Santa Cruz residents will weigh in on whether to implement a half-cent sales tax, following Tuesday night’s city council decision to approve the measure for the June ballot.
The sales tax, if voters approve it, would generate an estimated $6 million in additional revenue for the City at a time when it faces a looming budget deficit.
This is the second time in less than a year that the council has discussed a sales tax increase. In June of last year, it failed to unanimously approve a similar tax measure, missing the deadline to place the proposal on the November ballot. The council needed unanimous support so it could declare a fiscal emergency, but Councilwoman Sandy Brown declined to support the measure. Until the council discussed including City workers in its living wage ordinance, Brown said she could not support the measure.
This time around, Brown was on the Ad Hoc Committee in charge of drawing up the details for the measure, along with Mayor Sonja Brunner and Vice Mayor Martine Watkins.
Being a part of the process, Brown told GT, helped shift her opinion on supporting the measure. More importantly, she sees the City making a greater commitment to ending homelessness and supporting City workers in a way that she didn’t before.
The City is also in dire need of new revenue sources, Brown acknowledged during Tuesday’s meeting. According to the staff report, the city took a $21 million hit to its General Fund in the past two years, and even with around $14 million in federal aid, the City’s long term expenses—infrastructure maintenance and the expansion of services for the growing coastal community—will drain cash reserves by 2028 if no additional funding sources are identified or costs are cut.
Covid-19 and the CZU Lightning Complex fires are to blame for most of the City’s losses, according to the city. Transient Occupancy Tax revenue, the tax that visitors pay on hotels and vacation rentals, dropped by 33% over the pandemic, and Admission Tax revenue from recreational events plunged 97%. To address these shortfalls, the City froze hiring, encouraged early retirements and cut most City staff pay by 10%.
Still, even as budget projections estimate that revenues will begin to recover as the pandemic begins to loosen its grip on everyday life, the City is approximately $6 million short of a full bounce back.
In a random public poll at the beginning of the year, 61% of people supported the measure, down around 9% from when the City conducted the poll in April 2021. Respondents said that the City’s most pressing issues are the lack of affordable housing, homelessness, wildfires and the City’s water supply.
These are all possible areas that the revenue collected from the tax could be spent toward, but the City has yet to determine exactly how the money will be distributed. In April, the council will deliberate how it would spend the funds should voters approve the increase.
Items that will be exempt from the tax include groceries, prescription medicine, diapers and feminine hygiene products.
“We all know that we may need an additional revenue source in the near term,” said Councilwoman Donna Meyers. “Otherwise, we’ll be looking at some very, very difficult decisions very, very soon.”