April 30, 2026
I am pleased to present the Fiscal Year (FY) 2026-27 Proposed Budget, my first as County Executive Officer. This $1.29 billion budget includes a $844.1 million General Fund. It is fiscally responsible and protects essential services while making targeted investments to improve County operations and address key priorities in the areas of artificial intelligence (AI), organizational and process improvements, roads, parks and other infrastructure, economic development, housing and homelessness. These investments, including protecting our 2,683-strong workforce, lay the groundwork for a stronger, more resilient County in the years ahead.
This budget arrives under difficult circumstances. Unprecedented federal policy changes are reducing funding, as well as increasing costs, for key programs that thousands of Santa Cruz County families and individuals depend on, and those reductions will deepen in the coming years—presenting even steeper challenges for local governments as we work to meet increasing community needs with dwindling resources. While we are proud to present a budget that protects both essential services and our workforce, our work to address these challenges is just beginning.
When we began developing the FY 2026-27 Proposed Budget, the County faced a projected General Fund deficit of approximately $23 million—one that, absent corrective action, was forecast to exceed $67 million in subsequent years. The budget I am presenting to the Board of Supervisors is a balanced one, and I want to be direct about both what that balance represents and what it does not.
This budget achieves balance through shared restraint across every County department, combined with $43 million in one-time funding from department trust funds and reserves. This funding—along with other strong measures to reduce spending—allows us to avoid layoffs, maintain Collective of Results and Evidence-Based (CORE) Investments, continue Measure K spending on environment and parks projects, roads, housing and homelessness, and protect essential services and programs. This buys us time, but it is not a long-term solution.
This FY 2026-27 Proposed Budget incorporates several difficult and necessary steps—a countywide hiring freeze, vacant position eliminations, and targeted reductions—along with increased revenues where possible, including a reimbursement rate increase at County Health Centers and a parking fee pilot at County Parks. Organizational changes, including the continuation of the Streamline Santa Cruz County initiative and creation of the Alternate Public Defender’s Office, also contribute to long-term sustainability by improving the delivery of services to the community while managing costs.
However, this strategy reduces the County’s limited reserves—from 12.5% to 10.4%—resources that will not be available in coming years. The structural imbalance between the County's ongoing costs and sustainable revenue base remains; it is a gap that has been widening for years and is exacerbated by inflation, disaster recovery costs, unfunded mandates from the State, and more. Local revenues, including property taxes, local sales taxes, transient occupancy tax, and cannabis taxes, are no longer sufficient to cover an expanding list of community needs. That is the defining fiscal reality of this moment.
I want to be clear that this budget is a stopgap. We have challenging work ahead of us, and the Board of Supervisors, County staff, community partners, and members of the public will need to work together on solutions.
Much of the immediate pressure on our reserves stems directly from the impacts of H.R. 1 on our Health and Human Services departments and programs. The overwhelming share of one-time funds being budgeted is directed at preserving safety net services. And I want to caution that the impacts of H.R. 1 will grow in upcoming years.
The State of California must step up. Counties, including Santa Cruz County, cannot absorb the fiscal consequences of federal policy choices alone. The State should protect safety net services by providing direct funding to counties for H.R. 1 impacts in FY 2026-27 and every year that follows. This is a major realignment of funding and costs, requiring the State to participate in the solution and protect local services. Santa Cruz County does not have the resources to absorb these changes. At the same time, we must explore options for new funding, even if temporary. We will pursue every responsible mechanism available to align our revenues with community expectations.
Despite the constraints, this budget preserves and advances key priorities for the County Executive and Board of Supervisors:
Artificial Intelligence & Organization Modernization
The budget funds the County's AI Elevation and Standardization Workplan 2026, including enterprise licensing, staff training, technical support, and pilot projects. These investments are not luxuries; they will allow us to make the best and highest use of our staff, focusing on solving problems and improving services.
The Streamline Santa Cruz County Workplan continues permitting process improvements while fostering housing and economic development. Budgeted efforts include a major update to the Santa Cruz County Code to implement objective standards and reduce peer reviews.
Roads, Parks & Other Infrastructure
The budget maintains the Measure K investment of $2 million in road paving, culvert repair, and striping. Board-directed investments in the environment and parks will also continue through a Measure K allocation of $1 million, or $200,000 for each supervisorial district. These are basic quality-of-life services for residents throughout the County unincorporated area, and they represent the kind of local investments our residents have made a clear priority.
Formation of an Enhanced Infrastructure Financing District (EIFD) in the unincorporated area moves forward, providing the County a long-term mechanism to capture value from growth, direct it toward public infrastructure, and foster economic development.
Housing, Homelessness & Essential Services
Also funded by Measure K, the 701 Ocean Street Housing Viability Study advances the County's work on one of its most significant affordable housing sites. Alongside the County’s Housing Element, this budget includes $1 million from Measure K for housing, reflecting our continued commitment to housing investment and production even in a difficult fiscal year.
The budget likewise continues the $1 million Measure K investment in programs to reduce homelessness through new facilities and services, which has resulted in a significant reduction in the number of unhoused people. CORE Investments contracts have also been preserved, while our Board continues its work to assure the program is delivering services where they are most needed.
The road ahead is genuinely difficult. Labor costs continue to outpace revenue growth. Disaster-related debt obligations will place more pressure on the General Fund and Roads Fund. Federal policy uncertainty has not abated. And the one-time tools we used to balance this budget will not be available next year.
What we have done is preserve the County's ability to function, protect the workforce, and maintain core services while we do the harder work of structural reform. That work—on revenues, costs, and the County's long-term service model—begins in earnest now.
I am grateful to every County employee, at every level, who contributed to this effort. The FY 2026-27 Proposed Budget reflects their professionalism and genuine commitment to this community.
Respectfully submitted,
Nicole D. Coburn
County Executive Officer