Key Takeaways

• The 2008 Great Recession caused Sacramento’s revenues to drop from $965.5 million in FY 2009 to $797 million by FY 2012, which led to a reduction in personnel and a draining of its general fund reserves.
• The city asked voters for a temporary six-year increase in the sales tax by a half-cent in 2012, which was approved by 64 percent of voters.
• This resulted in approximately $47 million in extra annual revenue between 2013-2019. Before the measure was set to expire, the voters approved an extension and an expansion of the tax from one half-cent to a full cent.

Background

Sacramento is California’s sixth largest city. As state capital, its biggest employers are the state and county governments. However, the tourism and financial sectors also play a key economic role.

Financial Problem

The Great Recession caused the city’s revenues to drop from $965.5 million in FY 2009 to $797 million by FY 2012. Due to binding caps on property tax rates and assessed values, the city had limited ability to increase revenue from this tax. This led the city to reduce personnel and draw on reserves, which led general fund reserves to fall from $72 million (FY 2009) to $10.5 million (FY 2012).

Policy

The city asked voters for a temporary six-year increase in the sales tax by a half-cent in 2012 (to expire in 2019). The revenue would be directed toward services that had been cut back following the recession. The promise of restoring service levels played a major role in approval by voters, who endorsed the tax by a 64-36 margin. The fire and police chiefs, as well as public safety associations, played a key role in advocating for the tax increase, which enabled the city to recover 195 positions in the Police Department, 90 in the Fire Department, and 137 in the Department of Parks, Youth, and Community Enrichment.

Effect over time

The tax generated approximately $47 million in annual revenue between 2013-2019. Sacramento’s example shows that voters may find an increase more palatable if it has a fixed expiration date and is connected to service provision.

City voters approved an increase of the sales tax to a full cent in 2019 when the initial half-cent increase was set to expire. The approval was influenced by city leaders’ vision to use funds for economic development and equity rather than for operational expenditure like salaries and pensions.