Watsonville Community Hospital Struggling Despite Tax Infusion

Despite the property tax revenue from Measure N, Watsonville Community Hospital is sorely in the red.

Since 2024, when voters approved Measure N, property owners in the affected region have been assessed about $24 per $100,000 of the value of their properties for the hospital. The bond can generate up to $116 million, but can only be used for capital costs, such as buying the hospital, upgrading facilities and purchasing equipment. It cannot be used to cover operating expenses, such as staff salaries or supplies.

Some of that money has been used by the Pajaro Valley Health Care District to purchase the hospital buildings and surrounding property. There is about $76 million left that is slated to be used on a variety of improvements and upgrades, including new MRI and CT scanners and retrofitting the entire hospital with new electrical and lighting systems.

Measure N needed a two-thirds majority to pass and got, with 68% of voters approving. Many local residents feel a hospital serving south county is a priority.

“It’s important to have the hospital in the area,” said La Selva Beach resident Dagmar David.

According to hospital CEO Stephen Gray, 85% of the patients served at Watsonville Community Hospital are government insured. “There’s 14 to 18 million dollars worth of government funding that’s been delayed,” said Gray. He attributes the hospital’s financial troubles directly to federal cuts to health care. “There’s a trillion dollars worth of cuts to Medicaid,” said Gray.

The One Big Beautiful Bill has been anything but pretty for the future of Watsonville Hospital. Gray is reluctant to give an exact dollar amount of debt the healthcare facility has incurred, but he admits it’s in the millions.

Just like the hospital, many residents in Watsonville face persistent financial challenges, too. The city’s median household income is about $78,000, while per capita income is just over $28,000. Roughly 14–15% of residents live below the poverty line, with many more considered “working poor,” struggling to keep up with the high cost of housing and basic necessities in Santa Cruz County.

“Watsonville Hospital functions as a security net for people of all walks of life,” said Dr. John Walther. Now retired, Walther served as the Emergency Room Director for the hospital and was employed there for 40 years. “I want to see the hospital succeed. A lot of the existing departments are excellent,” he said.

According to Gray the road to success involves finding a partner. Gray mentions Sutter Health, Dignity Health and Kaiser as healthcare “systems” that could step in and give the financially ailing hospital a shot in the arm. On March 25 the Board of Directors for the Pajaro Valley Health Care District held a closed-door meeting to start mapping out a procurement plan to obtain a financially healthy partner.