The city of Santa Barbara’s finances survived the Great Recession.
This year, it’s fallen into an even deeper hole.
After draining most of its financial savings—leaving only its emergency disaster relief funds—the city is now exploring new ways to replenish its budget. The finance committee met on Tuesday to discuss potential solutions.
“We cannot allow this to occur,” said city finance director Keith DeMartini. “We won’t.”
Current policy says the City Council must save 25% of its operating budget as reserve funds, with 10% allocated for contingency reserves and 15% for disaster relief.
However, the city’s actual reserve levels are well below its overall target at around 12%, which amounts to a current $27 million out of the target of around $56 million in savings, DeMartini explained.
A mix of rising insurance costs and inflation, as well as high healthcare costs for city staff, are some factors that contributed to the budget shortfalls, he said. If the city’s current spending habits continue, its reserves will continue to “deteriorate,” DeMartini added.
The revelation of Santa Barbara’s broken budget first shook up the City Council when it was scheduled to approve its $257 million budget in June.
Councilmember Meagan Harmon, a member of the finance committee, proposed the city eliminate its contingency reserves altogether—a move she recognized was controversial. To do so, the City Council would have to revise its policy language on reserves by lowering its target to save 25% down to 15%.
“We have a huge sense of false security that we have 25% preserves when the reality is that is simply not true,” she said. “If we continue to legislate in ways that don’t respect this policy, we’re doing everyone a disservice, including ourselves.”
Harmon also suggested that the City Council should be restricted from dipping into the disaster relief savings at all, unless certain urgent situations arise. The council often used its savings for one-time uses, instead of investing the funds into more projects with long-term impacts, she said.
“Apirational policy making is great,” Harmon said. “But if the aspiration is so far from the reality that there’s no opportunity to meet it, and we are not holding ourselves to that aspirational vision, I just don’t think we’re serving anyone.”
Eliminating the contingency reserves would be a band-aid solution, said Councilmember Wendy Santamaria, vice chair of the finance committee. She argued that the move doesn’t actually balance out the city’s existing budget deficit.
Santamaria agreed, however, that being more stringent on the council’s ability to use the disaster relief funds could help.
“It’s a wakeup call for all of us,” she said.
Councilmember Eric Friedman, chair of the financial committee, shared Santamaria’s perspective. He is running to be Santa Barbara mayor.
Friedman proposed that the city pour any surplus funding to first replenish its lost savings before allocating it to the local housing trust fund. The initiative, an effort that he spearheaded, allocates funding for affordable housing projects across the city.
Several public commenters said fixing the city’s budget should not come at the expense of expanding housing.
“I don’t want housing to be the first thing on the chopping block,” Santamaria said in agreement.
Going forward, DeMartini said he will bring the proposal to revise the city’s reserve policy and add language about the housing trust fund to the City Council.
City staff also provided additional suggestions on how the city could bounce back, including by allowing recreational vehicle camping at waterfront parking lots and raising its cannabis tax.
Santamaria took interest in the idea of potentially implementing a vacancy tax, which voters would have to decide on in the November 2028 election, to cure its budget situation.
“Our financial woes are not because of our investment in housing,” she said. “These structural problems clearly go way back.”
