The 2025-26 budget picture for local governments remains hazy, at least for the unincorporated areas of the county, but leaders seem to be facing up to uncertainty realistically while working to preserve vital programs and services.

Last week, the Santa Cruz County Board of Supervisors gave the final go-ahead for a lean 2025-2026 budget — but kicked the can down the road on making potentially painful and controversial cuts.

Just before the five supervisors approved the $1.24 billion spending and revenue plan, the board endorsed plans drawn up by county staff that will continue support for two key behavioral health programs while preserving a few extra staff positions and several health care services amid deep cuts to the Health Services Agency.

For now.

That’s because the county will have to reassess these decisions come fall when the full impact of Trump administration cuts become clear. More than half the county’s general fund is derived from state and federal sources, which makes county residents vulnerable to decisions made in Washington. County Chief Administrative Officer Carlos Palacios meeting earlier this month with the Sentinel Editorial Board, noted his staff is paying close attention to a budget bill still moving through Congress that includes billions of dollars in cuts to safety net programs, including Medicaid, or Medi-Cal as it’s known in California, along with CalFresh and CalWorks.

Without federal cuts the county would be in a good place, budget-wise, Palacios said, but the budget is further strained because the county still has $91 million in unreimbursed costs from a series of weather related disasters since 2017.

Pressure is also coming from the state as Gov. Gavin Newsom’s revised budget has a reduction of $5 million in Medi-Cal funding, mainly in eliminating coverage for undocumented immigrants. Palacios said 86,000 county residents have Medi-Cal health insurance, and an estimated 8,000 of these are undocumented immigrants. He estimated that if all the cuts are adopted, up to 30,000 people in the county could lose Medi-Cal coverage and the results could be devastating to local hospitals.

The county Health Services Agency, facing a $4.5 million drop in revenue, originally recommended cutting the equivalent of 74.4 full-time staff positions, 11.6 of which are currently filled. But county staff worked to provide at least a temporary reprieve for the equivalent of 7.6 full-time workers.

And, county budget staff shifted a few line items around to allocate $477,939 to the peer-run mental health program known as MHCAN, helped along by $100,000 from the city of Santa Cruz that made the program financially viable.

But even if the budget future remains murky, the county and our cities benefit from having strong leadership facing budget realities realistically. In Santa Cruz, City Manager Matt Huffaker, in a recent meeting with the Editorial Board, noted that city finances are not nearly as susceptible to federal funding decisions as county government.

At the same time, Huffaker said the biggest uncertainty revolves around housing development projects, which face uncertain future costs on materials (and labor), because of federal policies. The good news, however, is that sales tax and tourism revenue remain healthy and the city’s “service-based approach” to homelessness is not at risk because of potential cuts from the state. Still, the “heavy handed” approach being taken in cities such as San Jose likely has caused an increase in homeless people in city limits, who may realize Santa Cruz offers more services.

In Capitola, City Manager Jamie Goldstein said the city’s budget is balanced — but with challenges, as the voter-approved sales tax increase has been eaten up by employment compensation and pension cost increases, while tourism taxes have remained flat.

The once robust revenues from Capitola Mall are something of a distant memory, but the mall owners have re-engaged discussions with the city.

Other challenges include the long discussed rebuild of City Hall and a potential hotel in the old Capitola Theater site to increase tourism tax revenue. Capitola also continues to await approximately half a million dollars in unreimbursed federal disaster funds.