Santa Maria City Council explores tax increases and fees to fill budget gap

Facing a $21 million budget deficit in the upcoming fiscal year, Santa Maria is pondering a sugar tax, a cannabis tax, and/or charging fees for emergency services as ways to inject revenue and avoid dipping into city reserves. 

“These are outside the norm that we have done in the past,” interim City Manager Alex Posada told the Santa Maria City Council during its Oct. 1 meeting. “We really don’t see another option simply through the budget cut process.” 

Santa Maria’s ongoing general fund and Measure U expenditures outpaced the city’s incoming revenue, resulting in the $21 million deficit for the 2024-25 fiscal year and a projected $20 million deficit for 2025-26. During budget hearings in June, city staff proposed pulling $21.3 million in reserves to balance the 2024-25 budget. 

However, if the city chose that direction, it would have nothing left over to fill the 2025-26 gap. 

With the City Council reluctant to approve more taxes, Santa Maria evaluated where it could save money internally but found that the city needed to do more to generate dollars. City staff created a tiered reduction system that cut $14.8 million total from various departments, according to the staff report. But the city wanted to see $16.7 million in reductions in order to make up for the deficit. 

“We don’t really see another option simply through the budget cut process. The budget reductions are significant that are being proposed in that budget reduction,” Posada said. “It can’t be stand-alone. We really need to look at how we can increase revenue.” 

Interim Finance Director Xenia Bradford presented a 4 percent increase to transient occupancy tax to match neighboring jurisdictions as the city’s hotel tax “continues to underperform”; a half-percent sales tax increase that could bring in an estimated $13.5 million; a utility user tax that could raise an estimated $1 million; and a cannabis tax that could generate an additional $300,000 to $2 million to the city.

Third District Council Member Gloria Soto suggested adding a sugar tax, which would tax beverages that contain added sugar. 

“That is something that would not only benefit public health, but could also raise a significant amount of revenue,” she said.  

The city based its estimates on neighboring jurisdictions and cities that use these taxes in order to create the estimates. 

The majority of the proposed increases would need voter approval. While the city wouldn’t see generated revenue right away, it still needs to look at getting more general fund dollars in its piggy bank, interim City Manager Posada added. 

Several council members were hesitant to pull the trigger on exploring fire and medical response fees and debated cannabis, as the city never allowed its growth or sale within its boundaries, but they agreed that they needed to explore every option. 

“I can’t see letting anything go, and as much as I oppose the introduction to cannabis in the community. It would be a hard pull for me to vote for it, but I don’t think it should be something we should not look at,” 2nd District Councilmember Mike Cordero said. “The numbers are the numbers.”

This article appears in Oct 10-20, 2024.