Proposed 2026-27 Budget

Overall Budget Summary

The Proposed Budget includes a decrease of 0.15 full-time equivalent (FTE) positions, for a total of 21.15 FTE, and reflects negotiated salary and benefit increases. Appropriations total $6,401,195, funded by revenues of $1,154,371 and a General Fund contribution of $5,246,824.

The net staffing increase results from mid-year changes of deleting 1.0 FTE vacant Office Assistant III, adding 1.0 FTE Assistant Administrative Analyst midyear, and transferring in 0.65 FTE Principal Administrative Analyst from the Cannabis Licensing Office. Included in the Proposed Budget is the transfer out of 0.5 FTE Administrative Aide to the Cannabis Licensing Office.

Total expenses decreased by $267,126 compared to the prior year. This change reflects a net increase of $802,903 in salaries and employee benefits due to negotiated increases and staffing changes, and an increase of $246,121 in charges for internal services including facilities and technology. These increases are offset by a decrease of $120,078 in services and supplies, a decrease of $266,000 in other charges, and a net decrease of $930,072 in intrafund transfers. The Proposed Budget includes $30,000 in expenses for a transfer out from the Local Innovation Fund to Probation to continue supporting local youth programs.

Total revenues increased by $119,254, primarily due to a $64,254 increase in charges for services, $30,000 for an innovation fund use and a $25,000 increase in miscellaneous revenues.

The net result of the Proposed Budget is an overall net decrease of $222,795.

Financial and Operational Sustainability: The mid-year budget forecast projected a General Fund deficit of $5.4 million in Fiscal Year (FY) 2025-26. The FY 2026-27 General Fund gap is projected to reach $23.3 million, and could grow from additional federal or state financial impacts, such as the $25 million at risk from the H.R. 1 federal reconciliation bill and related changes. This is not a short-term fluctuation. It reflects a cumulative imbalance between ongoing costs and sustainable revenue growth. The largest driver is revised labor cost growth, driven by local cost-of-living pressures, and County resources are unable to keep pace. Contributing factors include rising debt service associated with borrowing for disaster-related repairs, increasing liability and legal costs, public safety overtime spikes tied to unforeseen major incidents, eroding taxable sales base as more commerce shifts online, declining revenues from once stable sources such as tobacco settlements and cannabis taxes, and lower interest on cash reserves.

As we navigate the coming fiscal years, our guiding principles are to sustain legally required and revenue-generating services and the staffing that supports them; approach necessary adjustments to County departments and community partners providing essential services in a balanced and deliberate way; prioritize workload and cost shifts that protect the General Fund while recognizing limited resources; and strengthen the County’s long-term fiscal foundation by expanding budget capacity through revenue strategies and other measures beginning in FY 2026-27 and beyond. This calls for rigorous fiscal management including expense controls, coordinated state and federal legislative advocacy to align funding with program delivery and minimize further unfunded mandates, and both short-term revenue stabilization and a long-term resource strategy to align County revenues with current cost trajectories.

Federal Policy Changes and Response Coordination: The County continues to monitor evolving federal policies, funding priorities, and regulatory changes that may affect programs in health care, homelessness, benefits services, and other critical areas. Led by the CEO, the Federal Policy Response Team coordinates a multi-departmental approach to assess impacts, strengthen collaboration with community partners, and develop strategies to maintain service continuity. These changes may affect funding stability and program delivery in FY 2026-27. In future years, continued uncertainty in federal funding and policy direction may require program adjustments or identification of alternative funding sources.

Strategic Plan Refresh: The County has completed a multi-phase community engagement process to inform the Strategic Plan for 2026 through 2032, including surveys, focus groups, interviews, town halls, and Board and staff workshops. Nearly 4,500 stakeholders have contributed input, with outreach prioritizing historically underrepresented communities and incorporating lived experience into focus areas, results, and strategies. This input has been validated through community town halls and a Board Retreat, and is being integrated into the proposed Strategic Plan. While there is no direct fiscal impact in FY 2026-27, this work informs future resource allocation and may require realignment of resources and new investments in out-years.

Streamline Santa Cruz County: The CEO, in partnership with the Community Development and Infrastructure Department, continues to implement recommendations from the building permit organizational assessment completed in 2024. This effort focuses on improving permitting processes, enhancing customer experience, and increasing operational efficiency. Implementation activities may result in modest cost pressures in FY 2026-27 depending on approach. In future years, improved processes are expected to increase efficiency and service delivery, though ongoing investment may be required to sustain improvements.

Artificial Intelligence Governance and Implementation: The CEO, in partnership with the Information Services Department, is developing a countywide artificial intelligence (AI) workplan to support the secure and ethical deployment of AI tools across departments. As AI becomes more integrated into service delivery, there is a growing need for a unified platform to enable consistent and scalable AI-enhanced workflows. Current efforts build on the County’s AI appropriate use policy and focus on governance, priority use cases, and responsible adoption. The CEO is identifying operational opportunities and risks to ensure alignment with County priorities and service goals, with implementation in FY 2026-27 focused on planning and targeted applications with limited fiscal impact and future phases likely requiring investment in shared tools, infrastructure, and workforce training.

Economic Development and Housing Strategy: The CEO leads Economic Development and Housing Strategy activities for the County. In FY 2026-27, staff will continue to support the partnership with the City of Scotts Valley in formation of an Enhanced Infrastructure Financing District (EIFD). Additionally, staff will evaluate the formation of an EIFD in the unincorporated area of the County generally within the Urban Services Line to fund infrastructure in support of housing development. Staff will also continue to lead road maintenance, infrastructure, and other capital facility financing activities.

The CEO, in partnership with the General Services Department, will also continue development opportunities for housing on County and Redevelopment Successor Agency properties at the County Government Center and Emeline Campus in Santa Cruz, the 7th and Brommer site in Live Oak, and the Freedom Campus in Watsonville. The CEO leads the effort to build strong relationships with commercial and housing developers interested in Santa Cruz County and support their entitlement activities.

Finally, a business registration fee will be established providing the County with contact information for all businesses within the unincorporated area to share news and information supporting the business community and communicate with businesses during disasters or other emergency events.

Workforce Succession Planning: The County continues to prioritize succession planning for department heads and executive management to maintain continuity of operations and institutional knowledge. The CEO supports leadership development through initiatives such as the Learn Engage Apply Perform (LEAP) program. There is no significant direct fiscal impact in FY 2026-27. In future years, retirements and workforce transitions will require continued focus on recruitment, training, and leadership development.