As the Santa Cruz County Board of Supervisors prepares to approve its $1.04 billion budget—a process that includes presentations from every department later this month—they must consider a grim prediction: a recession will hit this year, and is estimated to last the better part of two years.
The county is already reeling from a string of recent disasters, from the Covid pandemic to the CZU fires to the recent storms and floods.
Worse, the county has still not received more than $100 million in federal reimbursement—$67 million from the former, and roughly $50 million from the latter, says County Budget Manager Marcus Pimentel.
“It’s a tough time,” he says.
Still, Pimentel is optimistic about the county’s ability to pull through the coming downturn.
“Despite being understaffed, despite being underfunded, we have a lot of good people in the county who are really committed to doing good work,” he says.
Supervisor Bruce McPherson says that it is “essential” to advocate at the state and federal levels to get the federal reimbursement funds.
“If that doesn’t come through, we’re in a world of hurt,” he says.
The county is also facing $300 million in unfunded infrastructure repair costs, says County Administrative Officer Carlos Palacios.
Part of the financial woes stem from the way the county collects its taxes.
With a 9% sales tax rate, the unincorporated county collects less revenue than Watsonville and Scotts Valley, which collect 9.75%, and the city of Santa Cruz, which collects 9.25%, Palacios says.
Pimentel predicts a growing deficit, which he says could reach $24.5 million by 2027/28.
This picture is worsened by declining sales tax revenues.
Pimentel estimates that the county loses roughly $5 million in sales tax revenue as increasing numbers turn away from brick-and-mortar stores.
Revenues from the tax on disposable cups—originally predicted to bring in $700,000 annually—is instead predicted to earn around $100,000 per year, Pimentel says.
At the same time, property tax revenues are predicted to grow from $85.1 million this year to $110.5 million by 2026/27, Pimentel says.
But the county receives just 13 cents on the dollar from those taxes, less than its neighbors and similar-sized counties.
McPherson also praised county staff, who he says have weathered the recent challenges well.
“Our workforce has really sacrificed above and beyond the call of duty to meet the challenges that are facing us through no fault of our own,” he says. “This is not mismanagement of a budget, this is natural disasters personified over and over again in Santa Cruz County.
“This is one of the most uncertain times I can recall in my years of public service in state and federal government.”
Board Chair Zach Friend says this systemic underfunding has led to many of the county’s financial challenges.
“The county is going to have significant budgetary pressures facing it in the next five to 10 years in ways that will need action not just locally, but above our levels in order to address,” he says.
The supervisors will hear in-depth talks for the 2023-24 budget on May 30 and 31, and on June 13.
