Cars headed down Highway 17 from Scotts Valley into Santa Cruz.
(Chris Fusco / Lookout Santa Cruz)
Civic Life

Santa Cruz sales tax hike: What $6M proposal means for city and when you get your say

The proposed revenue measure would increase the city’s tax rate from 9.25% to 9.75%, according to city officials. If passed, residents will have an opportunity to vote on the ordinance in the upcoming November or gubernatorial recall election.

A half-cent could go a long way for the City of Santa Cruz.

On Tuesday, Santa Cruz City Council will vote on increasing the sales and use tax rate — a proposed revenue measure officials hope could help rejuvenate the local economy and boost infrastructure.

“It puts us in a position to be proactive,” City Manager Martin Bernal said during a Monday call with members of the local media.

QUICK FACTS ON PROPOSED SALES TAX INCREASE

If passed by Santa Cruz City Council, city sales and use tax would go from current 9.25% rate to 9.75%.

The tax hike is expected to generate $6 million in revenue annually.

If passed, residents could vote on the ordinance in November or on a separate ballot during the special gubernatorial recall election.

If passed, the proposed revenue measure would go to voters for approval on an upcoming ballot, either in November or with the pending gubernatorial recall election.

The tax increase is expected to bring the city an additional $6 million annually, Bernal said. Those funds will be reinvested back into the city through several channels, including homelessness services, affordable housing, parks, public works, wildfire prevention and roadway improvements.

“[We’re] trying to match the needs of the city and community,” he said.

If passed, the city’s sales and use tax rate would increase from 9.25% to 9.75%. Currently, sales tax rates around the region vary between 9% and 9.75%, with rates in Capitola at 9%, Watsonville at 9.25%, Scotts Valley at 9.75% and unincorporated portions of Santa Cruz at 9%.

During the call, Bernal acknowledged the need for the city to reduce reliance on government funding, and said this tax increase presented an opportunity for the city to begin rebuilding. According to the proposal, the city’s general fund suffered a $10 million loss in 2020 and an $11 million loss in 2021.

“Government funding is a series of peaks and valleys. It [the ordinance] lessens those valleys slightly,” Mayor Donna Meyers said. “When bad times are bad it won’t be as bad. It will get us out of that cycle.”

Presented by Santa Cruz County Bank

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Meyers said projections show that locals and visitors would each shoulder approximately 50% of the tax increase.

Bernal said that percentage differs slightly depending on business sector, including a 70-30 split in the restaurant sector, where tourists account for 70%.

During Monday’s call, Meyers addressed concerns some businesses have had about the proposed increase, but said there’s been “an interest in understanding” how the funds would be reinvested into the business district, including helping support maintenance and infrastructure costs to make outdoor dining permanent.

“It’s a shared tax because of the type of economy we have,” Meyers said, noting that the hotel industry was generally supportive. “We have a tourism-based economy. And COVID hurt us because we lost so much.”

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Meyers stressed that the revenue measure would be pivotal in helping to stabilize the city’s business districts and infrastructure and to preserve landmarks such as the Santa Cruz Surfing Museum on West Cliff Drive.

“It’s about stabilizing our community and helping Santa Cruz rebound,” she said. “That’s really what this is about.”

City council will vote on the revenue measure during Tuesday’s meeting, due to begin at 8:30 a.m. To view the meeting agenda or attend via Zoom, click here.