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Measure K – County of Santa Cruz sales tax increase

Santa Cruz County voters will decide whether to raise the county’s sales tax with Measure K in the March 5 election. 

What is Measure K?

Measure K would raise sales tax in unincorporated parts of the county to 9.5% from 9%. The tax hike would start July 1 and raise about $10 million annually. Legally, the money could be used for any county purpose. The Santa Cruz County supervisors added the measure to the ballot. It needs more than 50% of the vote to be adopted.

What would Measure K do?

Measure K would add a 0.5% sales tax to the current 9% sales tax on goods purchased in unincorporated areas of Santa Cruz County. Groceries and prescription medicine are exempt from sales tax.

Measure K as it appears on the March 5 ballot:

To fund essential Santa Cruz County services, including wildfire response/prevention/recovery; affordable housing to support working families and frontline workers including nurses, emergency responders, and educators; mental health crisis programs for children/vulnerable populations; substance abuse programs; improved public safety, road maintenance/pothole repair, parks/recreation; and programs to reduce homelessness, shall Santa Cruz County’s transaction and use tax (sales tax) be increased in unincorporated areas by one-half cent, providing approximately $10,000,000 annually, until ended by voters? 

The funding priorities listed in the ballot text are not legally binding. The money from the sales tax hike would go into the county’s General Fund and could be used for any purpose.

The higher sales tax would take effect July 1 and would continue indefinitely unless overturned by another ballot measure.

What does a “yes” vote mean?

The sales tax rate in unincorporated Santa Cruz County would increase by 0.5%, bringing it to 9.5%. All revenue would go into the county’s General Fund and could be spent on anything in the county’s budget.

What would a “no” vote mean?

A “no” vote on Measure K would keep the county sales tax at 9%. 

Thing to consider about Measure K

  • Sales tax background.
  • Arguments for Measure K.
  • Arguments against Measure K.
  • How Measure K fits in the Santa Cruz County budget.
  • Santa Cruz County pension debt.
  • Measure K legal challenges.

Sales tax background

The proposed sales tax hike would only apply to purchases in unincorporated areas of the county — outside the cities of Santa Cruz, Watsonville, Capitola and Scotts Valley. 

Under existing rules, $9 in tax is collected for every $100 spent in unincorporated Santa Cruz County. That includes:

  • $6 for the state.
  • $1.50 for county libraries, transportation and Santa Cruz Metro that is collected countywide.
  • $1.50 for the County of Santa Cruz General Fund.

Measure K would add 50 cents for the General Fund. The increase would give unincorporated Santa Cruz County one of the highest sales tax rates among California counties, second only to Alameda County at 10.25%, according to the California Department of Tax and Fee Administration. 

The sales tax in Santa Cruz County’s four cities are all higher than the existing rate in the unincorporated county.

  • Scotts Valley: Scotts Valley voters approved a 9.75% sales tax with the adoption of Measure Z in 2020. Scotts Valley city officials attribute the city’s improved financial outlook to revenues from Measure Z.
  • Santa Cruz: Santa Cruz city voters will consider increasing the city’s sales tax to 9.75% from 9.25% in the March 5 election. The tax increase would raise an estimated $8 million for the city’s General Fund. In June 2022, Santa Cruz city voters narrowly struck down a similar proposed sales tax increase.
  • Watsonville: Watsonville voters in 2022 approved a 9.75% sales tax with Measure R. It aimed to plug the city’s deficit.
  • Capitola: Capitola has a sales tax of 9%. It was last raised in 2013.

Arguments for Measure K

In arguments for Measure K in the county voter guide, proponents said the tax money:

  • Stays in Santa Cruz County. Because it is a local tax, no funds will be taken by the state.
  • Will generate revenue from visitors who spend money in the city. 
  • Will help fund county services for residents of the cities of Santa Cruz, Scotts Valley, Capitola and Watsonville although the tax does not apply to purchases made in those cities. 

Measure K is set to appear on the ballots of all county voters because beneficiaries of a tax must be allowed to vote on it, said Santa Cruz County Counsel Jason Heath. Residents of the county’s four cities drive on county roads, for instance, and they can access county mental health services. 

The county needs the money to meet the mounting costs of emergency response and road repairs, said Nicole Coburn, assistant county administrative officer. Disasters such as fires and floods since 2017 have cost the county more than $250 million, she said.

If adopted, Measure K is expected to bring in $5 million to $7.5 million in the fiscal year that starts July 1, then generate about $10 million annually. The Santa Cruz County Board of Supervisors prioritized the first year’s spending of the increased tax revenue on:

  • $1 million for housing and essential workforce retention.
  • $1 million for countywide homeless services.
  • $1 million to support climate resiliency and county parks. 
  • $1 million to fund road repair and infrastructure projects.
  • An unspecified additional amount for other identified county services.

These priorities are not legally binding, and Measure K funds could be used for any purpose. 

Measure K will generate sales tax revenue from visitors and residents of Santa Cruz County.

