Santa Cruz County is looking at years of projected budget deficits despite rising property tax revenue, the county Board of Supervisors was told by staff during the board’s regular meeting Tuesday.
The board also allocated another $2 million for storm recovery to repair damage from recent winter storms and was informed of $67.7 million in still-unpaid claims from the Federal Emergency Management Agency for past disasters, including the CZU Lightning Complex fires.
“We’re still struggling mightily to get those funds to our county,” said county budget manager Marcus Pimentel in the presentation of the county’s mid-year 2022-23 annual budget.
Pimentel said $5 million was expected to be delivered this year after extensive discussions with congressional representatives and FEMA and $16 million by 2024, but could not anticipate when the rest would be released.
Supervisor Bruce McPherson called the multi-year delay “incomprehensible.” Cannabis tax revenue plummeted in the last budget cycle and forced county staff to imagine a new projection of about a third of what was previously believed to be the minimum expected. But even more alarming for Pimentel was a decline in sales tax revenue.
“Sales taxes, we’re concerned about. We’re seeing a drop this year compared to our projections,” Pimentel said.
“We don’t know where that floor’s going to be. It dropped really precipitously this last year.”Marcus Pimentel, county budget manager, speaking about decline in cannabis sales tax estimates
The county is projected to face a deficit of more than $6.3 million for each of the next four years and more than $8 million in 2027-28.
Property tax revenue is projected to increase from $80.9 million this year to $110.5 million in 2027-28, but sales tax revenue is projected to decline by 1 percent next year and remain relatively flat for the next few years.
Cannabis tax revenue in the county peaked at $6.3 million in 2020-21, which gave county staff at the time hope that that could be a reliable floor of revenue to project into future budgets. However, a steep decline of about 50 percent last year forced a new projection of less than $2 million in coming years.
“We don’t know where that floor’s going to be. It dropped really precipitously this last year,” Pimentel said.
When asked by Supervisor Felipe Hernandez why there had been such a drop, Pimentel said he could not explain the decline in revenue other than to suggest that people were seeking options outside the legal retail market.
The board’s 4-to-1 vote to accept the mid-year budget update also created a code compliance investigator dedicated to enforcing the county’s vacation rental ordinance. The permanent position was endorsed after an initial investigation in 2022 found 294 property owners in the county operating short-term vacation rentals without a permit.
The position, expected to be filled by June of this year, would be partially funded by citations that arise from enforcement.