Proposed 2026-27 Budget

Overall Budget Summary

The Proposed Budget recommends a reduction of staffing to 358.5 full-time-equivalent (FTE) positions, a decrease of 5.0 FTE positions from the prior year, and includes negotiated salary and benefit increases. Appropriations total $223,560,157, funded by revenues of $189,351,561 that includes as a transfer in a District Sales Tax Contribution of $2,000,000, a General Fund Contribution of $8,658,535, a District Sales Tax Contribution of $2,000,000, and Other Fund Contributions of $25,303,403.

Compared to the prior fiscal year, total expenses decrease by $67,143,638 and total revenues decrease by $57,605,107. The reductions primarily reflect completion of transportation projects expected within Fiscal Year (FY) 2025-26, including twelve storm disaster recovery projects from 2017 storms, eight storm disaster recovery projects from 2023 storms, the 2025 Measure D Plan Resurfacing Project, and the final stage of the Soquel Drive Buffered Bike Lane Project.

Community Planning

The Proposed Budget for Community Planning recommends a reduction in staffing to 75.5 FTE positions, a decrease of 5.0 FTE positions from the prior year, including negotiated salary and benefit increases. The decrease of 5.0 FTE positions includes: 1.0 FTE Senior Departmental Analyst, 2.0 FTE Building Permit Technician II/I, 1.0 FTE Senior Civil Engineer, and 1.0 FTE Resource Planner IV/III/II/I. Appropriations total $17,821,166, funded by revenues of $9,162,631, a General Fund Contribution of $6,658,535 that includes a one-time use of funds of $697,062, and a District Sales Tax Contribution of $2,000,000.

Compared to the prior fiscal year, total expenses decrease by $1,167,834 and total revenues decrease by $844,978. The deletion of five vacant positions helps offset increased staff costs, for a net increase of $615,700. Professional services agreements decrease by $1,197,249, and other discretionary service and supplies decrease by $397,714. Revenues decrease by $844,978 in part from prior year one-time large development project revenues, including the completion of the Sea Level Rise grant in October 2026.

Housing Special Funds

The Proposed Budget for Housing Funds recommends total appropriations of $8,045,806, funded by revenues of $1,793,796 and Other Fund Contributions of $6,252,010.

Compared to the prior fiscal year, total expenses decrease by $4,841,609 and total revenues decrease by $3,947,718. The Low- and Moderate-Income Housing (LMIH) Fund expected revenues decrease by $805,000. The reduction is a result of one-time sales of two units in FY 2025-26.

The Permanent Local Housing Allocation (PLHA) grant funding decreases by $814,289 due to the timing of expenses, as the current allocation remains unspent. Once these funds are fully expended, the County is eligible to receive a future allocation. In May 2026, the Housing Section will seek Board of Supervisors approval to accept approximately $1,000,000 in unexpected revenues for the HOME 2024 program from the State Department of Housing and Community Development. These funds will support rental assistance programs in FY 2026-27.

Public Works

The Proposed Budget for Public Works recommends status quo staffing of 283.0 FTE positions, including negotiated salary and benefit increases. Appropriations total $197,693,185, funded by revenues of $178,395,134 that includes as a transfer in a District Sales Tax Contribution of $2,000,000, and Other Fund Contributions of $19,298,051.

Total expenses decrease by $61,134,195 due to $28,666,596 in completed projects, $25,368,520 in multi-year projects with appropriations in the FY 2025-26 budget that will roll to FY 2026-27, $22,272,464 in deferred storm damage repair projects, offset by increases of $10,691,094 for planned new projects, and an increase in salary and benefits costs of $4,482,291 for negotiated salaries and benefits to retain a trained and skilled workforce and remain competitive in the job market.

Total revenues decrease by $52,812,411 comprised of $28,666,596 in completed project work offset by expected revenue of $5,225,320, $25,368,520 in multi-year projects with appropriations in the FY 2025-26 budget that will roll to FY 2026-27, $22,272,464 in deferred storm damage repair projects offset by new projects of $10,691,094, $4,656,806 in increases to department overhead charges as a result of increases in salaries and benefits, and $2,921,949 in other increases to revenue.

Community Planning

Use of One-Time Money: Community Planning is expected to use $536,328 in one-time use of fund balance for FY 2025-26 to deliver a balanced budget and will rely on $697,062 in one-time use of funds to balance in FY 2026-27, which may need to increase if permit revenues continue to decline. This creates risk to long-term service stability and may require future service reductions or alternative revenue sources.

