The City of Santa Barbara paid an unexpected $4.7 million on soil remediation and other unexpected changes for the Santa Barbara Police Department headquarters currently under construction.

The project will be delayed for about five months.

During excavation, the city found contaminated, non-hazardous soil. The city conducted about 60 samples throughout the site and determined that the artificial fill that was in place contained arsenic, which is naturally forming.

The city took the money to pay for the remediation from its contingency funds, and is using Measure C money, a sales tax, to backfill the contingency funds.

“However, that leaves us in a position now where we have used about 40% of our project contingency that was used within the first two months of our project,” construction manager Derek Troya said.

The soil was hauled off and sent to landfills in San Luis Obispo and Kettleman City.

The project has a $135 million budget and $15 million contingency fund. The $4.7 million includes funding for environmental monitoring, additional geotechnical inspections and about a five-month schedule delay, which totals about $1.2 million.

In addition, the funding includes payment for two water line relocations on Santa Barbara Street as directed by the Water Resources Department, and purchasing a microgrid
controller for the project’s battery storage system.

The city’s Finance Committee talked about the project on Tuesday.

The committee also received an overall budget update from Finance Director Keith DeMartini, which showed tough financial times ahead unless the city figures out a way to raise revenues.

The approved general fund budget for fiscal year 2026 includes total revenues of $243 million and total expenditures of $244.5 million, resulting in a $1.6 million operating deficit, which will require the use of reserves.

However, the situation is only going to get worse, according to the city.

It’s expecting a budget shortfall of $5.9 million in 2026 and $11.4 million in 2027.

Further complicating matters, the city has been negotiating with many collective
bargaining units, including the Police Officers Association, Fire Association, Police Managers Association and Fire Managers Association, all of which are entirely funded by the general fund.

The salary increases built into the budgets for fiscal year 2026 and fiscal year 2027 were 5% and 4%, respectively, but the cost of all recent public safety agreements exceeds those assumptions and result in increased deficits, according to the city.

If the city does nothing to raise revenues, it will burn through its general fund reserves by the end of 2026 and its disaster reserves by 2029.

DeMartini said at Tuesday’s Finance Committee meeting that the city would take action to prevent such a scenario, but it will involve a variety of fee increases on which the City Council would need to agree.

The city has proposed a variety of fee increases, from raising parking costs and harbor slip fees to a transfer tax on home sales and hiking fees to rent city venues for events. Everything is on the table.

The city’s Finance Committee is expected to bring its various proposals to recommend to the full council next Tuesday.

For a list of proposed revenue increases and cuts, click here.

Although the city voters approved a half-cent sales tax called Measure I a year ago, DeMartini said the tax was never meant to save the city.

“It helped solve an immediate budget issue,” DeMartini said, “but it is not going to be the permanent solution to solve all of our budget challenges in the general fund.”