Santa Cruz County businesses turn to privately funded services as economic pressures mount and government support shrinks

Santa Cruz County businesses are increasingly turning to privately funded special districts to pay for neighborhood improvements and marketing efforts as they face economic headwinds, tighter government budgets and changing consumer habits.

The Santa Cruz City Council approved plans last week to create a new business improvement district in Midtown, while county supervisors gave preliminary approval to form a wine improvement district spanning three counties. City economic development manager Rebecca Unitt said her office plans to kick off an outreach effort to study the feasibility of creating a similar district for the growing Westside neighborhood early next year. 

These districts allow businesses in a specific geographic area to pool money for services beyond what local governments provide, from private security patrols to power-washing sidewalks to running special events, promotions and other marketing activities. They are managed by nonprofit groups of stakeholders and funded through annual assessments paid by the businesses or property owners within their boundaries, without the need to raise general taxes. 

California has one of the highest numbers of business improvement districts in the country; the city of Los Angeles alone has more than 30, according to state records. There are three main types of business improvement districts in the state: property-based, business-based and tourism-based. 

In Santa Cruz County, the downtown Santa Cruz BID was established in the 1990s and is managed by the Downtown Association. It includes about 700 businesses, providing services that range from cleaning up litter to putting on events to promote patronizing downtown businesses, like the recent “Where’s Waldo” scavenger hunt and the weekly Sunset Market series launched last month. Capitola Village’s business improvement area operates similarly. 

There’s also the Santa Cruz County Tourism Marketing District, founded in 2010 to help fund marketing and sales promotion efforts for the county’s lodging industry. Tourism businesses within Santa Cruz County that are covered by the marketing district pay an annual assessment, with the money supporting the county’s tourism marketing organization, Visit Santa Cruz County.

For local wineries and vineyards, the proposed Santa Cruz Mountains Wine Improvement District could offer a lifeline amid declining sales, tariff concerns and rising operating costs. It will incorporate wine businesses in parts of three counties — Santa Clara, Santa Cruz and San Mateo Counties – and be operated by the Santa Cruz Mountain Winegrowers Association. The board of supervisors is expected to officially vote at its Oct. 21 meeting whether to move forward with the planned district.

Wine improvement districts have emerged as a newer category of business improvement districts in California in recent years. The Santa Cruz Mountains wine district would be the fifth such district in the state, and three others are currently in process.

Around the state, wineries are struggling with a laundry list of challenges, from increased operating costs to declining sales and decreased wine consumption to environmental impacts like wildfires. Nationally, wine sales dropped 8% last year compared to the previous year, according to industry data group SipSource. For smaller wineries, like many of the ones in the Santa Cruz Mountains area, these challenges are becoming harder to overcome. 

“Wine clubs are contracting; some people are drinking less,” said Keiki McKay, executive director of the Santa Cruz Mountain Winegrowers Association, the nonprofit organization focused on increasing recognition of the more than 80 wineries and 200 growers in the Santa Cruz Mountains. “Some people signed up for nine or 10 wine clubs during COVID-19 and now they’re scaling back to one or two. The industry as a whole – hospitality as a whole – is struggling; everyone kind of wants to put blinders on and pretend it’s not true, but restaurants are also slow, breweries are slow.”

To help ease the crunch, the Santa Cruz Mountain Winegrowers Association officially launched an initiative to form a wine improvement district last year after talking with its members and other wine district leaders around the state. 

If established, a new assessment fee would replace the membership fee that wineries currently pay to be part of the Santa Cruz Mountain Winegrowers Association. That could be helpful particularly for smaller wineries, which sometimes struggle with annual membership fees. It’s estimated that the new wine improvement district could generate as much as $575,000 annually for promotion of the wineries. That could include things like signs for the wine trail in Santa Cruz County, McKay said.

“This is a more equitable and stable funding mechanism, and in the current economy, the state of the wine industry, it fluctuates so much,” said McKay. “A good 40% of our budget is marketing and the rest comes from events, but events are suffering in this economy.”

McKay also noted that “our wineries tend to be upper-price-point bottles,” which can make it challenging to engage with younger wine drinkers, many of whom might just be getting into wine. 

“A lot of having more resources for marketing is finding paths to market to that crowd and to get them to understand why the Santa Cruz Mountains American Viticultural Area is so great,” she said. 

