Layoffs, staff and service cuts to lead county health department’s budget proposal

Just before 5:30 p.m. this Tuesday, employees throughout Santa Cruz County’s Health Services Agency — the largest single department in local government — received an email from agency director Monica Morales. It began with an unusual heads-up that the agency’s 2025-26 budget would soon be published.

“Unfortunately, as it stands, we do not have enough funding to cover the same level of programming next fiscal year,” Morales wrote. She later clarified that “if our proposed budget is approved by the [county board of supervisors], we anticipate that this will lead to layoffs and the displacement of staff across the agency.” 

According to the email, obtained by Lookout, HSA’s budget, to be published Friday, will propose cutting more than 74 full-time-equivalent positions. About 12 of those are filled and the remaining 62 currently sit vacant. The county also said it plans to end its own laboratory and radiology services and transition them to “community partners,” and to reduce its Behavioral Health Division’s programming to “focus on mandated, reimbursable, or grant funded activities.”  

Morales called it a “very difficult decision.” 

The proposal is likely to set up a battle with Service Employees International Union (SEIU) Local 521, the labor union that represents nearly 2,000 county workers. In a Wednesday evening email obtained by Lookout, union chapter president Max Olkowski-Laetz alerted SEIU members of the impending cuts and emphasized that none of the 12 layoffs include management positions. The contrast between management-level employees and SEIU members has been a common rallying cry for the union. 

“When coupled with eliminating the entire clinics laboratory department, the cuts will devastate our community and union members,” Olkowski-Laetz wrote. “… Eliminating frontline staff should not be the solution! Workers are already crunched between high workloads and additional staffing issues.” 

Olkowski-Laetz’s email urged union members to show up to the board of supervisors meeting next week. Representatives from SEIU 521 did not return Lookout’s request for comment. 

Monica Morales, director of Santa Cruz County’s Health Services Agency, speaking in 2023. Credit: Kevin Painchaud / Lookout Santa Cruz

The precise pressure points on HSA’s budget are unclear, but the board of supervisors will receive a briefing on the what, why and how during its Tuesday meeting. In her email to staff, Morales cited “reduced state and federal revenues, grants coming to an end and increased costs across our operations.” 

In a statement to Lookout, Morales said the financial challenges have been expected. 

“As the county signaled in the mid-year budget update, difficult decisions lie ahead for the Health Services Agency, and those decisions are now coming due,” Morales said in the statement. 

The HSA, whose umbrella covers county services from behavioral health to water resources, is by far the largest single department in Santa Cruz County’s government. In 2024-25, the department had a $313.1 million budget and more than 730 staff positions. 

Morales signaled dire straits and “difficult decisions” ahead during the county’s midyear budget review in February, citing a recent change in the CalAIM program formula that reduced the state’s reimbursement of county behavioral health services by up to 34%,  while costs across the board have increased. 

“This does not take into account potential federal changes that are going to come our way,” Morales told the supervisors then. “It is pretty scary for us what’s going to happen to our services.” 

During that midyear review, county budget officer Marcus Pimentel said HSA was looking at a funding gap of $11 to $17 million this year. 

District 1 County Supervisor Manu Koenig, who was attending a conference Wednesday in Sacramento with the California State Association of Counties, emphasized in an interview with Lookout that HSA’s proposed cuts have “nothing to do with the uncertainty at the federal level” and pointed to the shift in cost-of-service reimbursements by the state. 

Koenig characterized the impact of lost services and employees as “significant.”

“The fact that we’re getting rid of the positions doesn’t mean we’re eliminating the need in the community,” Koenig said. However, he said the exact impact of these cuts will become clearer when staff presents to the board next week. 

The board of supervisors is scheduled to take a final vote on the proposed budget in June, before finalizing the county’s financial plan in September. The impact of potential federal cuts might not be clear until July, when Congress is expected to pass its own budget. According to the county, 47% of its $1.4 billion budget in 2024-25 was sourced through federal and state money. 

Supervisors Felipe Hernandez, Justin Cummings, Monica Martinez and Kim De Serpa did not return Lookout’s request for comment.

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