Concerns about how Santa Barbara can replenish its reserves led to some discussions about delaying the city’s financial contributions to affordable housing.

The Santa Barbara Finance Committee, which consists of City Council members Eric Friedman, Meagan Harmon and Wendy Santamaria, reviewed the city’s budget for the upcoming fiscal year on Tuesday afternoon.

While the city is looking at a nearly balanced budget, the issue of dwindling reserves remains a problem.

The reserves have been steadily declining since fiscal year 2022-23. Keith DeMartini, the city’s finance director, explained that the city has already depleted its contingency reserves and is now faced with using emergency reserves.

Per the city’s target policy, the city should have $57.2 million in its reserves. However, for the next fiscal year, it is projected to have roughly $28 million.

Friedman noted that if the city put $3 million in its reserves every year, it wouldn’t reach its target reserve policy until around 2040.

“That should alarm everybody,” Friedman said, “and we don’t have a plan to replace those reserves right now. That’s why every million dollars counts.”

The city was originally projecting a $14.6 million deficit for the upcoming fiscal year, which begins July 1.

However, it is now looking at a $3.6 million deficit as the city plans to delay hiring for vacant positions, put off purchasing new non-essential vehicles, keep $2 million from the utility user tax that funds street maintenance in the general fund, and partially defer $1 million from the local housing trust fund.

The housing trust fund is used to help support the development of affordable housing and provide housing assistance. The fund can also receive financial contributions from the state and private entities.

The city usually contributes $2 million from reserves to the housing trust fund. Natalija Glusac, the city’s budget manager, said the $1 million deferral is temporary, and the council will reassess the delay later in the year. 

However, in order to help the city’s reserves, Friedman raised the idea of not contributing the $1 million from reserves that the city had planned to, but make it clear to developers that the funding could be available if an affordable housing development came around. 

“There isn’t anything right now, today, that I’m aware of that’s coming forward, but say something were to come forward in October, November, there would be time to identify other potential funding sources, rather than committing from the emergency reserves,” Friedman said. 

While they said they appreciated the creative thinking, Harmon and Santamaria said they were not willing to put funding for affordable housing at risk. 

“This is one of the only appropriations we’re making into the construction of affordable housing,” Santamaria said. “In order for us to maintain a good relationship with our affordable housing developer partners, I think they need that reassurance that that funding is there and it’s not promised at a later date.”

Friedman asked city staff to bring back a plan to start replenishing the reserves. He also asked for a future policy discussion on how events and festivals could generate revenue for the city. 

During Tuesday’s hearing, the committee received a brief presentation on individual city departmental budgets. Those will be further discussed by the rest of the council in the next two weeks. 

One major change is to the city attorney’s budget. In order to defend itself in numerous litigation cases, the city plans to hire an internal litigator, which will save money on hiring outside counsel. 

Funding for the position will come from the city’s self-insurance fund. 

City Attorney John Doimas said it will be cheaper for the city to handle cases in-house, and it will be better to have institutional knowledge on the city’s ongoing litigation. 

According to the presentation, the city is facing nearly 50 active cases. One notable recent case is the lawsuit from the Santa Barbara Property Owners Association over the city’s temporary rent freeze.

Starting May 12, the council will hold sessions to discuss each department’s operating budget and projects before beginning deliberations on June 9 and adopting the spending plan on June 16.

The full recommended budget for fiscal year 2027 can be reviewed here.