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Santa Barbara council hears budget preview as city weighs Measure I dollars, reserves and federal funding risks
Summary
City officials outlined the fiscal 2026–27 budget outlook at a March 4 work session, flagging pension costs, the new Measure I sales tax, limited Measure C capital capacity, and uncertain federal grants as key variables. Staff recommended using a multi-year planning approach and preserving reserves while programming new revenues.
City of Santa Barbara officials presented a draft multi-year outlook and department priorities March 4 as the council began formal budget season for fiscal years 2026–27.
City Administrator Jan McAdoo framed the work session by flagging two near-term funding uncertainties: federal holds on two previously announced grants (about $1.0 million each for a library project and a public safety radio upgrade) and possible reductions in federal Community Development Block Grant funding. "One of the key things we're grappling with right now is the uncertainty with the federal budget," McAdoo said, urging caution in programming one-time funds.
Finance Director Keith DeMartini walked the council through a five-year general fund forecast showing revenue growth tempered by faster-rising expenditures. "You can see that we still have budgetary challenges," DeMartini said, noting structural pressures including pension contributions, healthcare, and inflation. The presentation showed general fund expenditures growing from roughly $196 million in recent years to about $242 million in the outer forecast year, producing tighter reserve needs.
Budget staff reiterated priorities for the new Measure I 0.5 percent sales tax, which takes effect April 1 and is expected to yield roughly $15 million per year when fully phased in. The council previously approved priorities for Measure I investments; staff said programming the new revenues will be a central focus of the spring budget process.
City staff explained how the city’s reserve policy — requiring a disaster reserve (15 percent of operating expenditures) plus a contingency reserve (10 percent) — interacts with rising expenditure levels. As spending growth increases, the amount of reserves required to meet the policy also rises. An outside consultant has completed an initial validation of the city’s long-range model and will present findings to the finance committee.
In department presentations, directors described operational needs and capital plans. Highlights included:
- Airport Director Chris Hastert: record passenger volumes and continued capital work, including Southfield Phase 1 parking conversion; a proposed LOTUS (Long Term Terminal South) surface-parking project to reduce shuttle costs was discussed as a potential use of airport reserves. The airport also faces costs tied to PFAS remediation and equipment replacement.
- Fire Chief Chris Mails: standards-of-coverage and station-condition work to address aging facilities; staffing and training concerns tied to an aging workforce and increased incident complexity.
- Community Development Director Eli Isaacson: continued implementation of Housing Element work, affordable housing loans and projects in the pipeline, and building code updates.
- Public Works Acting Director Brian DeMoor: substantial capital workload and an emphasis on condition inventories and the ability to deliver projects given staffing and contracting constraints.
- Sustainability Director Aleilia Parenteau: rollout of textile recycling and expanded electric-vehicle/incentive programs; Creek Buffer Ordinance outreach and coordination flagged as a continuing engagement challenge.
Staff summarized potential near-term fiscal pressures that could require contingency plans: about $2.8 million in at-risk federal funding (the two federal grants plus an approximately $800,000 CDBG allocation that supports social-service partners), ongoing implementation costs for the city’s classification-and-compensation study, and growing pension contributions driven by the unfunded actuarial liability. Finance showed the city’s annual minimum required pension contribution approaching roughly $40 million in the forecast unless the city adjusts policy or invests in mitigation strategies.
What staff proposed next: After department presentations, staff will complete the recommended budget and release it publicly April 22. The council and public will have comment opportunities; the council will return for deliberations and final adoption in late May. Staff stressed the importance of maintaining reserves and using Measure I proceeds for prioritized one-time investments and ongoing needs only where sustainable.
Why it matters: With Measure I revenue coming online and major facility projects (police station, Dwight Murphy Park improvements) advancing, councillors must weigh one-time and ongoing uses while protecting reserve targets and funding commitments such as pensions. Staff asked the council to consider strategic prioritization, and the city plans a May kickoff of a formal strategic-planning process to align the budget with council goals.
The March 4 work session provided a cross-departmental view of the pressures driving the fiscal 2026–27 budget, set committee timelines and left the council with clear choices about timing and programming for new revenues and capital projects.
