Santa Cruz County facing health agency cuts amid federal actions, economic volatility

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SANTA CRUZ — Given forecasts of significant economic instability ahead and a sharp decline in financial backing from the federal level, county employees in Santa Cruz have offered preliminary insights into potential budget reductions affecting regional healthcare provisions. This has sparked considerable opposition from residents.

The official budget review process at the county level isn't set to start seriously until June, but Tuesday’s Board of Supervisors meeting highlighted significant effects expected within the Health Services Agency for the upcoming fiscal year. This week, the local agency suggested eliminating the equivalent of 74.4 full-time staff roles in their budget plan for the fiscal year 2025-2026. Of these cuts, nearly 12 positions are currently filled by active county employees with the remainder being from vacancies.

These cuts mainly affect the county’s health centers, as well as its public health and behavioral health departments, with an additional reduction in one administrative role.

County Executive Officer Carlos Palacios initiated the informative section by stating that these reductions primarily resulted from decreased healthcare financing provided by state and federal bodies, postponed payouts for disaster aid, overall economic instability worldwide, and potential cutbacks in federal support.

“I’ve been in state and local government now for 38 years,” said Palacios. “I don’t know that we’ve ever had so much uncertainty and chaos at the federal level as we have right now. In fact, I can say we never have.”

Palacios explained that the county has already lost two sudden federal public health grants totaling $408,000, which supported nearly six full-time employees; they have managed to retain these positions by reallocating funds from elsewhere. Additionally, federal authorities are considering significant cuts to Medicaid financing along with tighter eligibility criteria. County personnel report that out of 90,000 local residents enrolled in Medi-Cal—known in California—the potential changes might result in up to 30,000 individuals losing their insurance, many of whom lack stable housing.

In addition to this, the county remains due over $90 million in claims from the Federal Emergency Management Agency. These unpaid claims accumulate additional yearly expenses of approximately $4.2 million in debt service as they await payment. At the same time, federal officials are considering increasing the eligibility criteria for disaster aid, while President Donald Trump has suggested doing away with the agency entirely.

In total, the Health Services Agency anticipates a reduction of $11.1 million in income, not including the possible effects stemming from forthcoming changes in federal policies expected over the next few months.

“Were the economic climate and federal climate different, we wouldn’t be talking about this level of reductions that are contained here today,” said county Budget Manager Marcus Pimentel. “This is nothing we wanted to see, but it’s something we must do to sustain ourselves financially for a balanced operating budget and prioritizing our delivery of mandated services.”

Swift backlash

The county’s overall $1.2 billion proposed budget is forced to protect essential programs with strategic investments, budget officials explained Tuesday, including the staff reductions that would bring down the county’s total employee count to about 2,724 full-time equivalents.

However, the county's collective rationale didn't stop a substantial pushback. The session commenced with over two hours of public comments imploring the board to implement the reductions as remotely from frontline service providers as feasible. One of the organizations incensed by this suggestion was the county’s biggest union, SEIU Local 521.

The suggested reductions aren't merely about eliminating positions; they're dismantling the preventive measures that maintain our community's well-being and stability," stated Max Olkowski-Laetz, president of SEIU's Santa Cruz chapter, to the Sentinel. "The frontline workers form the core of initiatives designed to stop problems from occurring in the first place. While reducing their numbers might seem budget-friendly for the county, it could have disastrous effects over time on families, public health, and overall security. What we require is local leadership capable of recognizing that axing prevention efforts not only harms those who rely on such support but often leads to higher expenses related to emergency services further ahead.

Olivia Martinez, who leads SEIU’s Region 2 encompassing Santa Cruz County, mentioned that the county’s longstanding laboratory and X-ray services, operational for five decades, are slated for elimination and will be transferred to other regions instead.

This can’t occur within our community," stated Martinez. "This is unacceptable.

A number of community members attended to support behavioral health service providers such as the Mental Health Client Action Network of Santa Cruz, known as MHCAN, along with New Life Community Services' Gemma program. Both organizations face significant cuts in county funding under the proposed budget.

Shutting down MHCAN will ultimately lead to significantly higher expenses for you compared to what you would save over time," stated Tyler Starkman, the organization's Executive Director. "It is completely impossible to accommodate the 100 individuals you aim to house by 2026 without our assistance.

Providing options

Supervisors Justin Cummings and Manu Koenig showed backing for the local initiatives but simultaneously acknowledged the harsh fiscal situation they face.

Cummings ordered—and the rest of the board agreed—that employees should come back in June with possible strategies to keep funding for the Mental Health Client Action Network, Gemma, X-ray and laboratory services, the county’s Commission on Justice and Gender along with a suicide prevention coordinator role that had been marked for elimination among the county positions.

It will certainly give us several alternatives to think about," Cummings stated. "I strongly support making an effort to ensure we maintain certain services and at least evaluate what impact this might have on our budget and where potential financing could be sourced.

In response to concerns raised by Koenig, the departing Health Services Agency Director, Mónica Morales, stated that the agency had implemented reductions at the administrative level, specifically eliminating an assistant director role within the current fiscal year’s budget. While she admitted that maintaining internal X-ray and laboratory services would be ideal, she emphasized that these were among several challenging decisions the agency needed to make.

“Ideally, this is not what we aim to do at all,” stated Morales. “However, we understand the necessity of sustaining essential healthcare services. It’s crucial.”

The review of the Health Services Agency budget is scheduled for June 3.

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