Editorial | Santa Cruz County grapples with increasing budget uncertainties

Santa Cruz County Executive Officer Nicole Coburn and county Budget Manager Marcus Pimentel are having to get creative in putting together the upcoming budget in a time of great reimbursement uncertainty.

It's no small matter, not with the Trump administration's H.R. 1, Big Beautiful Bill's cutbacks, and the governor's aim to severely restrict Medi-Cal (the state's version of Medicaid for lower-income residents needing healthcare coverage).

With budget hearings this month set to conclude by June 24, Coburn and Pimentel, who met last week with the Sentinel Editorial Board to go over the $1.29 billion budget, are making strategic cutbacks to deal with an expected $23 million deficit by keeping vacant some 57 positions from a county workforce expected to number 2,683 in 2026-27.

As they put together the budget, Coburn and Pimentel said the county has been lobbying hard with the California State Association of Counties to get some relief from the state's demands amid cutbacks.

Later last week, after our Editorial Board meeting, state Democratic leaders in the Assembly and Senate announced an agreement on a state budget for the upcoming fiscal year that rejected or delayed many of the healthcare and social safety cuts proposed by Gov. Gavin Newsom in his budgetary May Revision.

Among these delays is a politically loaded decision on whether to increase premiums on undocumented immigrants using Medi-Cal. The Legislature's deal for now would also protect some 200,000 humanitarian immigrants who are lawfully present in the country from losing full-scope Medi-Cal. The compromise pushes that change into next year's budget. Cuts Newsom proposed to Medi-Cal's dental care would also be delayed under the Legislature's plan.

The Legislature has until Monday to pass their version of the budget, as required by the California Constitution - or go without pay until they do so.

But the Legislature's agreement is not the last word on a budget that won't be finalized before Newsom signs it probably in September - and it leaves unanswered questions and issues to the next governor, who likely will be Democrat Xavier Becerra. Among these is whether more tax increases, mainly on corporations, will be needed and what will happen should the AI stock market boom fueling increased revenues suddenly, or even gradually, fizzle out.

With the state budget, much like the county's, utilizing reserves and short-term measures, the state is vulnerable to future economic hiccups. That may explain why the nonpartisan Legislative Analyst's Office has projected operating deficits ranging from $10 billion to upwards of $20 billion annually in the years following Newsom's departure.

These uncertainties mean, as Coburn noted, the county won't overreact to the legislative deal hashed out last week.

Balancing the county's budget means cost reductions (not filling vacant positions) and a hiring freeze, increased revenue from parking at county parks along with planning fees - both certain to be publicly unpopular - and pulling onetime funds from the general fund reserves, expected to drop to 10.4%, and county trust funds.

But the county officials revealed one surprising bright spot: Uncollected disaster recovery funds, mainly from the federal government, are down to $53 million from about $144 million in mid-2024. The county has been on the hook for paying for recover from major storm damages in previous winters.

While the next budget avoids layoffs, the SEIU is unhappy with the decline in the county's work force. The county's contract with the SEIU expires in September 2027.

Santa Cruz County's uncertain budget situation is analogous to other counties' situations and a number of counties in the state are doing layoffs. But, Coburn said, "our tax revenue situation is much lower as compared to other counties."

And if you wonder where all county's money goes, it's mostly to health and human services and public safety, and mostly all that is mandated.

For all the back and forth on the budget, Coburn told the Editorial Board she sees the 2026-27 budget as only "the tip of the iceberg" as this cycle's issues with state assistance and H.R. 1 cutbacks remain. All this means uncertainties could only get worse as revenues and reimbursements decline and state mandates continue to ramp up - not to mention costs of just about everything.

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