What Does Measure U cost?

Measure U is a local sales tax measure that would cost one-half cent per dollar. This equates to an additional five cents per $10 of taxable sales, or 50 cents per $100. Some exemptions apply to Sales Tax, such as most groceries, prescription medicine and many medical supplies, rent, utilities, diapers, and feminine hygiene products. No taxes would apply to these exempt items. For a complete list of all the sales and use tax exemptions, please visit the California Tax Service Center at https://www.taxes.ca.gov/.

How Much Does the City Currently Receive in Sales Tax?

In the 2024-25 Adopted Budget, the City expects approximately $4.5 million in sales and use taxes. These dollars will be deposited into the City’s General Fund, and account for roughly 38% of General Fund revenue. 

Sebastopol directly receives a small portion of the sales tax revenue generated within the City, roughly 18% of all Sales Taxes collected. The majority of Sales Tax revenue goes to the State of California and the County of Sonoma, as illustrated below:

*The 1.75% that goes to Sonoma Countywide includes amounts that go to the Sonoma County Library, the Sonoma County Transportation Authority, and Sonoma-Marin Area Rail Transportation Authority (SMART).

What is the City’s Budget and Fiscal Condition?

The projected budget for 2024-25 calls for approximately $15 million in expenditures. As of adoption of the current year fiscal budget, the City faced a forecasted deficit of approximately $700,000.Spending at this level requires continued reductions in services. 

Absent changes to further reduce costs and/or bring additional revenue into the City, that deficit is projected to grow to over $2 million annually over the next several years, impacting the City's ability to maintain services and meet its financial obligations. The City’s full budget, as well as prior year budgets, can be found online here.

What Steps is the City Taking to Address its Structural Deficit?

The City’s current budget utilizes reserves and relies, as in prior years, on one-time increased revenues such as building permit fees, and cost-saving measures. Addressing the City’s overall financial challenges requires multiple strategies. Among these are the potential to create an Enhanced Infrastructure Financing District, negotiating the Library Lease, updating Building Fees, pursuing grants and other revenue opportunities. A detailed overview of these steps was discussed at the September 3, 2024 City Council meeting.

Did the City of Sebastopol Consider Other Options Before Deciding to Put the Sales Tax on the Ballot?

Yes. The City Council has previously considered a variety of other options and decided to not pursue them. Among the options considered were a potential Parcel Tax, Vacancy Tax on commercial buildings, expanded Business License Taxes, issuance of Municipal Bonds, Sales of City Property and others. A full review of these options and the Council’s rationale for not proceeding with them can be found on the City’s Website here.

The City held 9 Budget Committee meetings and 3 City Council meetings at which the proposed sales tax and potential alternatives were evaluated and discussed. 

How Did the City Gather Community Input Prior to the Measure Being Placed on the Ballot?

The City of Sebastopol hosted public Townhall Meetings and conducted a survey and poll on Community Priorities. The results are summarized here:

https://www.cityofsebastopol.gov/sebastopol-community-priorities-survey/

The Townhall meetings included presentations given by City staff on the status of City services, its budget outlook, and the potential for a Sales Tax proposal.

The City also distributed a city-wide informational mailer to educate the public about the specific challenges facing the City and to invite the public to our Community Town Hall events.

Who Pays this Tax? Will Visitors Pay the Tax?

Measure U would apply to any taxable purchases made in the City of Sebastopol, and is paid by residents, the City’s elected officials, and tourists and visitors to the City. Measure U would ensure that out-of-town visitors pay their fair share while re-investing in our community.

What are Measure U’s Fiscal Accountability Protections? 

Measure U legally requires independent financial audits as part of the City’s annual comprehensive audit, as well as oversight by the City’s elected leaders. By law, all Measure U funds must be spent locally in the City of Sebastopol, the State cannot take this funding away, and funds cannot be transferred to the County or another public agency.

When Will the Tax End?

Measure U has a “sunset date” that dictates the half cent tax would end after 12 years.

Are There Any Tasks this Measure U Will Place on Our Local Businesses?

No, local businesses are not required to do any additional work for this sales tax. It will be collected in the same manner as existing sales tax.

