Like many cities across California, the small town of Santa Fe Springs took a major revenue hit when the state’s redevelopment program dissolved in 2011.
Faced with an ongoing deficit, city officials last year asked voters for a 1% sales tax increase. Voters responded with overwhelming approval.
The tax, which went into effect this year, pushed the city’s sales tax to 10.5%, the highest in California. It’s even higher than the state’s maximum rate of 10.25%.
City Manager Raymond Cruz said the tax increase, called Measure Y, has helped the city avoid significant cuts.
“It’s going to make a huge difference moving forward,” he said.
Santa Fe Springs, which sits just east of Downey with population around 17,000, isn’t the only city to have maxed out its sales tax.
At one time, Long Beach, with the passing of Measure A in 2016, had one of the highest sales tax rates in the state.
Other cities are now catching up.
On April 1, 51 cities across California saw sales tax increases, and more tax initiatives are expected next year.
California’s minimum rate of 7.25% is the highest in the United States. But many cities have now raised their taxes to the state’s maximum of 10.25%.
In addition to Long Beach, 19 other cities, including Glendale, Santa Monica and Pasadena, are all at the state cap.
In some cases, cities are maxing out their sales-tax rates to get ahead of other ballot measures that would shuttle tax dollars to state and county initiatives.
That’s the case for Long Beach, which plans to ask voters in March to permanently extend its Measure A sales tax to boost public safety and infrastructure.
Mayor Robert Garcia, in an interview last month, said the city hopes to avid losing some of its sales tax to other initiatives. For example, the South Coast Air Quality Management District (AQMD) is considering a one-half cent sales tax measure next year to pay for clean-air projects.
“We have to decide if we want the money to stay here in Long Beach,” he said. “If we don’t do this now that gap will be filled by somebody else and those dollars will be sent to the AQMD or another agency.”
Assistant City Manager Tom Modica on Wednesday said cities are struggling with increased costs across the board, from the rising cost of public safety, to pension payments and infrastructure.
Modica said infrastructure costs, for example, have jumped 30% in recent years. Measure A is expected to generate more than $435.6 million for the city over the next decade. The city has so far spent more than $88 million of Measure A funds on projects including street and sidewalk repairs and improvements to parks and facilities.
Modica said Long Beach was an early leader when it proposed its sales tax increase.
“When we did this a couple of years ago it was a big deal, but now, a lot more cities are at 10.25% because really it’s become the standard amount needed to be able to keep services,” he said.
The city of Santa Fe Springs got creative for its sales tax hike.
To push its rate past the state maximum, the city sought legislation by State Sen. Nancy Skinner, D-Berkeley, who proposed a bill raising taxes in Alameda and Santa Clara countries and Santa Fe Springs.
It’s not clear how Skinner, a Bay Area politician, became involved in tax concerns for a small, Southern California city.
Cruz, the city manager, said Santa Fe Springs was projecting a $5 million deficit before Measure Y kicked in this year. The measure is expected to generate around $12 million annually. The city is now projecting a $4 million surplus, its first surplus in years.
Cruz said Santa Fe Springs was hit especially hard when local redevelopment agencies, which provided the state’s largest source of revenue for affordable housing, were slashed in the Great Recession.
“We really took it on the chin with redevelopment,” he said. “Now we’re working to rebuild our financial stability.”
Measure Y was proposed under then-City Manager Thaddeus McCormack, who now works as the city manager for Lakewood.
Lakewood spokesman Bill Grady said the city was also hit by the loss of redevelopment funds and is struggling to maintain services.
Lakewood is still facing a $1.3 million deficit, despite slashing more than $2 million last year through hiring freezes and other measures, he said.
The city hasn’t planned for any sales tax increase, but it does plan to reach out to residents for feedback on possible budget solutions, Grady said. The city over the next several months will engage residents with online surveys and community meetings.
“We want everyone to get involved,” he said.