Quick Take:
Santa Cruz was the first county in the U.S. to tax single-use cups. At the time, it estimated the tax would raise $700,000 a year. But staff now say the tax will likely bring in just $280,000 a year, or about 40% of originally projected revenue, in part because the county has no central way to track the number of businesses giving out disposable cups, nor how many are complying with the program.
Santa Cruz County’s disposable cup tax is set to raise less than half of what was initially projected when voters passed the measure last year, in part because officials say they don’t have any good way of tracking how many businesses are required to collect the tax.
Approved by the county board of supervisors in 2019, the tax was the first in the nation on disposable cups, though its implementation was delayed until last July because of the pandemic.
Voters passed Measure C in June 2022, authorizing revenue from the 25-cent single-use cup charge to be split equally between the county and the affected businesses. At the time, the county estimated the tax would raise $700,000 a year for the county’s general fund. But staff now say the tax will likely bring in just $280,000 a year, or about 40% of originally projected revenue.
County Budget Manager Marcus Pimentel said the missed projections are largely because the program has seen fewer businesses complying with the tax than initially anticipated. Originally, county staff thought that there would be 304 businesses collecting the tax, but the true number turned out to be 67 — just 22% of projections.
Pimentel said the county has struggled to accurately estimate how many businesses would be subject to the tax because it has no centralized way to track the number of companies within its boundaries that are giving out disposable cups. Such establishments also frequently change ownership and management, which has complicated the county’s efforts to reach out and notify businesses about the tax.
“Unlike cities that I’ve worked in in the past, we don’t have what’s typically referred to as your business license database,” Pimentel told Lookout, adding that the county relies on sources like food licensing and environmental health data to make its predictions. “That’s been a particular challenge in projecting the estimates and that’s how we were led to look like there’s 300 or so businesses who could be using disposable cups.”
County Auditor-Controller and Treasurer-Tax Collector Edith Driscoll told Tuesday’s board of supervisors meeting that staff are already beginning to ramp up their outreach and enforcement efforts among local businesses.
“It’s really just helping them realize how to connect to the tax and who to turn it in to,” said Driscoll. “If an entity is not making a payment and we anticipate they should, they receive a past-due notice.”
On Tuesday, supervisors unanimously approved a plan by staff to revise parts of the county budget to account for the revenue shortfall from the disposable cup tax. Until now, revenue from the tax was not directed toward any specific program.
That plan will see $100,000 go toward parks, open spaces and cultural services for things like park maintenance and beach cleanups. Another $100,000 will be put toward cleaning up illegal dumping, while each of the five supervisorial districts will receive $10,000 to go toward board-designated programs. Some $30,000 will be set aside to cover tax compliance and administrative costs.
Pimentel said the county is working to boost compliance with the tax by 75% — which would get the number of compliant businesses from 67 to around 117 during this fiscal year. Pimentel said that “is a big number, but we feel that we can get there.”
However, he said the county will probably not ever get to the 304 businesses initially estimated to be subject to the tax, as it is unlikely that every business will comply. He predicted that a more realistic target was “maybe low 200s.”
During Tuesday’s supervisors meeting, Driscoll said 157 establishments have already set up accounts in the county’s online payment system this year.
And even though the tax has not generated the amount of revenue the county initially hoped for, Pimentel said that isn’t necessarily a negative thing because the goal of the program was always to reduce — or eliminate — the use of disposable cups.
“From a policy standpoint, in the long run, there are no disposable cups, so we don’t have to worry about it,” he said.
Fifth District County Supervisor Bruce McPherson agreed: “We didn’t get the revenue we anticipated, but behavioral changes, I think, are more important,” he said during Tuesday’s meeting. “So it’s a win-win.”
The revised plan will be incorporated into the 2023-24 fiscal year adopted budget.
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