Are Other Cities In Sonoma County Placing Sales Tax Or Other Revenue Measures On The November Ballot?

Yes. In addition to Sebastopol's Measure U, voters in the Cities of Cloverdale and Sonoma will consider Sales Tax proposals, and voters in the City of Santa Rosa will consider a Business Tax and Transient Occupancy Tax. Note, as with Sebastopol’s Measure U, these taxes only apply in these jurisdictions and would not apply within the City of Sebastopol. A full list of measures on the ballot in Sonoma County is available here.

What if Measure U Doesn’t Pass?

If Measure U is not approved, the General Fund will not receive the approximately $1.5 million in sales tax revenues anticipated from Measure U. If the City is not able to obtain other new revenues of at least an equal amount from unknown sources, the City Council will then have to decide, as part of the budgeting process, whether to spend reserves or reduce/cut City programs and services. Without revenue increases and/or spending reductions, the City’s current financial projections estimate the City will deplete its reserves in about three years. 

On November 21, 2023, the City Council declared a fiscal emergency due to the City’s long-term financial forecast. 

We estimate that under best case circumstances in which all retail spaces were filled we would see $350,000 more per year in sales tax revenue, or 23% of the amount projected from Measure U.  This assumes that all available spaces are filled with retailers generating sales taxes at the same rate as our current retailers. This is unlikely given:

1. Typically vacant spaces are less desirable (one reason they are vacant) than filled spaces.
2. Some new tenants will ‘cannibalize’ sales tax from existing tenants.
3. Most new tenants probably are going to be services (this is where the economy is trending) and generate little to no sales tax.
4. About 3% of spaces will always be vacant due to turnover and improvements in the spaces.

What is our Retail Vacancy Rate? And How Does it Compare to Other Cities?

According to Keegan and Coppin, a reputable local commercial real estate broker, our retail vacancy rate is 10.7%. The County-wide average is 9.3%. Our vacancies for neighborhood centers are considerably higher than average, while vacancies for other locations are below average. 

https://www.keegancoppin.com/pdf/market/sonoma/2024/2/2nd_Qtr_2024_Sonoma_County_Retail_Summary.pdf

What Can We as a City Do to Improve the Retail Vacancy Rates?

Retail vacancies are driven primarily by supply and demand for retail space. While cities have little influence on these factors, there are things that we can do to attract retailers. The most important is to make it easy for new businesses to locate here. This includes a strong Planning function that responds quickly to requests for information and assistance, does not require businesses to go from Department to Department to get answers, and provides certainty with answers. Mostly it takes a culture dedicated to finding ways to meet businesses’ needs rather than creating obstacles. We are moving in that direction.

Cities can also help by supporting local events that generate visitors, streamlining approvals for permits, and setting reasonable standards for zoning, parking, and other factors affecting businesses.

Cities can target particular businesses, or types of businesses, and attempt to recruit them. This can be time-consuming and expensive. This is most useful after establishing a strong Planning function as noted above.

What Are Our Current Sources of Sales Taxes?

The attached summary of retail and business activity provides the best information we have on our current sources of sales taxes from local businesses. It shows that the primary generators of sales taxes include grocery stores, restaurants, and gas stations. We do not have the kinds of businesses that generate large amounts of sales taxes, such as car dealerships and big box stores.

90% of our local sales tax is generated by our top 100 businesses. The top 100 businesses generate $8,000/year on average, while the lion’s share of our filled spaces generate less than $4,000 each (the non-top 100 group which only generates 10% of our total local sales). 

Note that we cannot legally provide the sales tax revenue for individual businesses.

What About Amazon and On-Line Retailers?

Approximately 25% - 30% of retail sales in California are on-line. About 10% of Sebastopol’s sales taxes are from e-commerce, including Amazon. We receive all of the sales taxes from Amazon and other on-line retailers that we are entitled to. While the amount of sales tax Amazon generates for Sebastopol is confidential (all sales tax information for individual businesses is confidential), it falls within the same range of our top 25 local sales tax generators, but because it is not local it is not included in that group or in the attached list.