Santa Clara County is projecting a $250 million deficit in the next fiscal year as the cost of labor grows and a slow turnover in property ownership curbs tax revenue.
The Santa Clara County Board of Supervisors received the bleak financial news Tuesday during a mid-year update on the current $11.3 billion budget.
Mid-way through this year, county officials predict a more sunny outlook, with a $45.9 million balance at the end of the 2023-24 fiscal year. Even so, the county’s healthcare system is expected to end up in the red with a negative balance of $42.9 million due to the cost of labor and lower than expected revenues.
Last year, county officials bridged a $120 million deficit and projected it would grow in the next several years, estimating that it would be $158 million in the coming fiscal year.
But the deficit has grown even more, with county officials blaming it on a slow housing market with high interest rates, inflation and a tight job market.
“Balancing the budget for next fiscal year clearly is going to be difficult, and it’s going to require budgetary reductions,” County Budget Director Greg Iturria said.
Board President Susan Ellenberg said that over the last few years, the county has relied on slashing funded-but-unfilled positions to close the gap. At this point, though, she said they might have exhausted that option.
“Our labor costs, which is money very well-invested, are outpacing our revenues, particularly in regard to the health and hospital system,” she said. “We’ve deferred maintenance on parts of our infrastructure and that may cost us more in the long run. In my view, these are challenges that if not addressed this year will be exponentially greater next year and there after.”
The cost of salaries and benefits is expected to rise $488 million, or 9.5%, between the current budget and the 2024-25 fiscal year budget. Last summer, the county avoided a strike with its largest union, SEIU Local 521, when it reached a deal to give them the largest wage increase in more than 20 years.
In order to close next year’s deficit, County Executive James Williams said he’s asked departments to look for additional revenues and prioritize safety net services, though he still expects those savings won’t add up to $250 million.
Santa Clara County also stands to lose previous revenue sources and incur more costs in the coming fiscal years.
Starting in fiscal year 2025-26, the county will stop receiving approximately $20 million in annual tobacco tax revenue. In 2007, the county sold off future settlement revenue to finance seismic compliance projects for the Santa Clara Valley Healthcare system starting Jan. 1, 2026 and running through 2046, though it could be extended to 2056.
Beginning in the summer of 2025, the county will also start making lease payments of at least $16 million annually for a new healthcare facility at Bascom Station.
Santa Clara County could also lose tens of millions annually in property tax revenue if a recent proposal from Gov. Gavin Newsom to address the state budget challenges passes. The Jan. 10 budget document proposes changes that would make charter schools eligible to receive Educational Revenue Augmentation Fund money — a departure from current policy that effectively reduces the amount of excess dollars from this tranche that the county would receive. Marin, San Mateo, San Francisco and Napa counties are expected to be impacted, as well.
The impact in Santa Clara County could be $32 million annually, and may grow over time.
“It only affects five Bay Area counties — that’s obviously not a majority of the legislature. And so while we’re optimistic that we can really rally together and push back on this, it’s going to be an all-in effort to do so,” Williams said of fighting the proposal.
