A collage of No on Measure Z mailers.

The No on Z campaign mailed at least nine fliers to Santa Cruz voters as of Oct. 18, sent at least five people door to door and blanketed social media and TV with advertisements. (No on Z campaign)

SANTA CRUZ >> Coca-Cola Co., PepsiCo Inc., Keurig Dr. Pepper Inc. and Red Bull have collectively contributed $1,235,000 to the No on Z campaign — trying to sway more than half of Santa Cruz’s roughly 37,000 voters against a proposed soda tax in the Nov. 5 election.

That spend represents about $67 for each “no” vote needed to defeat Measure Z, according to campaign finance records.

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Soda companies’ representatives have said the city would likely face a lawsuit — potentially from the state or a taxpayer — if voters adopt Measure Z. Santa Cruz Local reported in August that the City of Santa Cruz’s legal fees would be covered by the city’s General Fund. 

A video ad for No On Measure Z changes Santa Cruz Local's logo to make it look like a newspaper.

In an online ad, the No on Z campaign created and distributed a new logo for Santa Cruz Local. (No on Z campaign)

Oakland-based nonprofit ChangeLab Solutions has pledged to help Santa Cruz with legal support, said Sabrina Adler, ChangeLab’s vice president of law. ChangeLab also could help raise legal defense money from other organizations like the American Heart Association that contributed to a prior related court case.

“This is not just about Santa Cruz,” Adler said. If the city wins a legal fight in Measure Z, it could clear the way for other charter cities in California to adopt soda taxes, Adler said. 

Legal fees in Santa Cruz City Councilmember Martine Watkins’ prior soda tax court case were $715,000. A judge ordered the State of California to pay the sum after Watkins and her allies prevailed, but that might not be the case for a lawsuit challenging Measure Z, a lawyer said. 

If Measure Z is adopted, the City of Santa Cruz is poised to collect about $1.3 million annually from soda distributors.

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Is Measure Z illegal?

The No on Z campaign has said the proposed soda tax is illegal because it violates California’s Keep Groceries Affordable Act of 2018, which bans taxes on most food and drinks. 

That’s not strictly true. In many cases, law in charter cities like Santa Cruz can supersede state law. A court case would likely determine if that’s the case for Measure Z.

Beverage companies aggressively lobbied for the 2018 law as multiple cities, including Santa Cruz, pursued soda taxes. The 2018 law also calls for the state to punish charter cities that adopt soda taxes by essentially denying them sales tax money. The threat has dissuaded many cities from pursuing soda taxes since 2018.

In 2020, Watkins challenged the punishment part of the law in a lawsuit alongside Fresno-based nonprofit Cultiva La Salud. In 2023, a judge ruled that the punishment violates the California Constitution, but did not rule on whether local rules on soda taxes can override the state law. If Measure Z is adopted, the state or a taxpayer could initiate another legal battle.

Chris Skinnell, a lawyer with the No on Z campaign, said the city would lose a lawsuit challenging the tax. State law supersedes charter city law in “matters of statewide concern,” and taxation is one such issue, he said. Prior court opinions “talk about the state’s interest in the uniformity of taxation,” he said.

The Keep Groceries Affordable Act of 2018 “was passed by the legislature and signed by the governor,” said Steven Maviglio, a spokesperson for the No on Z campaign. “The city wants to use taxpayers to test that law in Santa Cruz with a big tax increase at the wrong time. That’s irresponsible public policy.”

Ben Fay, who worked on the Cultiva La Salud court case, said soda companies are pouring so much money into the campaign against Measure Z because “they know they’ll lose when they get to court if it passes.”

“They’re going to have to, with a straight face, argue to the judge, ‘oh, there’s a very important statewide concern to prevent the city of Santa Cruz from adding a tax on soda. It’s important that we keep soda cheap,’” he said.

Who will pay Santa Cruz’s legal fees if voters adopt Measure Z?

Representatives of the No on Z campaign have said a legal battle would be costly for the city.

The Cultiva La Salud case cost $715,000 in legal fees, according to court documents. The state paid those fees after Cultiva La Salud won the suit. But if Measure Z passes and Santa Cruz is sued, the city may not have its legal costs covered by the other side even if it wins, Fay said.

Legal defense money could come from the city’s General Fund, but Watkins said this month that other groups are “standing behind Santa Cruz” and would offer money and legal support.

ChangeLab helped with legal research for the Cultiva La Salud case, and would help again if the city is sued for Measure Z, Adler said. The nonprofit could also help raise funds for the city’s legal defense from other organizations, such as the American Heart Association, that contributed to the Cultiva La Salud case. 

No nonprofits have made specific monetary commitments for the city’s legal defense, said Watkins and Adler.

