In a notable move, a tax on sugary beverages is now in effect in Santa Cruz, a coastal city, marking a significant shift in local policy despite California’s prohibition on new grocery taxes since 2018. This 2-cent-per-ounce tax, which received voter approval last November, is the first of its kind in the state following the enactment of the controversial 2018 deal with the beverage industry. The American Beverage Association, a prominent critic, invested heavily to counteract the ballot measure in this small city of 60,000 residents, deeming the tax both unlawful and a potential drain on municipal resources. However, Santa Cruz city officials remain resolute, ready to engage in legal action against the state’s preemption law, with aspirations that their bold step will inspire similar movements across other regions.
Vice Mayor Shebreh Kalantari-Johnson of the Santa Cruz City Council emphasized the importance of democracy and resisting influential interests, stressing the community’s right to independently raise funds for local initiatives. As the representative body for major soda companies like Coca-Cola and PepsiCo, the trade organization stated on Wednesday its intention to evaluate future actions. Nonetheless, the tax was widely opposed by a coalition featuring labor unions and small businesses, who argue that the levy poses an unnecessary financial strain on families already coping with high prices.
For over a decade, health advocates have been campaigning for taxes on sugar-laden drinks, believing that increased costs could deter consumption of products associated with heightened risks of obesity, heart disease, and stroke. Critics, however, argue that such taxes adversely affect low-income households, disproportionately impacting those least capable of absorbing additional expenses while negatively affecting local businesses.
The city of Berkeley pioneered the nation’s first tax on sugar-sweetened beverages in 2014, which inspired other cities like San Francisco, Oakland, and Albany to follow suit, as well as Philadelphia; Seattle, and Boulder, Colorado. Attempts to establish a similar tax at the state level have not yet succeeded.
Back in 2018, Californian legislators enacted the Keep Groceries Affordable Act which prohibited local taxes on sugary drinks until 2031, in a contentious compromise. In return, the California Business Roundtable retracted a soda industry-supported ballot proposition intended to complicate any city or county tax hikes. As a result, Santa Cruz’s initial efforts to secure a vote on a sugary drink tax were halted, but city leaders remained undeterred.
That year, a councilmember and a health advocacy group initiated legal action, challenging the Groceries Act’s penalty clause for illegally impeding charter cities from governing local matters. The clause favored penalties that involved loss of sales tax revenue for charter cities that discussed sugary drink taxes. In 2023, a state appellate court ruled against this penalty clause, calling it unconstitutional, yet stopped short of denying the preemption itself. Consequently, Santa Cruz’s leaders were emboldened to reintroduce the tax measure, passing it by a narrow 52 to 48 margin in November despite minimal campaign funds compared to the opposition.
This new tax encompasses beverages such as sodas, iced teas, and sports drinks, imposing the charge on drinks with added sweeteners and over 40 calories per 12 ounces, while exempting small businesses with less than $500,000 in annual earnings. Carina Moreno, owner of Tacos Moreno, opposed the tax, expressing disappointment at its passage, fearing increased operating costs for her business already pressured by high sugar drink prices.
Advocates of the tax hail the success in Santa Cruz as remarkable, highlighting the opposition’s significant expenditure. Dr. John Maa, a San Francisco surgeon and prominent figure in the American Heart Association’s California committee, remarked on the victory as a major boost for proponents of soda taxes, suggesting that grassroots mobilization in smaller communities could chart the future for imposing taxes on sugary beverages.