Laguna Beach defers proposing new taxes to voters until 2028

Laguna Beach voters will not be asked to approve a 1% sales tax increase this November after a poll showed tepid support to the proposal, but the city will begin the process of pitching the idea to residents for the 2028 election.

About 50% of Laguna Beach residents surveyed were in favor of the measure, according to polling conducted for the city by Probolsky Research. City officials typically hope to see about 60% support for measures that require voter approval before placing those on a ballot.

The rate increase would have boosted the local sales tax from 7.75% to 8.75%, possibly raising an estimated $7.8 million annually.

“It’s a significant amount of funding that could address a lot of the city’s capital needs,” City Manager Dave Kiff told the City Council during its meeting July 7. “And it does come close to majority support in polling.

“[But] The polling showed that there’s still a significant amount of Laguna Beach resident that say: ‘I don’t think the city needs the money,’ and that’s a fair opinion,” Kiff said. “There’s an argument, continued discussion needs to be had. So the recommendation is to defer, but not defer without a plan.”

Given the uncertain chances of the tax increase’s acceptance, the City Council unanimously voted to defer posing new revenue-generating measures in November. In the meantime, city officials will search for more ways to cut costs from the budget and spread awareness about the proposed sales tax increase in hope of building enough support to pass it in the 2028 election.

Currently, the city’s budget for the 2026-27 fiscal year runs at a deficit. Despite cost-cutting measures resulting in the elimination of about seven full-time positions and a $1-million reduction in service expenses, it required a one-time injection of $2.3 million from the city’s capital improvement fund to cover projected operating costs.

In addition, critical expenses like growing employee pension obligations, the replacement of aging public facilities and wildfire prevention projects loom on the horizon.

“Our own forecast shows that gap widening,” according to a memo by a fiscal sustainability ad hoc committee that includes Councilmembers Sue Kempt and and Alex Rounaghi. “... Restraint alone will not close a structural gap, and the pressures that make that gap matter are no longer far off.”

The money generated by a 1% sales tax increase could fund improvements to libraries, beaches, parks as well as police and fire stations. It could help pay for underground power lines to prevent wildfires and emergency power shutoffs, as well as affordable housing for seniors and the city’s workforce. It also could have added about $960,000 annually to the city’s reserve funds, according to reports by city staff.

Several of the seven people who attended the July 7 meeting in person and online said the city should remain open to exploring additional revenue measures alongside the sales tax increase.

One proposed alternative was to increase the business license tax on bars and restaurants, currently capped at $1,650 each year, to 3% of gross receipts. That could have raised about $8.6 million annually. But it was significantly less popular than the sales tax increase in polling due to concerns it would burden or potentially drive away small businesses.

Increasing the transient occupancy tax applied to hotels and short-term rentals and was an option that garnered as much as 75% support in the poll, in part because it would mostly affect visitors instead of residents. But that would have only raised about $3 million annually.

Laguna Beach is far from the only city in Orange County grappling with expenses outpacing revenue. In June the Huntington Beach City Council approved a budget that eliminated staff and tapped into reserves to gap a $15-million structural deficit. Santa Ana had to slash costs from its budget to make up for a $13-million deficit.