After weeks of heated discussions and political battles, the Santa Barbara City Council on Tuesday unanimously adopted the city’s 2026-27 budget.

The city is expecting to spend $256.8 million in the next fiscal year, which started Wednesday. It is also expecting $257.2 million in revenue.

However, Santa Barbara is still $29.7 million short of what’s supposed to be in its reserves, per staff.

The dwindling reserves have been at the center of the council’s budget discussions, giving a platform for council members and mayoral candidates Eric Friedman and Kristen Sneddon to kick off their campaigning from the dais.

The council also has been divided over funding for the local housing trust fund, which goes toward funding affordable housing projects.

The city is supposed to contribute $2 million to the fund each year, but this year, because of the reserves issue, city staff recommended contributing only $1 million.

The council last month voted 4-3 to take $1 million from the Measure C fund and put it toward the local housing trust fund. That decision was formally adopted on Tuesday with the rest of the budget.

“I still feel like it was an inappropriate use of funds to go into something, particularly a fund that’s about ready to receive a certain amount of largesse,” Mayor Randy Rowse said. “And I certainly do not want to see Measure C become kind of the silly putty that’s going to fill gaps in the future.”

The same issue last year led to a 4-3 split vote to approve the budget, when reserves were spent on the housing fund.

It’s worth noting that earlier in the meeting, the council approved a deal with Yardi Systems and DSP, a joint venture of Dune, Shopoff Realty Investments and Praelium, that included a $5.7 million local housing trust fund contribution.

Sneddon advocated for the city’s Finance Committee to find an ongoing funding source for the housing fund.

“That was the direction last year at this time. That was part of the motion that we made to be able to use those reserves last year,” Sneddon said. “To my understanding, this still has not happened, has not been done, has not been addressed.”

Sneddon raised several other financial ideas for the committee to explore, including raising the transient occupancy tax and the real property transfer tax. The council had considered the latter earlier this year for the November ballot but ultimately did not pursue it.

She also suggested increasing development in-lieu fees and short-term rental license fees. 

Friedman argued that last October the Finance Committee — which consists of himself and Councilwomen Meagan Harmon and Wendy Santamaria — focused on balancing the operating budget without using reserves.

“You can’t find a dedicated source for the local housing trust fund until your operating budget is balanced,” Friedman said.

One potential budget benefit is that the city is supposed to receive $2.6 million in one-time funds as a result of winning a legal battle over collecting utility taxes from streaming services such as Disney+ and Hulu. The city is also expected to receive $600,000 annually.

Friedman argued that if the city uses that revenue, and other potential revenue that could come in, it could replenish the $6 million that’s been taken out of the reserves by this time next year.

“It’s not guaranteed, but it’s a path to get there,” Friedman said.

The Finance Committee is scheduled to meet on Aug. 25 to explore revenue opportunities to replenish the reserves.