The city of Santa Barbara could see its insurance deductible for Stearns Wharf triple in 2026.

“Right now, the waterfront would need to pay $1 million deductible if there was an event on Stearns Wharf,” said Finance Director Keith DeMartini. “We believe that will be increasing to $3 million.”

The financial hit was just one of several compelling details revealed in a budget presentation at last week’s Santa Barbara City Council meetings.

DeMartini presented a financial outlook for the city before department heads explained their successes and challenges financially. The passage of Measure I, the city’s half-cent sales tax increase, is projected to rescue the city’s general fund, wiping out what would have been a $7.2 million shortfall this year.

The city is projecting a $3.3 million surplus in fiscal year 2026 after there’s a full year of collecting the sales tax.

The city’s general fund budget is projected to be $231.3 million in 2026 and $242.2 million in 2027.

“I appreciate that there are no new cuts this year for the first time in years,” said Councilwoman Kristen Sneddon. “That is a huge relief going into this process.”

DeMartini, however, noted that there are financial and budgetary challenges ahead, despite the sales tax boost.

The city is perpetually struggling with recruitment and retention of staff, rising pension costs and unfunded liability, economic uncertainty and high inflation. Although the city has started its latest round of budget negotiations, the city is expecting a salary increase assumption of 5% in 2026 and 4% every year after that.

The city has $38 million annual budget liability for 2026, $40 million in 2027, and then it grows to about $54 million by 2031.

Another blow to the city is the decline and projected worsening in coming years of cannabis taxes.

“Not all of our taxes are stable,” DeMartini said.

“Cannabis, unfortunately, has declined and we project that it will either continue to decline or stay flat to where it is right now, which is just about $1 million a year,” DeMartini said.

It was $1.9 million at its highest point. Santa Barbara has three licensed cannabis dispensaries. The city is about to complete an audit, he said, of the dispensaries to make sure that they are submitting those taxes timely and correctly.

Property tax revenues continue to shine for the city. The projected budget for 2025 is about $51 million and $53.6 million for 2026.

“It is the most steadily growing revenue source that we have in the general fund,” DeMartini said. “It continues to weather storms in the real estate industry.”

He said property tax was not really affected by the COVID-19 pandemic.

The city also presented several positives. The airport is growing like gangbusters, with record growth in passengers, largely due to larger airplanes.

The Santa Barbara Police Department has improved its recruitment and retention efforts.

The vacancy rate is at 10%, down from 25% among all staff. The city hired 20 new police officers last year. There’s also more work.

“We’ve also seen a large increase, for different reasons, of First Amendment activities within the city, which are absolutely encouraged, that also requires special event staffing from our police department,” said Chief Kelly Gordon.

The budget presentation included a bevy of fast facts.

• The city has about 1,733 new housing units in the pipeline.
• The city received $23 million in grants and loans for affordable housing projects during the past five years.
• The Santa Barbara City Fire Department, according to Chief Chris Mailes, responded to 12,136 incidents in fiscal year 2025. That’s up 4%. Medical calls were up 7%.
• The city issued 49,477 parking tickets last fiscal year and made 4,634 traffic stops.

Perhaps the biggest challenge facing the city next fiscal year is what to do with the downtown parking fund, which is losing money and fewer people are parking in city lots.

“As we look ahead to 2026, those issues with the fund deficit are going to require a hard look at financial stability and sustainability,” Brian D’Amour, the acting public works director, said.

Councilmember Sneddon said she was pleased with the presentation and the clarity of the PowerPoint. She did raise concerns about potential cuts from Washington D.C. affecting the city.

“This federal funding instability seems to be significant risk across multiple departments,” Sneddon said. “We have nothing historically to even be able to compare this to. We will potentially be at a lot of risk for climate change, fire, disasters, sea-level rise.”

The budget will be released in April, and the City Council is expected to approve it in June.