Coronavirus

Santa Cruz County Faces Estimated $20M Deficit and Enters ‘Cut Mode’

Financial picture over the next two years likely to be worse than the 2008 recession

Santa Cruz County faces a deficit after revenue losses amid the coronavirus pandemic. The county has been under a shelter-in-place order to slow the spread of the new coronavirus since mid-March. PHOTO: ALISHA GREEN

Santa Cruz County will dip into its budgetary reserves to cover an estimated $20 million deficit in this year’s budget, which stems from revenue losses caused by the coronavirus pandemic.

The Board of Supervisors unanimously approved the request by County Administrative Officer Carlos Palacios during their public meeting on Tuesday.

The discussion was a grim first look at this year’s budget projections, which come ahead of financial discussions in late June, and hearings in August. The supervisors will adopt a final budget by Sept. 15.

Palacios told the supervisors that the county will be in “cut mode” as it seeks to ameliorate revenue losses of at least 20% each to property tax, cannabis business tax, sales tax and transient occupancy tax, which together make up about 89% of the county’s discretionary revenues.

The budget projections get worse in next year’s budget, when the deficit could grow to $40.5 million.

Palacios said that the financial picture for the county over the next two years is likely to be worse than the recession of 2008.

“This situation we are facing right now is actually twice as bad as the great recession,” he said. “We are facing a very difficult situation ahead of us. It’s something I’ve never seen in my 30 years of government service.”

The presentation was not all bad news. 

Palacios said that, thanks to “very good fiscal stewardship” exercised by the board, that the county has tripled its reserves to $56 million, which will allow it to cover the expected deficit.

The county has also improved its credit rating and reduced pension obligations and kept its workforce low while still offering high levels of service.

Still, government officials nationwide continue to be in damage assessment mode as effects of the pandemic multiply.

“We know it’s not good, we just don’t know how bad it is,” Palacios said.

Santa Cruz County budget manager Christina Mowry said that the county was already bracing for a deficit before the pandemic hit and was well poised to cover the costs.

“But we expected to be able to meet those obligations and preserve our reserve, because we felt these deficits were manageable, anywhere from 3 to 4 to 6 (or) 7 million,” she said. “We knew that was going to be difficult and challenging.”

Mowry pointed out that the $20 million deduction will reduce the county’s reserve by one-third.

“That’s a considerable amount,” she said.

Worse, the county is facing a $40.5 million general fund deficit, Mowry said.

The county is now hoping for federal relief, which will take some of the sting out of the deficit. The Federal Emergency Management Agency, she said, could cover as much as 75% of the county’s emergency costs. 

“We have the possibility before us of being in a truly horrendous budget situation if we do not receive any aid,” Palacios said, adding that services would be impacted and that the county among other things will ask its employees to agree to furloughs.

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