Santa Cruz County officials on Tuesday opened public hearings on a proposed $1.29 billion budget for the 2026-27 fiscal year, warning that federal funding cuts, rising labor costs and growing structural deficits are forcing difficult financial decisions in the years ahead.
The recommended budget includes an $844.1 million General Fund and closes a projected $23.2 million deficit without layoffs by relying heavily on one-time funding sources, a countywide hiring freeze and the elimination of nearly 60 vacant positions.
County Administrative Officer Nicole Coburn described the spending plan as one crafted during one of the toughest fiscal periods the county has faced in years.
“This is a balanced budget that we present today, and we’ve developed it under one of the most challenging fiscal environments that I’ve ever faced,” Coburn told the Board of Supervisors.
County officials said the budget was affected by federal policy changes under H.R. 1 — also known as the “One Big Beautiful Bill Act” — which reduce funding for health and human services programs while increasing mandated local costs. Officials also warned of a possible recession and uncertainty surrounding California’s state budget.
Coburn said the county has not declared a fiscal emergency, but noted the issue could return later this month when Gov. Gavin Newsom revises the state budget proposal and again in June when the budget is finalized.
The proposed spending plan relies on about $43 million in one-time funding, most of it from Health and Human Services reserves and trust funds, to preserve services and avoid layoffs. County officials said the county workforce of roughly 2,682 employees would remain intact despite the elimination of vacant positions.
Budget Manager Marc Pimentel cautioned that drawing down reserves to balance the budget carries significant risks. Under the proposal, county reserves would fall from 12.5% of expenditures to 10.4% — just above the county’s minimum reserve policy and well below its 15% target.
“That’s when we start getting a little nervous, about getting down to that level,” Pimentel said. “From a budgetary standpoint, we’re relying on that to balance our budget.”
Pimentel said the remaining reserves would be enough to cover roughly one payroll cycle if needed. At the same time, he projected continued growth in local tax revenue, estimating a 4.5% increase in property and sales tax collections.
Despite the financial pressures, county officials said the proposal preserves funding for roads, parks, affordable housing and homelessness programs, while also investing in modernization efforts and artificial intelligence tools intended to improve county operations.
The budget also continues Measure K investments, including $2 million for road paving and infrastructure repairs, $1 million for housing projects and another $1 million toward homelessness services.
Still, several proposed cuts and policy changes drew concern during Tuesday’s discussion.
One flashpoint involved a recommendation to cancel the county’s longstanding contract with the Page & Dudley law firm, which handles criminal conflict cases for the Public Defender’s Office.
Under the proposal, those cases would instead be folded into a newly created Alternate Public Defender’s Office.
Attorney Mitchell Page criticized the plan, arguing the county underestimated the costs and warning that shifting the caseload would strain public defenders while eliminating about 15 jobs at the firm.
“We’ve been contracting with the county for a long, long time providing excellent work,” Page told supervisors.
Defense attorney T.J. Brewer added that the change would significantly increase workloads for county public defenders.
Supervisors also debated a proposed parking fee pilot program at county parks. Supervisor Manu Koenig opposed the idea, saying it was the wrong time to charge families additional fees.
“I think it’s probably a pretty bad time to try to start charging people parking fees when they’re taking their kids to little league,” Koenig said.
Supervisor Felipe Hernandez pushed back on suggestions to redirect Measure K funding to address deferred park maintenance, saying voters approved the sales tax measure with specific priorities in mind.
Budget hearings will continue June 10, with final adoption scheduled for June 24.
