[Noozhawk’s note: Third in a series. Click here for the first commentary, and click here for the second commentary.]
In this, our final part in a three-part series on the City of Santa Barbara’s leadership, we ask artificial intelligence about the city’s relatively dismal finances and how to best energize the dying downtown State Street corridor.
City Finances
Between 2020 and 2026, the city has run a General Fund deficit. Indeed, since 2023, the city spent nearly $27 million in emergency reserves — you know, the money that’s supposed to be for emergencies — to “meet our policy targets.”
Things are only getting worse with the next two annual budget cycles forecasting a combined $24 million shortfall.
Question to ChatGPT: What are the three most important steps that the City of Santa Barbara could take to close its structural budget deficit?
Answer: “1. Stabilize and grow recurring revenues through a combination of tax and fee increases and encouraging business development, especially in tourism and hospitality.
“2. Control and align expenditures to sustainable funding levels by pursuing pension reform, increasing operational efficiencies, and reducing or eliminating spending on lower priority items.
“3. Continue long-range financial planning and with adequate reserves that are used for emergencies rather than revenue stabilization.”
ChatGPT understands what some on the City Council do not: You can’t tax your way out of a structural budget deficit and you must prioritize growing the economy and slashing spending.
ChatGPT versus the City Council: The overarching AI response speaks to fiscal responsibility, i.e., understanding that when revenue times are tough you can’t chase every initiative you’d like even if the initiative is laudable.
The city’s most recent budget — fiscal year 2026, adopted last June on a 4-3 vote — is instructive.
The final 353-page document that the council played with from the dais (Amateur Hour!) was ultimately revised downward, revealing a deficit and the need to pull from emergency reserves.
Before the vote, city finance director Keith DeMartini also warned of millions of dollars in additional — off-budget — expenses that would likely be necessitated by decreased federal funding.
“Yes, the majority of cities with approximately 85,000 residents … tend to have dedicated business development or economic development departments.”
Google Deepmind
While Council members Oscar Gutierrez, Meagan Harmon, Wendy Santamaria and Kristen Sneddon voted for the budget, the deficit, use of reserves and cautionary advice was a bridge too far for Mayor Randy Rowse and Councilmen Eric Friedman and Mike Jordan, who dissented.
DeMartini would prove prophetic as $4 million in harbor-related funding is not currently guaranteed.
Is anyone on the council thinking about growing our private sector (jobs!) economy? One need only look at city staff to understand the answer is “no.”
The city currently has 1,127 full-time employees at a fully loaded cost of $165 million per year, yet not a single one is charged with attracting new business.
Question to Google DeepMind: Do most cities with 85,000 residents have a business development department?
Answer: “Yes, the majority of cities with approximately 85,000 residents — which fall into the ‘midsize’ or ‘small-to-midsize’ category — tend to have dedicated business development or economic development departments. These departments are critical for driving local growth, with midsize cities experiencing rapid business growth (32% increase in payments per company) compared to larger counterparts in recent years.
“Proactive Approaches: Cities of this size often use dedicated staff, such as business development managers, to provide one-on-one assistance, streamline permit processes and boost retention.
“Small Business Focus: These cities often prioritize small business growth, which is a key driver of employment in midsize areas.
“Public-Private Partnerships: Due to resource constraints, many cities in this population range (50,000–500,000) rely on partnerships with chambers of commerce and other agencies to deliver services.
“Regional Hubs: Many cities of this size act as economic hubs for their surrounding regions, requiring focused efforts to attract investment and visitors. Examples include cities like Whittier, which maintain dedicated business development teams to foster investment and retain business.”
DeepMind versus City Council: Here, AI channeled the late Charlie Munger: “Show me the incentive and I will show you the outcome.” At one time, the city did have an economic development manager but, apparently, it had other priorities because the 2024 dudget eliminated the position.
Fun Fact: Since 2024, the city has added 30 additional full-time employees at an annual additional cost of approximately $4.4 million.
Retail Vibrancy
Downtown Santa Barbara’s retail vacancy rate has increased by more than 300% while rental rates have declined by 34% or more.
And as the city trades Nordstrom for Dollar Tree, sales tax revenue continues to decline as does hospitality, which shows flat year-over-year transit-cccupancy tax revenue.
Insane Idea: Give tourists a reason to come to Santa Barbara rather than trying to tax them more for each nightly stay.
Question to CoPilot: How can a small city with 85,000 residents energize retail vibrancy?
Answer: “Drive Foot Traffic Through Residential Density: Retail thrives on a ‘built-in’ customer base. Small cities often have an oversupply of retail space that cannot be sustained without more residents, i.e., incentivize the development of housing above or within walking distance of retail corridors. This ensures a 24/7 presence rather than just 9-to-5 activity.
“Lower Barriers for Local Entrepreneurs: A city of this size can be more nimble than a major metropolis by streamlining bureaucracy for small businesses. For example:
“Permit Streamlining: Fast-track ‘pop-up’ and incubator permits to allow entrepreneurs to test concepts with minimal risk.
“Flexible Zoning: Update codes to allow ‘active uses’ on ground floors beyond just traditional shops, such as small-scale manufacturing, ‘maker hubs,’ or day care centers.
“Financial Incentives: Offer facade grants, fee waivers, or low-interest loans specifically for reusing existing historic structures.
“Success Example: South Bend, Indiana, launched the Scaling Up! program to help home-based businesses move into downtown storefronts.”