In Midtown Santa Cruz, having more marketing dollars is just one thing that business owners look forward to with the establishment of a new BID. It’s an effort long in the making. The city council greenlit plans this month to move forward with creating a Midtown business improvement district after about a year after initial community workshops. The new BID will incorporate businesses within an area bounded roughly by Soquel Avenue between Branciforte and Pacheco avenues.

“We’ve been doing this for many, many years trying to get to where we are now,” said Sonia McMoran, owner of Home/Work, a home decor and gift shop that moved from downtown Santa Cruz to the corner of Cayuga Street and Soquel Avenue about nine years ago. “I went from being part of the Downtown Association to being completely solo. And I recognized that the benefits of being part of that association were sorely needed in Midtown; there really wasn’t an organization that allowed for all of us to communicate and work together as businesses.”

Over the years, McMoran spoke frequently with her neighboring business owners to discuss possible improvement and beautification efforts, like new planters or sidewalk cleaning, as well as promotional ideas for the area. That included launching efforts such as a holiday Bingo card, where shoppers could collect stamps from participating businesses with a purchase of at least $25, then enter completed cards in a raffle for local prizes. 

“What I found is that really, there was a small core group of people who were willing to work together to make Midtown what we want it to be, which is a place for our community and for our neighbors to have a place to dine and walk and shop,” she said. “It’s just such a great area and it has so much potential … but it was really hard to organize and get people fired up to do the things we wanted to do.” 

McMoran said she became burnt out from the organizing efforts and was glad when Kay Tollini of the nearby Diversity Center stepped in, spearheading a working group to address traffic safety concerns. The already busy thoroughfare has become busier since the Murray Street Bridge closure, she said.

A Whole Foods employee was fatally struck by a car on Soquel and Cayuga avenues in 2015, and the then-owner of the Crepe Place was badly injured after being hit by a car while crossing outside his restaurant in 2022, among other incidents. 

“Soquel Avenue has more opportunities to be more pedestrian- and bike-friendly, and we have organized thanks to Kay’s leadership to collaborate with the city on possible solutions,” said McMoran.

Those efforts have been amazing, said McMoran, but it’s not sustainable for one person to be doing all that work. A government-recognized and accountable organization will have more long-term success.

“It’s not sustainable for one person to work store to store and ask, ‘Hey, can you spare 50 bucks so that we can get the block power-washed? You get burnt out, and we needed something a little bit more organized,” she said.

Fellow Midtown business owner Dyane Villalobos has operated Childish Toy Shop on Soquel Avenue for over a decade and opened a second location in downtown Santa Cruz a few years ago. As a member of the Downtown Association, she saw firsthand the benefits and improvements gained from it, especially through events like the holiday parade, the “Where’s Waldo” scavenger hunt, and having a strong, cohesive voice to work with other city entities, like the public works department. She agreed that Midtown needed something similar. 

“We saw [improved] foot traffic, and foot traffic equals sales and a sense of community,” Villalobos said of opening a store downtown. “And I saw the importance [of a BID] and that I really needed to get involved again in Midtown to make this happen, because it does make a difference. It makes a difference when you’re among your peers, other shop owners, and everyone’s on the same boat.”

The push for new districts hasn’t been without challenges. Earlier attempts to create a property-based improvement district in Midtown, which would have assessed fees for both business owners and commercial property owners, met resistance. Not all property owners were on board, with some protesting the assessment fee. After community feedback, city staff opted for a business-only model instead. That means a smaller budget and smaller membership, but still provides the other benefits of a BID. 

Downtown Santa Cruz has both a BID and a property-based district, which are separate entities that work together. The property-based district comprises a smaller footprint. In 2021, plans to expand downtown Santa Cruz’s existing property-based district were put on hold due to post-COVID economic uncertainty and ongoing discussions about the city’s Downtown Plan Expansion. 

Villalobos and McMoran said they’re both especially excited to launch new events and beautification projects through the BID, such as new planters for the streets, to encourage more visitors and pedestrians. The BID will also be instrumental to creating an identity and brand for the Midtown area, McMoran noted.

Core to that identity is the area’s sense of diversity and inclusion, said Villalobos, and as part of that, there’s a push to potentially create a rainbow crosswalk near the Diversity Center as a physical representation of that identity. 

Now that the city council has given the initial green light, city staff will kick off the process to form the BID, with a goal of beginning to collect assessments in January 2026, said Unitt. 

“We’re really excited to see what the next step is going to be and hopefully everyone’s on board,” said Villalobos.

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FOR THE RECORD: An earlier version of this story misstated City of Santa Cruz economic development manager Rebecca Unitt’s job title.
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