Lookout Santa Cruz: I support a proposed tax measure for the city of Santa Cruz in November

Santa Cruz Mayor Fred Keeley at a January kickoff event for the Workforce Housing Affordability Act tax measures. Credit: Kevin Painchaud / Lookout Santa Cruz

I support Santa Cruz Mayor Fred Keeley’s proposed tax measure.

I know taxes are unpopular, but we must address the homelessness and affordable housing crisis in our community. The measure – currently gathering signatures for a November 2025 ballot – consists of two taxes set to sunset after 20 years. The first, a real property transfer tax, will raise the most money and will bring in more funding every year it is in place. It will tax the price of property sold for more than $1.8 million in the City of Santa Cruz. Property sales within an immediate family will be exempt from this tax.

Keeley spent the past two years working this tax out with leaders in the real estate industry and, rather than targeting these leaders as the enemy, he invited their participation in shaping the measure. They agreed that our community has an affordable housing crisis and that they would not actively oppose this measure, even if they also wouldn’t actively support it. But, within days of the signature-gathering kickoff for the measure, the Santa Cruz County Association of Realtors shocked Keeley by voting to oppose it.

Still, this is not the same as agreeing to mount a well-funded effort to defeat the measure, and only time will tell if the representatives of the real estate industry who negotiated the details of the tax measure will be able to restrain the rapacious avarice of their colleagues.

They agreed on the minimum $1.8 million sales value to be taxed, as discussed above, and the increasing percentage of tax that would be applied as the value of sales increased. A .05% tax will be applied to properties selling for $1.8 million to $2.5 million. Properties that sell for more than $2.5 million, but less than $3.5 million, will be taxed 1%, and properties that sell for more than $3.5 million, but for $4.5 million or less, will pay a 1.5% tax. Properties that sell in excess of $4.5 million would pay a 2% tax, but with a cap of $200,000.

That means the following things are true.

This is a progressive tax. This tax will not affect many residents of Santa Cruz. This tax has a fairly modest impact on the high price of properties to which it is applied. The absolute amount of funding for affordable housing that this tax will raise will go up each year due to the inevitable inflation of housing prices in our region. Even in its early years of implementation, this tax should raise between $5 million and $7 million per year.

The City of Berkeley, whose city council passed a property transfer tax in the early 1970s, before a public vote was required for such taxes, took in $24.8 million last year from its tax.

The other tax that would be included in the November 2025 measure is a $96 annual parcel tax on real property in the City of Santa Cruz, or about $8 a month. This amount will not increase one penny over the next 20 years. The tax, while not progressive, has a number of important impacts.

First of all, it allows everyone in Santa Cruz to make a contribution to addressing our affordable housing crisis – not just complain about it. It is important because we can know exactly how much this tax will raise over the next 20 years, unlike the property transfer tax that depends on an unknowable number of sales and sales prices. It is also a funding stream that can be bonded and brought forward so our community can begin addressing our affordable housing crisis now and not wait for future years, when the larger income from the property transfer tax will actually be in the city’s coffers.

The parcel tax part of the proposal has important exemptions for qualifying low-income households, low-income senior households, affordable housing projects, schools, churches and other entities that are otherwise exempt from property taxes. Unlike some earlier attempt at housing measures, this one was well thought out before signature-gathering began.

I am somewhat skeptical of the provision in the measure that outlaws landlords passing the parcel tax on to their tenants, because I don’t know how, without rent control, it could actually be enforced. But I believe that the small amount of the parcel tax at $8 a month, whether passed on or not, will be less of a burden than the funding provided to the low and moderate-income community will be a benefit.

Where will the tax money go?

None of the funds can be used to help subsidize a developer’s cost in meeting the affordable housing requirements they already have to meet because of various city ordinances. The funds can be used only to increase the number and affordability of units built above those statutory requirements.

Eighty-seven percent of the funds must be spent on affordable housing for those in our community who meet the requirements for low-, very low- or extremely low-income families. That means the housing will have to be affordable to households that make less than 60%, 30%, or even a lower percentage of the median household income in our county, which is currently $107,720. In other words, the housing constructed with this funding would have to be affordable by people making $70,000, or $35,000, or less a year. This part of the funding will be deposited in the city’s housing trust fund to support affordable housing projects.

Although it is possible that some of the homeless individuals in our community could get into housing if the funds are combined with social service funds for things like residential mental health, drug or alcohol treatment programs, most of the funding would support what is known as “workforce housing” – housing for teachers, city and county workers, police officers and firefighters.

Ten percent of the funding from the two taxes in the proposed measure may be used to help people who currently have housing from falling into homelessness. Many low-income families depend on two or more jobs to be able to pay their rents and if even one member of the family loses a job, the family can quickly find themselves on the street.

The city and county of Santa Cruz currently maintain a $150,000 fund to provide temporary rent loans when these situations occur. The proposed new measure would help provide up to $500,000 to make sure that we don’t increase homelessness while we are trying to address it.

Only 3% of the funds raised by the proposed measure can be spent on administration.

To be clear, the proposed measure will not provide sufficient funding to build housing that is affordable to people working at minimum-wage jobs like baristas or dishwashers employed at fewer than 40 hours a week. (An exception might be such young people who are either couples or willing to share small apartments with friends.) But this measure will provide affordable workforce housing for a huge number of individuals who currently have to commute long distances to work and provide essential services in our community.

The funds from this proposal include a preference for local residents and local construction workers to build them.

Given how little financial burden this proposed tax measure places on any of us, that is a goal worth accomplishing.