Proposed 2026-27 Budget

Overall Budget Summary

The Proposed Budget recommends an increase in funding of current bonds. Appropriations total $33,445,991, funded by revenues of $28,680,865, a General Fund contribution of $3,947,503, and Other Fund Contribution of $817,623.

The Budget recommends an increase in total revenues of $1,072,850 due to the use of $817,623 from the allowance against federal disaster claims to fund a portion of the 2024 bond normal debt service. Total expenses will increase by $1,883,986 from the first scheduled debt service payment on the 2024 Lease Revenue disaster bonds.

Federal Disaster Reimbursement Delays: The County continues to face delays in receiving federal reimbursements for the CZU Lightning Complex fires and 2023 storm disasters. To manage these delays and ongoing recovery costs, the County issued $80.3 million in debt in 2024. This financing assumes that reimbursements from the Federal Emergency Management Agency (FEMA) and the Federal Highway Administration (FHWA) will begin to support debt repayment by 2026-27, helping reduce annual debt service costs. To date, reimbursement timing remains uncertain, but the County has received enough funding to stay on track with making additional annual payments to reduce the debt. Continued delays could increase pressure on available funds and limit flexibility for other priorities.

Limited Options for Future Disaster Recovery: The County has fewer options to fund future disaster recovery efforts due to increasing disaster frequency, ongoing infrastructure needs, and existing debt obligations. The 2024 disaster financing used a lease-leaseback structure tied to key County properties, including the 701 Ocean Street buildings, Live Oak and Aptos libraries, the Behavioral Health Center, and the Westridge facility. These assets are now restricted and cannot be used for additional financing until the debt is repaid. This limits the County’s ability to quickly access funding for future emergencies. While there may be some opportunity to issue new debt if property values exceed current obligations or through the new capital asset financing strategy, these options are uncertain and may be limited.

CalPERS Investment Performance Risk: The County’s unfunded actuarial pension liability (UAL) from California Public Employees’ Retirement System (CalPERS), stemming largely from investment losses during the Great Recession, is valued at $628.7 million. CalPERS targets an annual investment return of 6.8%, but it has not met this target in five of the past 10 years. When investment returns fall short, the County’s portion of the unfunded liability increases and results in higher CalPERS UAL costs to maintain the same benefit levels. This has contributed to an increase of $55.5 million in the County’s annual CalPERS pension costs over the past 10 years. If investment performance continues to lag, the County may need to dedicate more of its limited resources to retirement costs, reducing funding available for services and programs.

Disinvestment Impact on Future Debt Needs: The County continues to face the long-term effects of reduced investment in facilities and infrastructure since the Great Recession and the loss of redevelopment funding. Limited funding has required the County to prioritize disaster response and state mandates over capital improvements. As a result, there is a growing backlog of needed projects, including upgrades to emergency communication systems, health service facilities such as the Emeline and Freedom Campus, and the Buena Vista recycling and transfer station. The County also faces ongoing needs to support housing development, including affordable and supportive housing. While financing is in progress for the emergency radio system, limited staffing and resources make it difficult to plan and deliver long-term capital projects. These challenges increase the risk of system failures, higher future costs, and the need for additional debt.