Santa Barbara budget update: staff flags depleted contingency reserves, council presses for shelter and Farro funding clarity

City finance staff presented the city administrator’s recommended FY2027 general fund operating and capital midcycle budget at the May 12 meeting and warned that, while staff identified roughly $3.6 million in ongoing savings and several temporary balancing measures, the city is still dipping into reserves and remains roughly $25 million below its 25% reserve policy.

Budget Manager Natalyia Glusac walked council through updated revenue and expenditure forecasts, the first full year of Measure I sales tax allocations (staff projected about $15.5 million for FY27), and a list of internal and temporary actions that reduce the projected FY27 deficit. Glusac said staff had collected more than 300 ideas and refined the list to about 200 for consideration, implementing about $3.6 million in ongoing savings through reorganizations and other operational changes.

"If all goes as planned, we're going to spend just a little bit less money than we're bringing in in 2027," Glusac said, but she warned that much of the relief is temporary and that the city remains below its reserve target; that policy calls for roughly three months of operations in reserve.

Deputy City Administrator Anthony Valdez briefed council on shelter and temporary-housing items that had come up in earlier budget discussions. He presented options for extending the city’s funding support for the Farro center through June 30, 2027 (the city had already prepaid the Farro lease through February 2027) and summarized projected incremental costs. Valdez also outlined the Kasaka shelter budget: an annual operating estimate of roughly $3.5 million for a 100-bed shelter, with about $1.6 million in deferred capital repairs (fire-suppression, ADA, HVAC and restroom work) that staff is attempting to fund with state and federal grant applications.

Valdez said the city can likely pursue reimbursement sources — including the Permanent Local Housing Allocation (PLHA), Measure I reallocation and CalAIM reimbursements for eligible services — and that staff had applied for state matching funds to reduce the city’s direct burden. He also said a permanent operator agreement for Kasaka would be presented to council the following month.

Council members pressed staff for clearer, itemized consequences of vacancy-holdings and other savings (which departments would reduce services and what community impacts to expect), and asked staff to come back with more robust, department-level narratives and consequences. Several councilors urged that the Farro center and Kasaka shelter remain priority funding items and asked staff to provide clearer revenue-reimbursement scenarios; others urged caution about committing one-time reserve dollars to recurring obligations.

The budget schedule calls for staff-recommended adjustments to be presented on June 9 and a final FY2027 adoption vote on June 16. Council asked staff to return with the additional fiscal detail requested and to propose options to replenish reserves over time.