Council receives FY26 second‑quarter budget review, approves staff recommendations and two resolutions
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Summary
City finance staff outlined projected structural deficits, reserve depletion risks (reserves projected to exhaust by FY2028), and potential revenue options including a property transfer tax and a transient occupancy tax increase; Councilmember Jordan moved to adopt staff recommendations and two resolutions and the motion passed unanimously of those present (Councilmember Harmon absent).
City finance staff presented the Santa Barbara City Council with a second‑quarter fiscal 2026 financial review that showed a structural budget shortfall across the multi‑year forecast and warned that, without changes, general reserves could be depleted by fiscal year 2028.
Finance Director Martín told the council the city projects a structural deficit beyond FY2026 and emphasized the council’s adopted reserve policy that targets 25% of annual operating expenses. Staff said the contingency reserve (10% policy level) is projected to be exhausted by the end of FY2026 under current assumptions and that, barring corrective actions, general reserves could be exhausted by FY2028.
Staff outlined several potential revenue and expenditure options to close projected deficits. Those included implementation of a targeted real‑property transfer tax on high‑value sales (staff presented a scenario raising approximately $5.1 million annually on sales above a specified threshold) and a proposed increase in the transient‑occupancy tax from 12% to 14% (presented revenue estimate roughly $5.8 million). Staff also summarized proceeds from local ballot measures (Measure C and Measure I) and noted timing for those revenues to appear in projections.
Staff described departmental spending to date (police, fire, parks, library, public works), the role of position vacancies in near‑term underspending, and proposed amendments to the salary control resolution tied to several reclassifications and a proposed new emergency medical services management position in the Fire Department to be funded largely from existing vacancies.
After discussion and questions about reporting granularity, encumbrances and long‑running capital projects, Councilmember Jordan moved to approve the staff recommendations in full, including adopting two resolutions related to fiscal adjustments and salary‑control updates; Councilmember Friedman seconded the motion. The motion passed unanimously among councilmembers present; Councilmember Harmon was noted absent.
The council’s action accepted staff’s recommended adjustments and directed staff to continue work on the FY2027 budget schedule, with public hearings and committee reviews planned in April, May and June. Staff said they would provide additional granular reporting in future quarterly updates and in the annual accountability report to the Citizens’ Oversight Committee.
No new taxes were adopted at this meeting; staff presented scenarios and asked council to provide direction during the upcoming budget process.