Who would pay the soda tax and who is exempt?

Soda buyers would not pay the 2-cents-per-fluid-ounce tax directly, but they are expected to see higher prices because many store owners would likely choose to raise prices. Opponents and proponents of Measure Z agree that people would pay higher prices for sodas and other sweetened beverages.

Companies that sell drinks to stores, known as distributors, would pay the soda tax directly. Businesses like grocery stores and restaurants that earn more than $500,000 would register their distributors with the city, and the city would collect taxes based on the total volume of sugar-sweetened beverages the distributor sells that business.

Price hikes listed on No on Z campaign mailers don’t necessarily represent the exact cost increases customers should expect. In fact, the UC Berkeley study found some soda taxes weren’t effective because retailers or distributors didn’t pass down the full price of the tax to customers.

A tax on soda distributors is on Santa Cruz city residents’ Nov. 5 ballot. (Stephen Baxter — Santa Cruz Local)

Can soda tax revenue be spent on anything?

Legally, yes, money raised by the Measure Z soda tax would go into the city’s General Fund and could be spent on anything. 

The Santa Cruz City Council chose to craft Measure Z as a “general tax” that can be used for any city purpose so it would face an easier election, Watkins said. A special tax legally restricted to specific uses requires more than 66% of the vote rather than 50%.

Opponents said the Measure Z ballot question is misleading in a few ways. 

The ballot question says the money will be spent on “vital city services such as improving/maintaining neighborhood parks/beaches/open space, providing safe routes to schools, expanding community recreational/youth/senior programs, addressing crime/public safety, improving bike/pedestrian safety, and help fight diabetes, heart disease, and childhood obesity.” 

There is no guarantee that any soda tax revenue will be spent on anything listed in the ballot question, because it all goes to the city’s General Fund.

Although the measure includes the creation of an advisory body to guide spending, “this is a city with a multimillion-dollar deficit, and you can be sure as can be that when push comes to shove, they’re going to be paying to reduce that deficit rather than adding money to new programs,” said Maviglio, the No on Z spokesperson.

Watkins said the advisory body would create “assurance and accountability that investments go through” even if Measure Z is “technically a general tax.” The city’s Children’s Fund Advisory Committee has successfully guided funding for $750,000 raised from a cannabis tax, she said. 

“The council approved [funding recommendations] unanimously without any question,” Watkins  said. The council would not reject funding recommendations from the potential Measure Z advisory board, she said.

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Does Measure Z apply to kombucha, iced tea and coconut water?

The tax would apply to most kombuchas and some iced teas and coconut water. It depends whether the beverage has sugar added and its calories per serving.

Drinks with less than 40 calories per serving would not be taxed, even if they have added sweeteners. A sweetened iced tea or coconut water would be taxed, but unsweetened versions would not. 

The tax would never be levied on products intended for infants or children, those with specific medical purposes like cough syrup and protein shakes, and alcohol.

Is Measure Z regressive?

Yes. Taxes not scaled to the payer’s income are regressive and disproportionately burden people with less money. For example, a sales tax that adds $50 to the price of a new computer hits low-income shoppers harder than wealthier ones. 

Watkins argued that the tax should be considered progressive because it is focused on “changing behavior for the No. 1 source in the American diet of added sugar” and mitigating the health impacts of sugar, which disproportionately affect low-income communities.

“When you do that, and you invest it in a transparent way in the community, you’re making progress in the community,” Watkins said.

Have soda taxes reduced consumption?

No on Z representatives said some people will go outside the City of Santa Cruz to buy sugary beverages if Measure Z is adopted.

The data on whether soda taxes reduce sugary drink consumption is not conclusive. Studies suggest they can be somewhat effective in nudging people away from sugary drinks. 

Measure Z proponents point to a UC Berkeley study published in January that found soda taxes in Oakland, San Francisco, Seattle, Philadelphia and Boulder, Colorado led people to purchase fewer sugary drinks.

Measure Z opponents cite a 2023 UC Davis study that concluded that soda taxes in Berkeley, Oakland and San Francisco didn’t decrease the sale of sweetened beverages, especially among low-income customers. That outcome was partly because distributors do not pass down the full cost of the tax to consumers, the researchers found. Soda taxes may become more effective over time, and may be more effective if they cover a larger area, they wrote.

A 2018 analysis of 26 studies of soda taxes in the U.S. found that they do lead people to buy and drink fewer sugary beverages, but that people also often travel outside of areas with the tax to purchase sugary drinks. 

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Reporter / California Local News Fellow |  + posts

Jesse Kathan is a staff reporter for Santa Cruz Local through the California Local News Fellowship. They hold a master's degree in science communications from UC Santa Cruz.