Santa Cruz County Faces Overhaul of Behavioral Health Funding

New state law reduces funding and shifts focus to housing for the homeless

Published on Feb. 15, 2026

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Santa Cruz County supervisors received a detailed presentation on the changes required under the new Behavioral Health Services Act, a state law approved by voters in 2024. The law restructures how mental health funds are distributed and used, reducing overall funding for counties while imposing new reporting, planning, and accountability requirements. County officials say the changes will significantly affect Santa Cruz County's behavioral health programs starting in July 2026.

Why it matters

The new law aims to improve access to care, but it also forces difficult tradeoffs for Santa Cruz County. Programs that have been built over decades and shown strong community outcomes may no longer fit the state's new funding framework, potentially leading to the reduction or elimination of some long-standing community programs.

The details

Under the Behavioral Health Services Act (BHSA), counties will receive about 5% less funding overall while facing tighter state restrictions on spending. For Santa Cruz County, projected BHSA revenue for fiscal year 2026–27 is approximately $26.4 million, down from about $27.9 million under the prior system. The state will also retain 10% of revenues for statewide initiatives, double the amount previously withheld. One of the most consequential changes is a new requirement that 30% of behavioral health funding be dedicated to housing for people with mental health problems who are chronically homeless, shifting roughly $7 million to $8 million away from existing clinical services and provider contracts.

  • On February 10, 2026, Santa Cruz County supervisors received a detailed presentation on the changes required under the new Behavioral Health Services Act.
  • The new law will be fully implemented starting on July 1, 2026.

The players

Connie Moreno-Pereza

Health Services director for Santa Cruz County.

Dr. Marni Sandoval

Director of Behavioral Health for the County of Santa Cruz.

Supervisor Manu Koenig

A member of the Santa Cruz County Board of Supervisors.

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What they’re saying

“This is not a minor adjustment. It is a fundamental restructuring of how behavioral health services are funded, planned, and delivered.”

— Connie Moreno-Pereza, Health Services director for Santa Cruz County (tpgonlinedaily.com)

“In some ways this is exciting. There's money for housing, and yet I don't think anyone wants to see the reduction in services that we are faced with.”

— Supervisor Manu Koenig (tpgonlinedaily.com)

“So this makes it seem like there's a wonderful source of new money to fund all these things, but the flip side is that if we choose to do that, we absolutely will cut a significant number of existing programs.”

— Dr. Marni Sandoval, Director of Behavioral Health for the County of Santa Cruz (tpgonlinedaily.com)

“It's definitely a lot coming at us … all of these new requirements by the state. That 100-page report sounds daunting.”

— Supervisor Manu Koenig (tpgonlinedaily.com)

What’s next

The county must submit a finalized three-year Behavioral Health Integrated Plan to the state by June 30, 2026. A draft plan is scheduled to be submitted by March 31, 2026, followed by state feedback, review by the county's Behavioral Health Advisory Board, and a 30-day public comment period before final approval by the Board of Supervisors.

The takeaway

The new Behavioral Health Services Act aims to improve access to care, but it also forces difficult tradeoffs for Santa Cruz County. The law's funding changes and new requirements will significantly impact the county's behavioral health programs, potentially leading to the reduction or elimination of some long-standing community programs that have been effective. County leaders must navigate these challenges to maintain critical services while adapting to the state's new framework.