Finance committee receives Q2 financial update: sales tax soft, hotel tax rising; downtown parking shortfall noted

Santa Barbara City finance staff presented the city’s second‑quarter financial review to the Finance Committee and reported that property tax receipts are tracking to budget while sales tax is softer and transient occupancy tax (TOT) is stronger than a year earlier. Staff also flagged a projected $3.3 million surplus for fiscal 2026 that does not yet account for anticipated costs from a forthcoming class‑and‑comp study or any council decision to transfer money to a local housing trust fund.

The presentation, led by finance staff, summarized general fund tax revenue and department spending through Dec. 31, 2024. “We will, of course, monitor this, as the fiscal year continues and adjust accordingly going forward,” the presenter said when describing revenue and expenditure trends.

Why it matters: the midyear review sets expectations heading into the spring budget cycle. The staff projection that sales tax growth has stalled and Measure I (a new sales tax rate that takes effect April 1) will only contribute three months of revenue to FY2025 could affect how many capital projects and programs the council chooses to appropriate next year.

Key revenue and program highlights

- Property tax: staff said property tax — the city’s largest general fund revenue source — is projected to come in near budget at about $51,000,000.

- Sales tax and Measure C: sales tax and Measure C receipts have been essentially flat quarter to quarter over the past six quarters and are projected to come in below budget. Staff said Measure C currently has no dedicated reserve; however, they do not have immediate cash‑flow concerns because capital projects are appropriated and paid over time. Staff warned continued softening could influence the number of capital projects funded next fiscal year.

- Measure I: the presentation noted Measure I’s new rate takes effect April 1; three months of Measure I revenue are included in the FY2025 projection, with a full year assumed beginning in FY2026.

- Transient occupancy tax (TOT) and short‑term rentals: TOT is tracking higher year‑over‑year for the first half of the fiscal year, after seasonal adjustment. Finance staff reported the city’s short‑term rental program has posted about $904,000 to the general fund through the six‑month mark; $165,000 of that was identified as an allocation to Measure B for creek restoration.

Department spending and staffing

Staff reviewed department-level expenditure patterns and encumbrances rolled into FY2025. Many operating divisions are forecasting to finish the year near their revised budgets with some anticipated savings from vacancies and delayed professional services: general government was reported at 43% of revised budget at midyear, police at 48% and fire at 50%.

Police: staff said the police department reduced its vacancy rate to under 10 percent; overtime and temporary housing for academy recruits contributed to higher personnel costs.

Fire: the fire department reported a successful recruitment of seven firefighters and six new certified water rescue members.

Community development and library: community development spending was reported below revised budget (45% used at midyear) with a projected underspend tied to vacancies and encumbrances for plan‑check and inspection professional services; library operations returned to normal after construction and repair delays and are projected to save about $1,000,000 by year end.

Enterprise funds and reserves

- Water: water fund revenue was reported at about $42,500,000 (53% of budget). Expenses were lower partly because the desalination plant was offline from August to December; staff said the FY2025 budget assumed full capacity and contract negotiations helped reduce projected expenses, producing a better reserve position versus budgeted loss.

- Wastewater: the wastewater fund added approximately $2,300,000 to reserves at midyear and is projected to reduce its deficit by nearly $1,000,000 relative to the budget due to limited project capacity caused by staffing shortages.

- Solid waste: revenue was at roughly 49% of budget, with an addition of $5,100,000 to reserves at Q2 and a projected additional $1,200,000 by year end.

- Clean energy: reported a $2,500,000 loss at Q2 and reduced its revenue/expense assumptions after Southern California Edison implemented a midyear 12% rate decrease that affects benchmarking policy.

- Airport: passenger counts were up 15% year‑over‑year at midyear; staff forecast a use of reserves of $4.4 million by year end due to several unplanned equipment purchases.

Downtown parking

Staff reported downtown parking revenue of about $5,600,000 (36% of budget) with outdoor business facility rent significantly under budget (34%). The division is working with businesses on payment plans. Staff projected a fiscal‑year shortfall of roughly $3,600,000 and a reserve decrease of about $3,300,000. The presentation said the downtown parking enterprise fund is structured to be self‑supporting; staff noted the city used Measure C revenues in FY2025 to fund some downtown parking capital projects, and that the enterprise’s weaker reserves create fiscal pressure the council will need to address.

Proposed budget adjustments

Staff listed several proposed budget amendments. Notable items included an increase in appropriation to the police station capital fund funded from revenue bond proceeds, which raises both revenue and expenditures for that capital project. Staff also requested a $2,500,000 reduction in estimated downtown parking revenue to reflect that on‑street paid parking (included in the adopted budget) was not approved by council.

Class‑and‑comp study and housing trust questions

Committee members asked whether the projected $3.3 million FY2026 surplus includes costs of a forthcoming class‑and‑comp study and any potential transfer to a local housing trust fund. Staff replied the projection does not include implementation costs for a class‑and‑comp study; the FY2026 numbers include only the salary and benefit assumptions currently known through MOUs and a 5% assumption for FY2026 salary increases used for planning. Staff said any council decision to appropriate funds to a local housing trust would be modeled as an expenditure and would reduce the projected surplus.

Votes at a glance

- Motion: Move staff recommendation to accept the second‑quarter financial report and proposed budget adjustments. - Mover: Council member Hardin. - Second: Member Sanrio. - Outcome: Approved (passed unanimously; roll‑call counts not specified in the record).

What’s next

Staff said the capital improvement program and related discussions will be brought to the council in the coming weeks, and additional budget decisions (including any transfers to a housing trust and the class‑and‑comp study implementation) would be reflected in future budget updates and council deliberations.