A sales tax that would have brought in around $8 million annually to the City of Santa Cruz—funds that could have partially bailed the city out of its budget deficit and prop up homeless efforts and other services—failed by a mere 50 votes.
On July 6, the city verified that Measure F, which would have raised the sales tax rate in the city from 9.25% to 9.75%, failed almost a month after residents voted on the issue on June 7. With the news of the measure’s failure, city officials warn residents that without that much-needed stream of revenue, community services will be cut. Key among the services that will be dialed back include the city’s homeless efforts, Santa Cruz City Manager Matt Huffaker says.
Amidst the measure’s failure, Watsonville City Council just OK’d their own sales tax measure to hit the Nov. 8 ballot.
What does the failure mean for Santa Cruz, and why is Watsonville pursuing its own sales tax measure—after watching the same one fail in its neighbor to the north?
Santa Cruz Tax Measure
In January, a poll of 400 likely Santa Cruz voters showed public support for a sales tax measure at roughly 59%.
Even though that represented a 9% point decrease from when the city polled the community about the same measure in 2021, Huffaker says that when he saw those numbers, he was optimistic. In March, the city council unanimously approved placing the tax measure on the June ballot, agreeing to spend up to $182,805 to do so.
Measure F only needed a simple majority to pass, and in the face of budget deficits in the millions, if spending remains constant without a new revenue stream, the city decided the chance was worth the risk.
Huffaker says he wasn’t naive to the challenge the city was up against, given the state of the economy. But cities are desperate for new revenue as one-time federal and state funds that propped up municipalities for the past two years dry up, and the financial consequences of the pandemic linger, Huffaker says.
Getting voters to approve a sales tax during record-breaking inflation highs, not to mention for a midterm election year where voters are already less likely to hit the polls, requires trust in local government, says Ben Harvey, city manager for nearby coastal town Pacific Grove. That Monterey County city passed a similar tax measure in April, and Harvey credits the community’s faith in local government for the measure’s success.
That’s in part because as a general tax, the funds collected would be placed in the city’s general fund. City officials said revenues from Measure F would be used to fund things like homeless services, affordable housing, wildfire risk and public safety, among others. But there is no guarantee that the funds will be used for those efforts. Ultimately, it would be up to the city council to determine how the city would spend the added revenue on an annual basis.
That was a concern for some community members. In the same poll from January, the primary reason residents said would lead them to oppose the measure was because they didn’t trust the city to use the money properly.
But Huffaker says that the closeness of the race indicates residents didn’t have strong support or opposition toward the measure, and points to an area for improvement when it comes to communicating the dire need for the funds.
“The measure came in at almost a perfect 50/50 split, which indicates to me that the community didn’t have strong feelings one way or another regarding the measure,” says Huffaker. “We have some work to do to bridge the community’s understanding with regards to our financial challenges, the need for these additional revenues and what’s at risk.”
What’s at risk, Huffaker says, are elements of the city’s homelessness response plan. Earlier this year, the city set up a 30-space outdoor tent shelter program at 1220 River St. Then, in May, the city established a 75-tent outdoor emergency shelter, which it is looking to replace with a permanent, 60-space shelter inside the National Guard Armory sometime this August. These programs are all part of the city’s efforts to finally close the more than 300-person homeless encampment at the San Lorenzo Park Benchlands.
All of this, says Huffaker, has been made possible by the one-time federal and state funds like the American Rescue Plan Funds (ARPA) and a $14 million state allocation set aside for Santa Cruz’s homeless response.
These funds will make sure the shelters and programs stay running into next summer, according to Huffaker. But without another revenue stream, the future of the programs is uncertain.
For now, the city will be reevaluating where it can make additional cuts, and will return to the city council in late summer with an update. And Santa Cruz voters can expect to wait sometime before deciding on a sales tax measure again.
“No decisions have been made yet as to if and when we’ll go back to the voters with that question,” Huffaker says. “At this point in time, we don’t have plans of returning in November with the measure.”
Watsonville’s Gamble
Just days before Measure F failed in Santa Cruz, the Watsonville City Council approved its own sales tax measure.
The tax would bring in an estimated $5 million, money the city says will be used to fund Parks and Community Services Departments, and maintain the upkeep of distressed city roads. The measure comes just two years after the community approved sales tax Measure Y, which renewed the half-cent public safety sales tax first approved in 2014.
The increase would put Watsonville on par with Scotts Valley for the highest sales tax rate in the county—9.75%.
The council was split on bringing the tax forward to the voters. Some said given the current economic uncertainty, voters would likely not support taxing themselves further. But other council members, like councilmember Francisco “Paco” Estrada, are more optimistic, and insist that the community needs the low-cost services that this tax could provide.
“The tax measure is a combination of decades of frustration and efforts to find a steady stream of funding for the Parks and Recs Department,” Estrada says. “It’s a reflection of decades of underfunded, basic needs for a lot of families: more open green space, more services for youth and families. The tax is an investment in our families.”
Huffaker, the former city manager for Watsonville, says that Watsonville voters will likely see the value Measure Y brought to the community when they head to the polls in November.
“That built trust that the city will put this additional sales tax to good use too,” says Huffaker. “Despite the current economic challenges, that certainly helps their chances.”
Measure F was defeated because people are waking up to the fact that the city is not responsible for funding social services, i.e. a “homeless” response; the county is. The county receives funding for “homelessness” from many sources. Also, voters are realizing that any vote to increase sales tax to be put into the general fund will be used for whatever the council wishes—NOT for their stated directives. As usual, most of this funding would have been used to buttress pension shortfalls (caused by the 1990s schemes to garner support from unions). This, despite a reported unprecedented alleged state budget surplus of $97 billion. The state should be helping this particular money pit instead of their special interest political projects. We have also seen how the increased taxes in LA have not helped solve the enormous “homeless” problems there. An increase in sales tax is regressive and hurts those people already hurting.
But the city will continue to forecast dire consequences and threaten cutting services that are in fact mandated to be provided, instead of their inadequate “homeless” plans, which are not mandated. Don’t continue to be fooled
What Don Honda said.
The City has its head in the sand. Resident taxpayers sent a message and the City Manager rather spectacularly misses it and is nearly Orwellian in the process. (The defeat is really a win?) How sad for all of us.