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Measure Z – City of Santa Cruz soda tax

Updated Oct. 23, 2024

Santa Cruz city voters in the Nov. 5, 2024 election will decide whether to tax the distributors of soda and other sugar-sweetened beverages to push people towards healthier drinks and potentially raise $1.3 million annually for city services.

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Quick facts about Measure Z, the sugar-sweetened beverage tax

  • If Measure Z is adopted, the city of Santa Cruz could collect about $1.3 million annually from soda distributors.
  • If the full cost of the tax is passed on to shoppers, a 12-ounce can of soda would cost 24 cents more and a 12-pack would cost $2.88 more.
  • Proponents have said the tax would nudge people towards healthier drinks and raise money for parks and public health programs.
  • Opponents have said the tax is unfair to lower-income shoppers.
  • Measure Z would conflict with a state law against grocery taxes. As a city with a charter, Santa Cruz might be able to override the state law.
  • The city would likely be sued to determine if Measure Z is legal. Nonprofit organizations may help the city with legal support.

What drinks would be taxed with Measure Z?

The measure would add a tax of two cents per ounce on distributors of sugar-sweetened beverages in the City of Santa Cruz.

“Sugar-sweetened beverages” have more than 40 calories per 12 fluid ounces and contain added cane sugar, corn syrup, or another caloric sweetener.

  • The tax would apply to sodas, sports drinks, energy drinks, slushies and sweetened teas. It would apply to most kombuchas and some iced teas and coconut waters.
  • Drinks with fewer 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 not be levied on products intended for infants or children, those with specific medical purposes like cough syrup and protein shakes, and alcohol. The tax would also not apply to diet soda, dairy or plant-based milk, or unsweetened fruit juice or tea. 

Grocery stores, wholesalers and distributors with more than $500,000 in gross annual revenue would pay the tax. Businesses with gross annual revenue of $500,000 or less would be exempt. 

Businesses like grocery stores and restaurants that earn more than $500,000 would register their distributors with city staff, and the city would collect taxes based on the total volume of sugar-sweetened beverages the distributor sells that business.

What does a “yes” vote mean?

A “yes” vote would impose a $0.02 tax per fluid ounce on sugar-sweetened beverages on wholesale distribution in the City of Santa Cruz. Retailers or distributors who receive, sell, or distribute sugar-sweetened beverages in the city would have to register and pay the tax to the city.

The tax would start May 1, 2025 and continue indefinitely.

What would a “no” vote mean?

A “no” vote would not impose the tax on sugar-sweetened beverages in the city.

How would Measure Z soda tax money be spent?

Money from the tax would go into the city’s General Fund and could be used for any city purpose. A community oversight panel would make recommendations for its use. The ballot question suggests the tax could be used for parks, recreation and public health, but those priorities are not legally binding.

The Santa Cruz City Council wrote Measure Z as a “general tax” so it would face a 50% voter threshold rather than a “special tax” with more specific spending and a 66% voter threshold.

Santa Cruz City Councilmember Martine 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 spending 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.

Opponents of Measure Z have questioned how the money would be spent. “When push comes to shove,” the city would likely bolster its existing budget “rather than adding money to new programs,” said Steven Maviglio, a spokesperson for the No on Z campaign.

Have soda taxes reduced consumption in other cities?

Sugar-sweetened beverages led to increased risks of Type 2 diabetes, childhood and adult obesity, heart disease, liver disease and metabolic disorder,” according to research from Brigham and Women’s Hospital and other studies. 

Studies suggest soda taxes can be somewhat effective in nudging people away from sugary drinks. 

  • 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. A 2018 analysis of 26 studies across the U.S. came to the same conclusion.
  • A 2022 analysis of 62 studies of soda taxes worldwide found that the taxes reduce sweetened beverage purchases but don’t reduce consumption, in part because people travel elsewhere to buy sweetened drinks.
  • Measure Z opponents cite a 2023 UC Davis study that concluded that soda taxes in Berkeley, Oakland and San Francisco did not 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.

Measure Z’s effect on people with lower incomes

People with lower incomes tend to spend more on sugar-sweetened drinks than others, some research has suggested. Higher soda costs would hit low-income budgets harder than those of higher earners.

“Progressives have long opposed beverage taxes because of the harmful impact they have on working families,” wrote Santa Cruz County Supervisor Felipe Hernandez in a statement. “A measure that could gut the grocery budgets of our neighbors is not the way to build a stronger —  or healthier — community.”

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.

If money from soda taxes is invested in programs that target lower-income residents, those residents may indirectly receive more money in benefits than they paid in taxes, according to a 2022 study from the University of Washington. In San Francisco, the lowest-income residents paid $2 million in soda taxes and received $7 million in benefits, while high-income residents paid more in taxes than they received in benefits, the 2022 study found.

Legal considerations of Measure Z

The soda-company backed 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, laws in charter cities like Santa Cruz can supersede state law. A court case would likely determine if that’s the case for Measure Z.

A provision in the law penalizes cities that enact a sugary drink tax by taking away sales tax revenue. After the passage of the state law, Fresno-based nonprofit Cultiva La Salud and Watkins sued the state, successfully arguing that the penalties in the law were unconstitutional. In March 2023, the Third District Court of Appeals upheld a lower court’s ruling and deemed the penalty unenforceable.

But the Groceries Act itself has not been overturned, leaving Measure Z’s legality in question.

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.

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.

Representatives of the No on Z campaign have said a legal battle would be costly for the city. “The city wants to use taxpayers to test that law in Santa Cruz with a big tax increase at the wrong time,” said Maviglio, the No on Z spokesperson. “That’s irresponsible public policy.”

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.

Endorsements for and against Measure Z

Some proponents of Measure Z on the Yes on Z website include:

  • State Sen. John Laird.
  • District 3 Santa Cruz County Supervisor Justin Cummings.
  • District 1 Santa Cruz County Supervisor Manu Koenig.
  • Santa Cruz Community Health Centers.
  • Community Action Board of Santa Cruz County.
  • NAACP Santa Cruz.

Some opponents of Measure Z on the No on Z website include:

  • District 4 Santa Cruz County Supervisor Felipe Hernandez.
  • United Food and Commercial Workers Local 5.
  • International Brotherhood of Teamsters Joint Council 7.
  • California Alliance of Family-Owned Businesses.
  • California Hispanic Chambers of Commerce.
  • Santa Cruz Black.

Full text, impartial analysis and more information on Measure Z

Measure Z on the ballot states: “To sustain 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, shall City of Santa Cruz’s measure levying a two-cents per ounce tax for general governmental use on the wholesale distribution of sugar-sweetened beverages (e.g., sodas, energy drinks); generating $1,300,000 annually, until ended by voters, be adopted?”

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—Jesse Kathan

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