Santa Barbara City Budget Back on Track for June 30 Adoption

The Santa Barbara City Council had one more chance to make last-minute adjustments to its Fiscal Year 2027 budget in a special hearing called on the council’s scheduled week off, after previous budget deliberations unraveled due to concerns over the city’s reserve shortfall.

This year’s budget planning season began with a hint of optimism back in April, when city staff revealed a budget that reduced the expected deficit from the original estimate of $10 million-$14 million to a much more palatable figure of $3.4 million. Finance staff achieved this reduction by trying out hundreds of budget fixes, including revenue increases, expenditure savings, and reallocation of funds — without the need for any major program cuts.

That early optimism faded when deliberations began and councilmembers realized that, while the city was in a much better position than originally projected, with an operating surplus of around $100,000, this plan would require a contribution of $3.5 million into the city reserves just to meet minimum policy target levels. Then the harsh truth about the city’s reserves came to light, with Finance Director Keith DeMartini disclosing that the city had already depleted its contingency reserves and was nearly $30 million below its stated reserve target level.

Much of the council’s budget decisions have been overshadowed by the concerns over reserves, leading to tense debates about funding police officer positions, or over the amount of funding to be allocated toward the city’s Local Housing Trust Fund.

During the June 23 special hearing, councilmembers worked out the final details of the recommended budget, giving direction on a number of points before the City Council adopts the complete budget next week.

The final round of deliberations went more smoothly than previous budget sessions, with the council coming to unanimous decisions on a half-dozen items, including plans to set aside funding for homeless services, and direction to look into supporting the Milpas Street Parade and potentially bring back the holiday and Solstice parades to downtown.

The late budget adjustments also allowed the city to maintain its goal of allocating $2 million into the Local Housing Trust Fund. After a proposal to lower the amount to $1 million, city finance staff and councilmembers agreed on a new plan that would allow the city to take a million leftover from the Casa Cacique shelter funding and bring the housing fund contribution back to $2 million.

Council voted 5-2 to direct city staff to look into a vacancy tax, though the tax would require a vote and would not likely be placed on a ballot until 2028. Councilmember Wendy Santamaria supported the plan, saying that it would be intended to change behavior and not bring in revenues. Councilmember Eric Friedman and Mayor Randy Rowse opposed the plan for a vacancy tax, with Friedman saying that the tax could be “extremely administratively burdensome” and may prove more costly than intended.

Several of the budget-related decisions involved future policy discussions, with council direction to schedule work sessions to look into the city’s Downtown Parking Fund; research and revise the Parks & Recreation fencing program and funding; and to do a deeper dive on the city’s compensation policies. The council unanimously agreed to schedule Finance Committee hearings to look into the city’s reserve policy and to research a dedicated permanent source of funding for the Local Housing Trust Fund.

During the final round of votes, the council had a pair of failed motions that would have separated next week’s budget approval into a series of separate votes. Mayor Rowse attempted to make a motion to allow the council to vote separately on housing fund allocations; the vote failed 3-3-1, with Councilmember Santamaria abstaining and Councilmembers Meagan Harmon, Kristen Sneddon, and Oscar Gutierrez opposed.

Councilmember Santamaria then made a motion that would have brought a separate vote regarding three unfrozen police positions; the motion failed due to a lack of a second.

With the adjustments made during the final budget deliberations, the city’s operating budget would come in with a surplus of just above $400,000, with reserves just above the 12 percent minimum level. The council will return on June 30 for budget introduction and adoption.