Streamline Santa Cruz County: The Streamline Santa Cruz County workplan continues in FY 2026-27. Several of the 12 program initiatives are complete and in monitoring status to maintain the improvements, with additional initiatives expected to be completed by June 2026, including the Annual Code Amendments project. The Comprehensive Code Update project will be initiated with the assistance of a consultant team, led and supported by staff in Planning, Public Works, and Environmental Health. This will be a multi-year process with estimated costs of about $600,000, with a budget of $200,000 for the second year of the project included in the FY 2026-27 Proposed Budget.

Uncertainty of Future Development Timing: While there are 1,600 potential dwelling units approved in the discretionary pipeline, the timing of submittals for building permits is unknown. Permitting is trending downward due to the economic climate, interest rates on borrowing, inflation, tariffs, and the uncertainty of federal and State practices and policies. Developers have been reluctant to begin the building permit process after discretionary approval of their development projects.

Artificial Intelligence in Permitting: Artificial intelligence (AI) continues to evolve rapidly. Understanding and instituting practical applications for the permitting process is ongoing. Other jurisdictions are also evaluating AI usage. Staff believe technology will be ready for a pilot application within the next five years. However, Planning is exploring the use of AI for the Comprehensive Code Update.

Evolving State Regulations: Changes at the state level continue to significantly increase Policy and Unified Permit Center Section’s workloads, reduce revenue, and require more investments in consulting and software solutions. Assembly Bill (AB) 2234, signed into law in September 2022, mandates that all building permits for housing projects receive first-round review comments within 15 days of submittal and that final permit issuance occurs within 30 days of determining application completeness. This regulation significantly impacts Building Section operations, as permit submissions are not staggered, resulting in periodic surges in application volume, particularly for residential projects. Senate Bill (SB) 937, signed into law in September 2024, defers the payment of development impact fees from the time of building permit issuance to the issuance of a certificate of occupancy for most housing developments, unless the fee-charging agency qualifies for one of the exceptions outlined in the legislation.

Reduced Housing Funding: Governmental funding for housing and community development has declined, with further reductions anticipated. Federal funding declines are expected for critical programs such as housing choice vouchers, project-based vouchers, Community Development Block Grant (CDBG), HOME Investment Partnership Program (HOME), disaster relief grants, and other U.S. Department of Housing and Urban Development (HUD) programs. Additionally, state funding for affordable housing and planning efforts had already been reduced in FY 2024-25 due to State budget shortfalls. Without adequate funding, our community will face worsening housing conditions, increased displacement, and fewer opportunities for stable, affordable housing.

Public Works

2023 Storms Damage Repair and Disaster Debt Service: In 2024, the County issued $80.3 million of debt to sustain cash flow in the Road Fund while it awaited reimbursements from the Federal Highway Administration (FHWA) and the Federal Emergency Management Agency (FEMA) for completed 2023 storms damage projects. The debt is to be partially paid down once federal and State reimbursements are received. While FHWA reimbursements have been fairly timely, FEMA reimbursements continue to be delayed and may result in high debt service payments after the first three years of the bond per the approved debt schedule. The new federal administration casts further uncertainty on the timing of reimbursements with many projects stuck in FEMA Public Assistance workflow steps for over a year. The FY 2026-27 Proposed Budget includes an estimated $7.3 million of reimbursements to retire debt and $2.0 million for debt service. This new debt obligation puts further pressure on discretionary transportation funds that could otherwise be leveraged with state and federal funding to complete critical infrastructure projects.

Storm Damage Repair Projects: The County continues to face significant challenges completing storm damage repair projects stemming from the 2017, 2022, 2023 and 2024 storm events. A major constraint continues to be the requirement for local matching funds—6.25% for FEMA-funded projects and 11.47% for FHWA-funded projects, which places substantial pressure on the Transportation budget in FY 2026-27 and future fiscal years. Due to the lack of available local match funding, 46 storm damage repair projects were not funded in FY 2024-25, and 11 additional projects were defunded during the FY 2025-26 mid-year realignment. In total, 57 storm damage repair projects remain unfunded because of insufficient local matching funds.

Compounding these challenges, during FY 2025-26, FEMA denied six extension requests for 2017 storm projects, and additional extension denials are anticipated in the coming fiscal year. Defunding or delaying these projects poses risks to critical infrastructure, including flood control systems and roadway repairs, and constrains the County’s ability to advance other essential transportation projects in a timely manner.

