City Faces $1.6 Million General Fund Shortfall, Reserves Below Policy
Finance staff told the Finance Committee on Sept. 10 that revenue growth has not kept pace with spending and contingency reserves are largely depleted.
The city of Santa Barbara projects a roughly $1.6 million deficit in its general fund for fiscal year 2026, finance director Keith Demartini told the City Finance Committee at its Sept. 10 fourth-quarter review.
Demartini told the committee the general fund faces a structural imbalance: ongoing revenue growth has not kept pace with expenditure growth. He said contingency reserves have been largely drawn down and actual reserves remain below the council's 25 percent reserve policy target. Reserves projected for fiscal year 2027 total about 15 percent, he said, underscoring the gap to the goal.
Staff also plan to separate Measure C reporting from the operating general fund. Measure C is the general-purpose sales tax that funds capital projects; breaking out its reporting is meant to give clearer year-to-year comparisons of the operating budget.
Committee members commended staff for revenue collections and expense control but pressed for sustainable, ongoing solutions rather than one-time fixes and vacancy-driven savings. Council member Harmon cautioned that many of the payroll savings come from frozen vacancies and added workload for remaining employees.
The committee voted unanimously to accept the interim financial statements and staff recommendations, forwarding the fourth-quarter report and associated budget adjustments.
The shortfall sets the backdrop for the council's fall budget decisions, including the proposed $500,000 startup request for the rent stabilization program and the October hearing on short-term rental ordinances.
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