This year, San Luis Obispo City Council proposed a 1% sales tax increase. The tax, called Measure G-20, would produce more than $21 million annually and would filter into the city’s general fund.
After tax, Measure G would raise the cost of a $10 shirt from $10.75 to $10.88.
The city currently has a 7.75% sales tax. If residents vote “yes” on the measure, sales tax would increase to 8.75% in April 2021.
According to Councilmember Erica A. Stewart, the city staff introduced the measure after residents said in a survey what they want city money to fund. The city made a list of items that the tax revenue will fund, such as infrastructure, homeless services, natural disaster protection and support for local businesses.
The base California sales tax is 7.25%, and the city of San Luis Obispo currently has a 0.5% sales tax that is set to expire in March 2023. The 0.5% city sales tax was introduced back in 2006 as Measure Y and renewed by voters in 2014 as Measure G-14.
This year, Measure G will do two things. First, it will renew the 0.5% sales tax that will expire in 2023. Second, the measure will increase the city sales tax by 1%, bringing the total sales tax to 8.75%.
There is no sunset clause, or date that the tax will run through, however voters may petition to put the measure back on the ballot during the appropriate election year, according to Stewart.
Sales taxes in California cities range from 7.25% to 10.25%, according to the California state website.
If voters vote “no” on Measure G, the city sales tax will remain at 7.75% until March 2023, and will then drop to 7.25%, the base California sales tax rate, unless another sales tax is introduced to and passed by voters.
Measure G was not introduced as a direct result of COVID-19, but after the pandemic hit, the city lost $8.6 million of revenue, according to Stewart.
The city receives most of its revenue from tourists who spend money in the city and at hotels. Tourists pay about 70% of sales tax in San Luis Obispo, according to city documents. This means that for every local who buys a cup of coffee, there are two or three tourists in line behind them. It is not clear whether Cal Poly students align with locals or visitors in terms of spending.
Residents who oppose Measure G do so because a sales tax is considered a regressive tax, meaning everyone is taxed at the same rate, regardless of income. Many also believe it is too soon to renew a tax set to expire in 2023.
Real Estate Attorney Stewart D. Jenkins said he believes the best option right now is to wait and see how the economy recovers.
“There’s nothing wrong with taxes, they’re what we pay for a civilized society. But the most regressive tax that hits poor people and working people the hardest is the sales tax,” Jenkins said.
He said there are other taxes the city could implement to increase revenue, such as a property tax. He also said voters should wait until after this election to vote on a sales tax, as 60% of the revenue from Proposition 15 would be allocated to local California governments if it passes. However, most commercial business owners would not be paying the increased property taxes until 2025, according to the California Legislative Analyst’s office.
There will be two more local elections, in March and November of 2022, before the current 0.5% sales tax runs its course.
Jenkins said he doesn’t believe tourists will be paying 70% of sales taxes right now because there are fewer people traveling to the city. He added that he is concerned the money will be used to fund the salaries of city officials, as the revenue from the tax goes into the city’s general fund.
“This is not a dedicated tax. It’s not dedicated to any of the purposes that it lists. The tax that they’re adopting can be used on anything,” Jenkins said.
According to a 2019 financial report, money from the general fund that year was spent mostly on repaving roads and implementing bike lanes, and funding for the San Luis Obispo Police Department and emergency vehicles. Parks and recreation, flood protection, open space preservation, pedestrian improvements and traffic congestion each received less than 11% of the general fund money.
Stewart said a group of community members who represent voters in the city work with officials to ensure that city money is being spent responsibly.
Chris Richardson, president of local real estate business Richardson Properties, said he supports Measure G because it will help build up the community by maintaining parks and creeks and providing loans for small businesses.
“This is a mechanism and a vehicle and a tool to continue to enhance this place that we all love. Without having resources you can’t address problems, you can’t make improvements, you can’t build for the future,” Richardson said.
He said he believes the city needs this tax now because 2023 is “right around the corner.”
“There’s never a good time for tax increases, in my opinion, but there’s also a massive need in the community on a lot of levels,” Richardson said.
Cal Poly economics professor Jon James said that a sales tax increase is the only option for the city to increase its revenue. He said a property tax would not be possible because of state laws.
“It’s odd to be increasing taxes during such uncertain times, but on the other hand, if the government really does have shortages in the budget, there’s really nothing else they can do if the federal government’s not going to support them,” James said.
Financial advisor Lance Parker, who opposes Measure G, said that he believes the city would not need this money if the local government managed it responsibly.
“It’s a way of allowing the city to continue their fiscal irresponsibility,” Parker said.
He said he thinks city executives are paid too much, and that “taking care of people is not the role of the city.”
James confirmed that people with lower incomes do typically face a higher burden from a sales tax, but that even those who pay 10.25% in some areas of Los Angeles are probably not facing financial insecurity from that sales tax.
“I think this tax is reasonably fair in the sense that our taxes are way lower than most cities in the state of California. I don’t think this tax creates huge equity problems,” James said.
James also said that this measure should not be thought of as a 1.5% increase, but a 1% increase. He said he believes it is unlikely the city will drop down to a 7.25% sales tax because there will likely be a similar measure proposed in the future.
“There’s always a next election. The game’s not over after Nov. 3,” James said.
Paso Robles, Atascadero, Grover Beach and Morro Bay also have a similar measure on their ballot this year, according to a San Luis Obispo Chamber of Commerce news release. Arroyo Grande City Council did not approve the measure to be put on the ballot.