Delayed Bridge Program: The County’s Highway Bridge Program consists of 11 projects with an estimated total cost of $50 million. While these projects are fully funded through State and federal grant sources, progress has been delayed due to the reallocation of staff resources to address major public emergencies, including the 2017 and 2023 storm disasters and the CZU Fire. In FY 2026-27, Public Works plans to prioritize the delivery of the bridge program to maintain grant eligibility and keep projects on schedule. Further delays could result in the County being required to absorb additional project delivery costs or risk the loss of grant funding, which would adversely impact other transportation and capital project priorities.

Capital Improvements: The FY 2026-27 Transportation budget includes two new major Capital Improvement projects that will require ongoing local matching funds throughout their multi-year delivery periods. Both projects are construction-intensive and will span several fiscal years, increasing long-term funding commitments within the Transportation program. These are:

• The $30 million Soquel Drive Multimodal Phase II Project is part of the regional Watsonville Multimodal Project, extending from State Park Drive to Freedom Boulevard and is funded with approximately $20 million from the State Congested Corridors grant and approximately $10 million in funding required in local match over 4 years. Funded primarily through a State Congested Corridors Grant, the project will improve two existing signalized intersections; construct separated and buffered bicycle lanes; add new sidewalks, ADA-compliant ramps, and enhanced crosswalks; and resurface the entire 2.4-mile project corridor to improve safety and multimodal access.
• The $7.5 million Paulsen Road Raise Project, funded through the State CDBG–DR-MIT (Community Development Block Grant – Disaster Recovery/Mitigation) program with $6.9 million funded by the CDBG grant and local match amount of $600,000 over three years, is designed to address chronic flooding that results in annual roadway closures. The project will raise approximately 2,300 feet of Paulsen Road by an average of 5.5 feet on both sides of Green Valley Creek. Improvements include installation of fish passage culverts on the western segment and new drainage culverts on the eastern segment, significantly improving roadway reliability and flood resilience.

Culvert Rehabilitation and Replacement Program: Public Works recently completed its first comprehensive inventory of roadway culverts, identifying hundreds of culverts in poor condition requiring rehabilitation or replacement. Current funding for culvert work is limited, with approximately $955,000 annually allocated for small- to medium-sized culverts managed through Road Operations. Large culverts that convey creeks beneath roadways represent a significant risk to public safety and system reliability. Failures can result in major service disruptions, as demonstrated by the 2023 Main Street culvert failure, which stranded approximately 300 residences and severed utility connections. Replacement costs for large culverts range from tens of thousands to several hundred thousand dollars per location and often involve complex permitting and environmental restoration requirements. At present, no ongoing funding source exists to systematically address these high-risk assets.

To begin addressing this gap, the Road Operations Engineering group is preparing a grant application to the State CDBG–DR program totaling $3.8 million for CDBG-DR funds already committed by the state to the County, targeting the highest-risk culverts across the County with imminent failure potential. If awarded, these projects would be designed and constructed over multiple years. While this funding would not resolve the overall culvert backlog, it would substantially improve stormwater system resilience by addressing the most critical deficiencies.

Pavement Condition: The County maintains approximately 600-centerline miles of roadway. A recently completed pavement condition survey indicates that the County’s average Pavement Condition Index (PCI) is 57 out of 100, reflecting an overall condition classified as “fair.” Anticipated annual resurfacing expenses total approximately $5.5 million, primarily supported by Measure D revenues and grant funding. Asphalt concrete patching performed by County crews and utility projects contributes an estimated $3 million more annually, bringing the total annual pavement investment to approximately $8.5 million. The department is working with the CEO to develop revenue proposals that would support increased, ongoing investment in county roads to improve roadway performance.

Road Operations: The Road Operations program is an essential asset with which to maintain the County’s approximately 600 centerline miles of roadway. In FY 2026-27, the proposed contribution of $2 million in Measure K District Sales Tax funds will result in similar service levels as FY 2025-26, including a robust seasonal pavement rehabilitation program and fully funding the annual roadside ditching program. The $2 million District Sales Tax Contribution allows for a proactive systemwide approach to the County’s roadside ditch program, which aims to reduce roadside flooding and increase fire prevention. In FY 2025-26, road operations completed 207 miles of roadway striping, 112 miles of roadway resurfacing aligned with the Pavement Management Program, and 9 miles planned for the remainer of FY 2025-26.

