Voters in several Bay Area cities, and two counties, will decide Nov. 8 whether to enact new sales taxes, which have increasingly become the ballot measure du jour for local agencies looking to fund infrastructure projects and public services.
But with overall sales tax rates in some cities already at or near 10 percent, and poised to go higher, some are wondering when consumers will say enough is enough?
In addition to countywide sales tax measures in Contra Costa and Santa Clara counties, Newark, Lafayette, Martinez, Pleasant Hill, Belmont and East Palo Alto all have measures on the ballot, despite caution from tax opponents and advocates of the poor who argue that sales taxes are regressive, burdening low-income residents and potentially hurting businesses.
Matt Sharp, who has owned Sharp Bicycles in Lafayette for 17 years, said he is strongly opposed to that city’s proposed 1 cent increase. Combined with a proposed half-cent countywide hike, the city could be looking at a total sales tax rate of 9.75 percent.
“It’s one more reason for people to buy online, where people are, generally speaking, not paying sales tax,” Sharp said (in California, online retailers do collect sales taxes if they have a physical presence in the state). “At a one-and-a-half percent increase for 30 years, it’s too much.”
Some attribute the growing popularity of sales taxes to Proposition 13, the 1978 voter-approved initiative that limits increases on property taxes and prompted local governments to seek other ways to generate funds.
“As property tax has eroded over the course of 40 years, it has been backfilled by a bunch of different fees — sales taxes, hotel taxes, a whole variety of different fees,” said Micah Weinberg, president of the Bay Area Council Economic Institute.
The sales tax rate will fall in some Bay Area cities next year with the expiration of the quarter-cent statewide hike that resulted from the passage of Prop. 30 in 2012. But plenty of increases are proposed across the region that would more than wipe out those savings.
Contra Costa Transportation Authority’s proposal would raise the sales tax half a cent across the county for 30 years for transportation infrastructure improvements, supplementing money already being collected under a half-cent sales tax voters approved in 2004. Santa Clara County has a similar measure on the ballot that would add half a cent to the sales tax for 30 years and is expected to generate $198 million a year.
Lafayette’s proposed hike is estimated to bring in $3 million yearly for 29 years. Pleasant Hill wants to add a half-cent to the sales tax for 20 years, and Martinez has proposed an additional half-cent for 15 years. Newark is proposing a half-cent tax for 25 years.
In the South Bay, both Belmont and East Palo Alto have proposed half-cent increases. Belmont’s Measure I would last 30 years, while East Palo Alto’s Measure P would only end with a public vote.
“There are real needs for revenue to fund these public investments,” said Meg Wiehe, the state tax policy director at the Institute on Taxation and Economy Policy. “I would never argue that we should get rid of sales taxes — it’s important to have a balanced sales tax. The danger is moving toward being more and more reliant on sales taxes.”
Total sales tax rates currently range from a low of 8.5 percent in many Contra Costa County cities to a high of 10 percent in El Cerrito, Hayward and Albany.
For big-ticket items like bicycles, the sales tax can be a hefty sum and occasionally a deterrent from shopping in the Bay Area, said Sharp, the Lafayette bicycle shop owner.
“I think most people don’t realize how hard it is for brick and mortars competing with Amazon and all these giants,” he said. “I think brick-and-mortar shops will become extinct if things don’t change.”
Some residents are concerned with the length of proposed taxes and their ultimate purpose.
Newark resident Margaret Lewis called Newark’s Measure GG, which would add half a cent to the local tax, “sales tax overkill.” The increase would bring that city’s rate to 9.75 percent next year.
With the exception of Measure D in Martinez, which is intended for the specific purpose of improving and maintaining the city’s roadways, the cities with sales tax hikes on the ballot would funnel that money into their general funds, meaning that while many city officials say they are raising money for things like infrastructure improvements, the money does not legally need to be earmarked for specific purposes.
Since the passage of a 2003 law that allowed California cities and counties to ask voters to approve sales tax increases, the transaction and use tax (as the sales tax is called) has become “a popular and successful revenue-raising tool for cities,” Michael Coleman, the principal fiscal adviser to the League of California Cities, explained in a July 2016 analysis.
Pleasant Hill Citizens for Responsible Growth is advocating against Measure K, worried about the city using the funds for employee salaries and benefits instead of what the city has promised: to build a new library, resurface streets and pay for other capital improvements. The group expressed concern that “there’s no guarantee or limitation on how the money could be used.”
But for many businesses and residents alike, the higher sales tax is worth the promise of infrastructure improvements.
“Advocates for the business community believe it’s important that streets are driveable and storm drains are repaired,” said Pleasant Hill Chamber of Commerce President Steve Van Dorn.
According to San Jose Silicon Valley Chamber of Commerce CEO Matthew Mahood, the key issues that businesses face surround transportation and housing affordability.
Measure B, Santa Clara Valley Transportation Authority’s half-cent sales tax measure, would address the transportation issue by investing in roads and public transportation, Mahood said. “It’s got something in it for everyone.” Like the Contra Costa County sales tax measure, Santa Clara’s requires two-thirds approval.
Until recently, state law prohibited local governments from adding more than 2 percentage points to the state sales tax, which is 7.5 percent, but a bill passed in the Legislature last year increases the cap statewide to 3 percent, allowing California cities to ask voters to increase the sales tax above 10 percent.
Sales taxes across the Bay Area have fluctuated over the past decade because of the implementation and expiration of various local, regional and state tax measures, but compared with other cities in California, they remain high. Contra Costa will have some of the highest in the state, with El Cerrito’s rate slated to hit 10.25 percent if the county transportation tax is approved.
While Weinberg of the Bay Area Council’s Economic Institute advocates for more federal funding for infrastructure improvements instead of relying on local taxes, he said that overall, he does not think higher sales taxes have a negative effect on the local economy.
“Not to say that we can have infinitely higher taxes,” Weinberg said, but despite its high sales taxes, “any place in the state would willingly and instantly trade places with the Bay Area in terms of its strong economy.”
Sales tax ballot measures
All require a simple majority for passage unless otherwise noted.
Contra Costa Transportation Authority (Measure X): Half-cent for 30 years that would raise about $2.9 billion annually. (Two-thirds approval required.)
Lafayette (Measure C): 1 cent for 29 years that would raise about $3 million annually
Martinez (Measure D): Half-cent for road projects for 15 years that would raise about $2.1 million annually (Two-thirds approval required.)
Pleasant Hill (Measure K): Half-cent for 20 years that would raise about $4 million annually
Newark (Measure GG): Half-cent for 25 years that would raise about $3.5 million annually
East Palo Alto (Measure P): Half-cent that can only be ended by voters and would raise about $1.8 million annually
Belmont (Measure I): Half-cent for 30 years that would raise about $1.3 million annually
Santa Clara County Valley Transportation Authority (Measure B): Half-cent for transportation needs that would raise about $6 billion over 30 years — about $198 million a year. (Two-thirds approval required.)