Arguments against Measure K

In an argument against Measure K in the county voter guide, opponents wrote that Measure K money would not solve the county’s budget problems. Money might not be spent on the priorities outlined by proponents, it stated.

Although county supervisors have identified priorities including affordable housing, homeless services and road repair, “there is no concrete plan being given to the voters to give us any assurance at all that they will use this money for those purposes,” said county resident Becky Steinbruner.

Steinbruner, a former candidate for county supervisor, compared Measure K to Measure G that Santa Cruz County voters approved in 2018. 

  • Measure G increased the county’s sales tax by a half cent for 12 years. Ballot language for Measure G indicated that funding priorities included emergency response, county parks and local roads, and that the money generated would have “annual audits and citizen oversight.”
  • It’s not clear if any of the money raised from Measure G has been spent on those funding priorities, because the money goes into the county’s General Fund, and it is not specifically tracked, opponents said.
  • The county has not provided annual audits or citizen audits specifically on funds raised from Measure G, according to a 2022 Santa Cruz County Grand Jury report.

In a response to the civil grand jury report approved by county supervisors, county staff stated that annual budget hearings are an opportunity for citizen oversight. The response also stated that the General Fund is “subject to all auditing requirements with which the county is charged with complying.”

Coburn, the assistant administrative officer, said the county shouldn’t restrict Measure K dollars for specific uses. “Being able to adjust as needs change and times change, I think, is a critical element,” Coburn said.

Restricting expenditures also would make adopting a sales tax hike more difficult, Coburn said. A tax legally restricted to certain uses would require approval from two-thirds of voters. Some counties and cities have citizen committees that oversee sales tax expenditures, even if the tax is not legally restricted to specific uses.

Marcus Pimentel, the county’s budget manager, said keeping track of what the sales tax has paid for “can be unnecessarily complicated.” He said that restricting the use of sales tax money could make future budgeting more difficult. “We are not in the luxury of having excess money to figure out how to best allocate,” Pimentel said. “We’re just trying to react to the latest challenge.”

How Measure K fits in the Santa Cruz County budget

Measure K would bring in an estimated $10 million annually from July 2025 forward, adding to the $20 million to $30 million that the county’s General Fund receives from sales tax revenue each year.

Santa Cruz County’s General Fund pays for most county services. In Fiscal Year 2023-2024, the General Fund was about $740 million. About one-fourth of that revenue comes from local taxes.

In recent years, the General Fund expenditures have outpaced revenue. In Fiscal Year 2023-2024, General Fund spending is expected to be about $28 million more than its revenue. That’s 3.8% of the General Fund.

Santa Cruz County’s pension debt

Opponents of Measure K have argued that the tax hike could fund millions of dollars in unfunded pension liability. “The county is facing an exorbitant debt,” said Steinbruner, a Measure K opponent. “They’re being deceptive.”

Pension costs are mounting for local governments throughout the state. That’s due in large part to pension funds underperforming during the Great Recession in 2008 and 2009. For Fiscal Year 2022-2023, Santa Cruz County contributed $181.4 million towards pensions, according to county budget documents. As of June 30, 2023, the county needed $551.9 million to pay for future pensions. 

Pimentel said pensions aren’t the main reason the county needs more revenue. The cost of county road upkeep and deferred facilities maintenance is “a bigger concern,” he said.

In November 2023, county supervisors Zach Friend and Manu Koenig estimated that county roads and culverts need nearly $1 billion in deferred maintenance.

Whereas pension costs are projected to peak around 2030 and then decline, the cost of road and facility maintenance is “just this linear slope upwards,” Pimentel said.

Measure K legal challenges

Measure K is set to appear on ballots of all county voters, but the tax hike will only apply to purchases outside of the cities of Santa Cruz, Watsonville, Scotts Valley and Captiola. 

Bruce Holloway, a Boulder Creek resident, sued the county in December 2023 to reword Measure K or remove it from the March 5 ballot.  Holloway alleged that a countywide vote on a tax that will only be assessed in unincorporated areas is illegal under state tax law. Under the law, a countywide vote can approve a countywide tax, and unincorporated voters can approve a tax in unincorporated areas. The county is “essentially cheating,” Holloway said.

A superior court judge denied Holloway’s request to alter the ballot, but did not rule on the legality of the measure. If the measure is adopted, Holloway said he’ll sue again to overturn it. 

In a legal response to the lawsuit, the Santa Cruz County Counsel Jason Heath wrote that under the California Constitution, beneficiaries of a tax must be allowed to vote on it. 

“We have all voters vote on it because they all receive county services,” said Nicole Coburn, the assistant county administrative officer. “We don’t want to disenfranchise them from having a say,” she said. 

At least three counties — Yuba, Kern and Del Norte — have adopted sales tax increases levied only in unincorporated areas. In Yuba and Kern counties, only unincorporated residents voted on the increases. In Del Norte County, all county voters weighed in on the measure.

Santa Cruz County could not levy a county tax that includes its four cities because the cities of Scotts Valley and Watsonville already charge the highest sales tax allowed under state law. Some counties have received exemptions from the state to exceed the cap on sales tax.

More information on Measure K

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