Fleet Infrastructure and Electrification: California’s Advanced Clean Fleet (ACF) regulations continue to govern vehicle purchases for government fleets. Calendar year 2026 is the final year the County may purchase internal combustion engine (ICE) vehicles over 8,400 pounds GVWR, and only with a required one-for-one electric vehicle (EV) offset. Beginning in calendar year 2027, all vehicles over 8,400 pounds GVWR must be electric unless a specialized exemption is approved.

Compliance with ACF regulations has increased fleet replacement costs and created significant demand for new charging infrastructure. In FY 2025-26, the County funded the installation of one Level 2 dual-port charger at each of the four corporation yards (Brommer, Wilson, Lode, and Felton). This infrastructure will meet current charging needs but is expected to reach capacity with additional FY 2026-27 electric vehicle acquisitions.

Public Works is coordinating with consultants and PG&E to assess long-term charging needs and to develop preliminary designs for each yard. Planned concepts include two Level 3 fast-charger ports and four to 12 Level 2 dual-port chargers per yard. All yards require electrical infrastructure upgrades to support the charging infrastructure, and available PG&E funding varies by site.

Preliminary cost estimates for systemwide electrical upgrades, construction, and charging hardware across the four corporation yards is estimated at $5.6 million over the next three to five years. These investments are required to support future fleet needs and maintain compliance with ACF regulations.

Storm Damage in County Service Areas: Many road County Service Areas (CSAs), which are typically small areas of private roads, face multiple storm damage sites due to the recent 2017 and 2023 storm events like the rest of the County. Cash flow shortages are created due to delayed federal reimbursements for completed projects. Additionally, some projects have faced denials of federal reimbursements because of the previous poor condition of storm damage repair sites. Some CSAs have elected to increase rates to improve the condition of their roads and prepare for future storm events.

Vulnerable Davenport Sanitation District Infrastructure: Much of Davenport Sanitation District water facilities are aging, located above-ground, and are subject to impacts from natural disasters such as during the CZU fires when the supply line was burned. Service charges will continue to increase in coming years to address unforeseen expenses, such as the impacts of natural disasters exacerbated by climate change, as well as resiliency projects to replace aging infrastructure and ensure sufficient flow for firefighting activities. County Sanitation staff continue to pursue grant funding opportunities to achieve these goals.

Next Generation Landfill Gas to Energy: The current gas to energy contract with Ameresco expired in February 2026. The County is evaluating emerging landfill gas to energy technologies and exploring local partnerships to achieve the highest and best use of landfill gas.

Edible Food Recovery Grant Funding: Grant funding to implement SB 1383 ends June 30, 2026. Revenue will be needed to further implement the edible food recovery requirement, which diverts edible food from the landfill. The FY 2026-27 Proposed Budget allocates $175,000 to support local food recovery partners; however, this funding is not sufficient to meet long-term program needs, and additional funding sources, such as tipping fee adjustments, may be necessary in future years.

Aging Drainage Infrastructure and Regulatory Requirements: Much of the County’s storm drain infrastructure is more than 50 years old and needs significant repair or replacement. Recent years have seen an increase in the intensity and duration of rain events, which stresses fragile infrastructure and overwhelms the capacity of existing systems. This circumstance is especially critical in dense urban areas, such as Zone 5, which includes Live Oak, Capitola, and portions of Soquel, as localized flooding and pipe failures can have serious impacts on private property and the motoring public. In addition, new State regulations aim to increase requirements for trash capture and asset management and monitoring, further increasing the cost of operations. Funding is needed for repairs, permit requirements, and projects to increase drainage system capacity.

Sanitation County Service Areas: Costs for the operation and maintenance of wastewater treatment facilities in CSAs throughout the County are increasing due to higher labor, equipment, permitting, and material costs. In addition, aging CSA infrastructure is near or past its useful life, requiring the establishment of reserve funds to address emergency projects and plan for infrastructure repairs or replacements. With a small, fixed number of ratepayers, CSA rates are sensitive to even small cost increases. Rate increases are anticipated across the County’s Sanitation CSAs in FY 2026-27 and beyond.

Buena Vista Landfill Redevelopment: The Buena Vista Landfill is expected to reach capacity in five to seven years. CDI is preparing an Environmental Impact Report (EIR) for redevelopment, including alternatives that focus on redevelopment of the site as a transfer station facility, with waste ultimately disposed of at the ReGen Monterey facility in Marina. The redevelopment project will be paid for with a combination of Infrastructure Charge assessment revenue and bond funding. Project timing is dependent on the EIR outcome and permitting, with the EIR release anticipated in late Summer 2026.