanent revenue increases or expenditure savings; $1.5 million saved by delaying the hiring of vacant positions; $4 million in reallocations from the fleet replacement and streets maintenance funds; a $1 million transfer for the city’s Local Housing Trust Fund; and more than $1 million in other smaller line items.
With all the changes, the city is expecting to come in with a slight surplus of $200,000, with expenditures at $259.9 million and revenues estimated at $257.2 million. But the city will need to make a $3.6 million contribution to meet its minimum reserve policy target, bringing the budget to a final deficit of $3.4 million.
While the expected deficit isn’t as large as the $8.7 million deficit last year, several city councilmembers have expressed concerns about relying on reserve funds to make up for short-term budget shortfalls.
When Councilmember Eric Friedman asked about the current status of the city reserves, City Finance Director Keith DeMartini disclosed that the city has already “fully depleted” its contingency reserves as of fiscal year 2026.
“We are now dipping into our disaster reserves,” DeMartini said. “We are approximately $25 million below where we should be, according to the reserve policy target.”
Councilmember Friedman suggested the city start on a plan to start replenishing the reserves as soon as possible. Mayor Randy Rowse and Councilmembers Wendy Santamaria and Meagan Harmon also shared similar concerns about the reserve funds.
Councilmember Harmon said the current budget gives the public a “false sense of security” about the city’s fiscal reality.
“I’m not comfortable celebrating this budget,” Councilmember Harmon said. “It is not balanced. We’ve depleted our contingency reserves.”
The city will continue budget deliberations with additional planning hearings on May 19 and June 9, followed by council adoption on June 19.
