Voters in Gilroy will be asked in the Nov. 5 election to approve a quarter-cent local sales tax that would be dedicated strictly to increased police, fire protection and related public safety services.
At the June 17 meeting, the Gilroy City Council voted 6-1 to approve a resolution to submit such a ballot measure proposal to the Santa Clara County Registrar of Voters. The measure will ask if the city should impose a .25% “dedicated public safety transactions and use tax” on purchases made by anyone who spends money in Gilroy.
Council member Dion Bracco voted against the ballot measure resolution.
Because the proposal is a special tax, it will require two-thirds approval by the local electorate that turns out for the Nov. 5 statewide general election, Gilroy City Administrator Jimmy Forbis told the council.
Public outreach about the sales tax measure and the city’s need for more public safety revenue will be key over the coming months, city officials said.
“This is very specific with accountability built in,” Council member Tom Cline said. “I have always been a skeptic when it comes to ballot measures, but in this case I support the idea of engaging the community and letting them decide what they want with all the information.”
Council members, city officials and local residents for months have discussed the need to increase or enhance Giroy’s public safety services as new development attracts more people while the cost to deliver such services continues to go up.
On April 8, the council held an in-depth discussion on a potential sales tax ballot measure and asked city staff to return with more information and a detailed proposal—which was presented at the June 17 meeting.
Public safety is the largest expense in Gilroy’s annual budget, as it is for many cities, Forbis explained at the June 17 meeting.
A quarter-cent sales tax could generate up to $4.7 million annually, all of it dedicated to public safety expenses, Forbis added. The city’s current budget for its police and fire departments is about $46 million for 2024-25.
Forbis also noted that much of the new construction in Gilroy is residential, which does not generate enough public revenue to significantly improve police and fire services. The “only other way” to improve such services without more revenue would be to reduce or eliminate other city services—which is not preferred by city staff or council members.
“This is really a question for the residents of Gilroy if they want to pay an additional tax for increased services,” Forbis told the council.
An advantage of a new sales tax is that it would be paid not only by residents, according to city officials. It would largely be paid by visitors from other areas who shop in Gilroy’s city limits, including at busy retail establishments such as the Gilroy Premium Outlets and local auto dealerships.
The exact wording for the ballot measure, which the city will submit to the ROV office, reads, “To generate funding that cannot be seized by the State, but stays in Gilroy and is dedicated to public safety (police, fire and ambulance) services and public safety infrastructure projects, shall Gilroy enact a quarter-cent transactions and use tax; and include a citizen oversight committee and annual audits for the tax?”
The funds collected through the sales tax could be used for personnel, new vehicles or capital projects for public safety purposes. City staff added that the city could use the sales tax revenues as leverage for bonds that could finance larger public safety expenses—such as a long needed new fire station in Gilroy.
Bracco said June 17 that he doesn’t support the ballot measure because he predicted it would not achieve voter approval and is thus a “waste of money.” As a local business owner, Bracco also noted that another quarter-cent sales tax would add up to a hefty burden for Gilroy businesses that typically accrue larger expenses than the average consumer.
“It causes businesses to shop around, and buy things in San Benito (for example) or another county where you’ll save money,” Bracco said.
If the voters approve the tax, the city would create an oversight committee, Forbis said, “to make sure that staff did indeed spend the money as appropriated.”
The revenues would be maintained in their own fund, and not commingled with the city’s general fund, city staff added. The council will also be required to devise a detailed spending plan for the sales tax funds if the ballot measure wins on Nov. 5.
The city’s cost to the ROV office to place the measure on the November ballot is about $81,000, Forbis added. That expense would likely come from the city’s general fund.
Insufficient Revenue Generation
The proposed Gilroy sales tax measure is projected to generate only $4.7 million annually. However, the current budget for Gilroy’s police and fire departments is about $46 million. This means that the additional revenue would cover less than 10% of the total budget needed. Given this significant gap, the measure would not sufficiently address the financial needs of the public safety departments. Relying on such a small increase in revenue could result in only marginal improvements, leaving the departments still significantly underfunded and unable to meet the community’s safety needs effectively.
Economic Impact on Local Businesses
A quarter-cent sales tax increase may seem minimal at first glance, but it can have a substantial impact on local businesses, especially those with higher expenses like the retail establishments and auto dealerships at Gilroy Premium Outlets. These businesses are crucial to the local economy and adding another layer of cost could deter customers, who might choose to shop in neighboring counties like San Benito where sales taxes are lower. This could lead to a decline in sales and profitability for Gilroy businesses, potentially harming the local economy and leading to job losses.
Potential for Consumer Behavior Changes
The assertion that the tax would largely be paid by visitors shopping within Gilroy’s city limits is optimistic but overlooks a critical economic behavior: tax avoidance. Consumers, including those from neighboring areas, may start to shop in other jurisdictions with lower sales taxes to save money. This shift in consumer behavior could negate the expected revenue benefits from the tax increase, leaving the city with less income than projected while simultaneously harming local businesses.
High Cost of Implementation
Placing the measure on the ballot comes with a significant upfront cost of about $81,000, which would be drawn from the city’s general fund. If the measure does not achieve the required two-thirds supermajority vote, this expenditure would be considered a waste of money. Given the high threshold for passage and the divided opinion on tax increases, the likelihood of achieving such a majority is uncertain. This financial risk is imprudent, particularly when the potential return is relatively modest compared to the overall budgetary needs.
Conclusion
In conclusion, while the intent to bolster public safety funding is commendable, the proposed quarter-cent sales tax measure is flawed. It would generate insufficient revenue to make a meaningful impact on the $46 million budget, potentially harm local businesses by encouraging shoppers to seek lower-tax alternatives, and carry a significant implementation cost that could be wasted if the measure fails to pass. Instead, a more comprehensive and balanced approach should be considered to address the funding shortfall for Gilroy’s police and fire departments.
Interesting that the same mayor and city council that would not put the question of allowing or not allowing fireworks on the ballot because it cost too much would put a sales tax increase on it. Guess their priority is more tax and less input from the residents of Gilroy. Hey, maybe add the fireworks question as well since you are already paying for a ballot measure.
TAX, TAX, TAX! I’ll vote NO!