The Tax Men Cometh 

If you live in Humboldt County, you'll likely see a local tax measure on your November ballot. Maybe two.

Facing stagnant revenues and steadily rising costs, the cities of Arcata and Fortuna have moved forward with putting sales tax measures on the November ballot, following in the footsteps of the other five cities in the county, all of which have seen voters approve tax hikes over the past four years. The county of Humboldt, meanwhile, is expected to follow suit and move forward with putting a transaction and use tax of its own on the ballot at a meeting this month.

But the measures will likely come before voters at a time when inflationary pressures are squeezing household budgets. According to the Consumer Price Index inflation calculator, costs have risen more than 22 percent over the last four years. In Humboldt County, households are facing steep Pacific Gas and Electric rate increases, and gas prices that have ballooned over the last four years, in addition to higher costs for nearly all household staples.

While those financial forces have some officials concerned voters will reject tax increases, those are also the very reasons that local governments are coming to residents hat in hand.

In Fortuna, City Manager Merritt Perry brought the issue to the city council earlier this year, saying the city's costs were rising across the board, from insurance premiums to utilities, leaving less revenue available to cover the delivery of services. Perry warned Fortuna was already falling behind its neighbors in terms of employee compensation, making it challenging to recruit and retain employees. The problem has been most acute in the police department, with neighboring agencies offering roughly 10 percent more in annual salary, as well as signing bonuses of up to $50,000 for lateral transfers.

City council members voiced reluctance to move forward, with Councilmember Mike Johnson saying the city needed to grow its economy "because we can't tax measure our way all the way out of these problems," while Councilmember Kris Mobley expressed doubt a measure would pass.

"I don't know if the timing is right for it because PG&E has gone up and is going to go up two more times this year," she said at the February meeting. "Water is going to go up, garbage is going up. That's a lot of increases for community members to then turn around and vote yes on another tax."

But in May, the council voted unanimously, despite its voiced reservations, to move forward, putting a 0.75-percent transaction and use tax before voters in November that would raise a projected $1.8 million annually, enough to bridge a structural deficit in the city's budget and make the city's pay scales more competitive, while holding the line on city services.

A couple weeks later, Fortuna's more liberal neighbor to the north, Arcata, followed suit. At a special meeting, the Arcata City Council voted unanimously to also move forward with a 0.75-percent sales tax measure that would raise a projected $2.6 million annually.

The move came after city staff had warned that while Arcata's finances were stable, the city was operating at an estimated $3 million deficit in its approved 2024-2025 budget, dipping into its $15.9 million general fund reserves to bridge the gap. Further, the city is projecting budget deficits "every year going forward," explained Finance Director Tabatha Miller.

"We're looking at running into the negative, and you can do that for a few years, especially if you have some reserves saved up like we do," Miller told the council. "But there's a point where you cross that line, and it's a problem."

Councilmember Kimberley White then opined that the city doesn't want to find itself in the same position as the county, which is facing a projected deficit of nearly $14 million and the prospect of depleting its general fund reserves by the end of the 2025-2026 fiscal year if something isn't done to increase revenue or curb spending.

The comparison was not lost on Miller, who served as the county's chief financial officer until taking the post in Arcata last year.

"No, we do not," she said. "We do not want to be in a crisis."

In response to this "crisis," the Humboldt County Board of Supervisors has directed staff to look at strategies to centralize services, while agreeing to maintain a hiring freeze and close county office to the public on Fridays to allow short-handed departments to catch up on backlogs of work.

Meanwhile, county staff have been doing the rounds at local city council meetings to present on the budget woes and, seemingly, garner support for putting a tax measure before voters.

In June, Deputy County Administrative Officer Sean Quincey and Public Works Director Tom Mattson addressed the Fortuna City Council, saying that over the last 30 years, the state of California has taken more than $500 million in county funding through property tax reallocations. Quincey and Mattson detailed the poor shape of county roads, casting it not only as a daily concern but something that makes the county increasingly vulnerable to the negative impacts of natural disasters, which have become more frequent with fires and storms driven by the climate crisis.

"These issues are significant, they're structural and under the status quo, we simply don't have enough funding to continue dealing with these sustainably," Quincey said. "I want to be frank and honest with this council that one of the top potential solutions is increased local revenue, potentially a tax measure. A sales tax measure is what our board has directed us to work on."

In the coming weeks, county staff is expected to propose putting a 0.75-percent sales tax measure before voters, with the stated spending priorities of road maintenance and repair, and maintaining 911 emergency response times.

As is the case with the measures already moving forward in Arcata and Fortuna, the county's sales tax increase is expected to be a general — not a special — tax. While special taxes raise funds for specific services — and require a 66-percent vote to pass — general taxes' revenue comes into the general fund and can be spent however governing boards decide. They also require a simple majority vote to pass.

Humboldt County voters have been approving of local tax measures in recent elections, with Rio Dell, Blue Lake, Ferndale, Trinidad and Eureka all having passed them in 2020 and 2022, most by wide margins. But there's some concern that trend may not hold, with voters facing stretched household budgets and multiple revenue measures at once. (Between the county's likely measure and Fortuna's, voters in the Friendly City would see measures that, if both passed, would raise sales tax rates in the city from 8.5 percent to 10, bumping the levy on a $100 purchase from $8.50 to $10.)

In the coming weeks and months, elected officials in Arcata and Fortuna, and likely the county, too, will begin making their cases to residents on why the tax measures are justified and needed. It will then be up to voters to decide whether they want — and can afford — to pay more to maintain local services.

Thadeus Greenson (he/him) is the Journal's news editor. Reach him at (707) 442-1400, extension 321, or [email protected].