Santa Barbara staff present budget plan that narrows $14.6M shortfall and advise against Nov. transfer-tax measure

City administrators on April 9 presented a package of budget changes that reduces a projected FY2027 general-fund shortfall from $14.6 million to about $3.6 million, while urging the City Council not to pursue a proposed real property transfer tax for the November 2026 ballot.

The presentation, led by City Administrator Kelly McAdue and Finance Director Keith D. Martini, described how Measure I sales-tax revenue provides a meaningful boost but will not eliminate a structural gap between revenues and ongoing expenditures. Martini said the base-budget projection for FY2027 showed a $14.6 million deficit and that staff’s updated recommendations — a mix of one-time adjustments and recurring savings — total roughly $7.4 million in revenue or expense relief, most of it temporary.

Why it matters: without additional structural changes, the city’s reserves will continue to fall well below the council’s 25% reserve policy. Martini told the council that, “if we do nothing, we would only have 9.8% of reserves” in FY2027, meaning contingency and disaster reserves would be exhausted sooner than policy targets allow.

What staff proposed: the package includes a range of measures staff expects to build into the administrator’s recommended budget on April 21: shifting some positions and costs to enterprise funds, modest fee increases, library and IT reorganizations, additional parking enforcement revenue, and holding some vacancies. Staff also proposed a number of one-time steps to bridge gaps, including a $2 million one‑time transfer from the fleet replacement fund and using $2 million of utility‑users‑tax receipts in the general fund this year (paired with a Measure C paving backfill). The city would draw $400,000 from the self‑insurance fund to hire in‑house legal capacity expected to reduce more expensive outside counsel costs.

On the transfer‑tax ballot idea: staff reviewed public-opinion polling and legal risks for a tiered real‑property transfer tax (a proposed $9.50 per $1,000 on sales exceeding $3 million). Martini said the polling showed a large bloc of undecided voters who would require a substantial outreach campaign in a compressed time window, and cited potential confusion or conflict with a statewide ballot initiative and other local legal challenges. For those reasons staff recommended not pursuing that specific transfer‑tax measure this November and requested council direction. Several council members signaled informal concurrence during the work session.

Council reaction and key issues: council members pressed staff for more detail on the assumptions behind revenue projections and on long‑range impacts. Several members emphasized that even with the recommended actions, the city would still be operating below the reserve policy target and that any use of reserves should be paired with a replenishment plan. Council members repeatedly asked staff for clearer, line‑by‑line assumptions (sales‑tax, TOT, Measure I carry‑forwards) and earlier estimates of administrative costs tied to policy changes now under consideration — specifically, the rent‑stabilization and short‑term rental ordinances. On short‑term rentals staff flagged a possible TOT reduction of about $2 million per year in the staff report and said they will present refined numbers during the formal budget hearing process.

Public‑safety and one‑time funding questions: Police and city staff described a strategy to use portions of opioid‑settlement funds to support co‑response teams (roughly $480,000 per year approved for at least the next five years) and said increased parking enforcement is already producing additional revenue. Council members asked about the operational impact of deferring fleet replacements and the risk to long‑term capital maintenance when using one‑time fleet cash to balance the general fund.

Next steps: staff will publish the city administrator’s recommended budget on April 21 and bring more detailed assumptions and cost estimates to the Finance Committee (May 5) and to the council hearings in May and June. Martini repeated that many of the recommended savings are temporary and that the city will need longer‑term structural solutions to avoid repeated pressure on reserves.

Representative quotes from the work session include city administrator McAdue’s framing: “we are no longer recommending that the city pursue a revenue measure on the November ballot,” and finance director Martini’s summary of the structural gap: “Our expenditures are exceeding our revenues — this is the definition of a structural budget deficit.” Public commenters urged protection for city services and workers: Leo Dekas of SEIU Local 620 said, “we strongly oppose any cuts or sacrifices to our workforce,” while a community arts speaker described how city arts funding had supported major cultural events in the Presidio.

The council directed staff to finalize the recommended budget materials for April 21 and to return with more granular assumptions, revenue models and the specific administrative-cost estimates for items such as rent stabilization and short‑term rentals to enable policy tradeoffs before the May and June hearings.