We will leave the City Council with some advice that, like most advice, it likely will disregard.
Fareed Zakaria’s recent Washington Post commentary, “New Yorkers Will Pay For This,” should be tattooed on their foreheads:
“Stop governing as if the goal is to announce new entitlements, and instead make government work — safer streets, functioning schools, predictable sanitation and, above all, enough housing that the middle class can find places to live.”
n the late 1980s, Nike launched the famous “Bo Knows” commercial, which combined a Bo Diddley soundtrack with footage of Bo Jackson cross-training and testimonials from several professional athletes saying that Jackson could do anything they could do, perhaps even better (e.g., Michael Jordan proclaiming “Bo knows basketball”).
The penultimate scene shows Jackson playing a guitar solo on stage with Diddley, implying that Bo even knows guitar.
In the 21st century, it is not Bo who knows, but AI.
In Part I of our series exploring whether artificial intelligence should replace the Santa Barbara City Council, we demonstrated that “AI knows” that rent control does not work, unlike council members Kristen Sneddon, Wendy Santamaria, Oscar Gutierrez and Meagan Harmon.
Rather than pursue rent control, AI advised the council to improve housing affordability by increasing housing supply and reducing construction costs.
In this second installment of our series, we asked AI to elaborate on its prior advice to the council by making specific recommendations.
Question: What policies should the City of Santa Barbara pursue to increase housing supply?
Answer: ChatGPT asserted that the three most impactful policies the city could adopt to increase housing supply would be (1) changing zoning to permit residential development and greater density, (2) speeding up permitting processes and reducing regulatory and related costs, and (3) further incentivizing and streamlining adaptive reuse and infill housing projects.
Without any additional prompting from us, ChatGPT also felt compelled to remind us that although “rent controls or rent freezes (like recent temporary actions in Santa Barbara) address affordability for existing renters, they generally do not increase housing supply and can, according to many economists and landlords, deter future construction.”
Question: What policies should the City of Santa Barbara pursue to reduce housing construction costs?
Answer: Copilot first recommended that the city should incentivize the use of pre-fab housing built from alternate materials.
Copilot does not know Pearl Chase. But it does know that Santa Barbara’s regulatory climate discourages housing construction.
Its next recommendations, which echoed ChatGPT, were to streamline permitting, reduce fees, expand adaptive reuse, and modernize building and zoning codes.
When asked “which was the most important,” it stated that “streamlining approvals matters more than anything else.”
Is the regulatory climate here in Santa Barbara really that bad? To answer this question, we asked ChatGPT to compare Santa Barbara to Austin, Texas.
Austin’s unofficial motto is “keep Austin weird.” Not surprisingly, many locals use zoning, environmental and neighborhood character rules to resist development. Sound familiar?
Given the obvious parallels, you might expect that the regulatory climates in Santa Barbara and Austin would be similar. AI knows you would be mistaken.
Question: Does Austin, TX or Santa Barbara, CA impose more regulatory burdens on residential construction?
Answer: ChatGPT noted that “Santa Barbara, California generally imposes significantly heavier regulatory burdens on residential construction than Austin, Texas.” (emphasis added).
In a follow-up exchange, ChatGPT noted that these burdens — including permitting costs and lengthy project timelines — are significant contributors to the much higher construction costs in Santa Barbara than in Austin.
AI versus City Council
So how do the actions of the City Council stack up against AI’s recommended policies?
The city is not making tangible progress on the most important recommendation: streamlining permitting and reducing fees.
If it were, the council would have formed a public-private task force to make recommendations for slashing red tape and reducing fees, voted to implement those recommendations, and then tracked increases in the number of residential construction permits issued, the number of new residential units built, and the number of residential properties on the tax rolls.
We would see performance goals and metrics in the city budget for these and related data, regular news releases touting the city’s successes in these areas, and a dramatic increase in property tax collections.
None of this has happened.
Instead, the city appears to have been backsliding.
Residential building permit applications and grants have declined for the last three years. Property tax collections are barely outpacing inflation during the same period.
So the City Council has made about as much progress on improving housing affordability as it has on revitalizing State Street — one of the topics in our next installment of this series.
We asked AI how the council could turn things around. ChatGPT’s recommendation to the other members of the council for increasing the supply of affordable housing was to “be like Mike” — Councilman Mike Jordan — and vote for “streamlined approvals” and “strategic development.”
Unfortunately for the community, four members of the City Council — the majority of Gutierrez, Harmon, Santamaria and Sneddon — just (can’t) do it.
Two of these members — Gutierrez and Harmon — would likely argue that they are supporting other AI recommendations.
They would point to the recent Adaptive Reuse Ordinance and portions of the current Housing Element as evidence that the city is taking steps to increase housing supply and reduce construction costs.
Given the enormity of Santa Barbara’s housing shortfall, these baby steps are, at best, too little, too late.
Moreover, any positive impact they might have on affordable housing will be dwarfed by the damage that will be caused by the council’s reckless reliance on rent stabilization and rent control — the very policies that AI felt compelled to remind us will not increase the supply of affordable housing in Santa Barbara.
In the end, AI knows. And so does Bo … Diddley.
After listening to Bo Jackson playing guitar, the iconic commercial ends with his clever play on words: “Bo don’t know Diddley.”
The same can be said for the Santa Barbara City Council when it comes to increasing the supply of affordable housing.
