Quick Take
The Santa Cruz County Board of Supervisors voted Tuesday to put a half-cent sales tax increase on the November ballot and declared a state of financial distress amid ongoing challenges.
The Santa Cruz County Board of Supervisors declared a state of fiscal distress and voted Tuesday to place a five-year, half-cent sales tax increase intended to rescue the county from its dire financial situation on the ballot this November.
The five-member board approved the proposed sales-tax measure just days before the Friday deadline to place a measure on the ballot for the Nov. 3 general election.
Money from the half-cent general sales tax increase could be used for any general-fund purpose, though county officials intend to use the funds to offset federal cuts. The revenue would help maintain community lifelines, including mental health care, food security initiatives and vital health services, according to a county staff report.
Groceries, baby formula, feminine hygiene products and medicine would be exempt from the sales tax, according to County Executive Officer Nicole Coburn.
Staff estimates that over the next five years, there will be more than $150 million in increased costs and a reduction in revenue for the county and its community partners as a result of changes in federal funding following the approval of H.R. 1 last summer.
If approved by the required simple majority of voters in November, the half-cent sales tax increase would be implemented for a five-year period, according to the staff report. It’s estimated to generate roughly $27 million annually beginning in the 2027-28 fiscal year.
“This measure is best understood as triaging the situation. It is not replacement funding,” Coburn told supervisors Tuesday morning. “It’s going to buy us time over the next five years as we are also working on other solutions for these problems.”
Coburn wrote in a Lookout Community Voices op-ed in May that the county receives only 13 cents of every property tax dollar and saw a decline in sales tax revenue as more people shop online.
In 2024, county residents approved a half-cent general sales tax increase that was designed to raise roughly $10 million annually for issues in unincorporated areas of the county, such as road repairs, maintaining county parks, infrastructure projects and other services.
Supervisors also adopted a resolution declaring a state of fiscal distress as a result of “federal funding reductions, a structural general fund imbalance and threats to the long-term sustainability of essential county services.”
“It’s a statement of our operational challenges and a signal that the county’s financial health is declining,” county spokesperson Jason Hoppin told Lookout via text on Monday. “We already took reserves down to our baseline this fiscal year, and revenues are not enough to meet the needs we expect to see with state and federal changes.”
The resolution and proposed tax increase comes on the heels of a tough budget season for the county, which used nearly $43 million in combined one-time funding from its general fund reserves and departmental trust funds to help avoid employee layoffs and keep its safety-net programs.
“I do wish we would have made this declaration a while ago when we saw these impacts coming because I think it’s going to be a lift for us to get the community to understand why we need to support this at this point in time,” said District 3 Supervisor Justin Cummings.
Cummings added that the tax, if approved, would not fall entirely on the backs of residents; tourists that visit the county will also be paying the tax. “I’m hoping that the voters will vote yes on this in November,” he said Tuesday.
County budget manager Marcus Pimentel told the board of supervisors during the June budget hearings that the county has roughly $90 million left in total reserves. To build back reserves, county staff have previously said it will “require a combination of revenue growth, cost restraint and structural fiscal alignment” beginning with the 2027-28 fiscal year.
Staff projected a $23.2 million deficit for the 2026-27 fiscal year, and a long-term structural deficit that could exceed $67 million by 2028-29 in the absence of mitigating actions. The county implemented travel and hiring restrictions, and some departments, such as the public defender’s office and parks, faced mounting pressure to balance their budgets, sometimes relying on other departments to help close funding gaps.
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