Voters in the city of Santa Cruz are considering a proposal on the November ballot to tax sugar-sweetened and other high-calorie beverages, which city leaders say are fueling a public health crisis. But opponents, led by the beverage industry, say that the tax is unfair, and that it disproportionately targets low-income people. The opponents have raised a massive campaign war chest to fight the proposal.
Known as Measure Z, it would add a tax of two cents per ounce on beverages including sodas, juices, iced teas and coffees, energy drinks, and other pre-sweetened beverages with more than 40 calories per 12 fluid ounces. The measure would tax beverage distributors, but if fully passed on to the consumer, it would add $2.88 to the price of a 12-pack of 12-ounce CocaColas. That is a roughly 25% increase over current prices before sales taxes.
"Sugary drinks have the effect of increasing childhood obesity and other harmful health effects early in life that can continue on through life and then cause other very expensive health consequences,” said Santa Cruz Mayor Fred Keeley, who joined a unanimous city council vote in June to put the measure on the ballot.
The proposal exempts “essentials” including baby formula, medications and nutritional supplements, as well as alcoholic beverages.
The American Beverage Association has organized a broad coalition to oppose the measure. The Campaign for an Affordable Santa Cruz includes unions such as the United Food and Commercial Workers, community groups including Santa Cruz Black, and business owners like Carina Moreno of Tacos Moreno, a 30-year-old institution in the Midtown neighborhood.
“Inflation is up high everywhere. So having to pay extra cents, you know, it adds up,” she said.
She has placed signs in her restaurant on Water Street calling Measure Z “the last thing working families and small businesses need.” The signs are a small part of a large, well-funded campaign.
According to official campaign filings, the Campaign for an Affordable Santa Cruz had spent more than $1.7 million as of Oct. 19 to fight the proposal. By contrast, a campaign supporting Measure Z, the Committee for a Healthier Santa Cruz, spent about $43,000. The opposition’s biggest contributors are the manufacturers of Coke, Pepsi, and Dr. Pepper.
An advertisement in heavy rotation on television and social media appeals to voters’ wallets.
“It’s not fair to have this extra tax, when we’re already living in such an expensive area,” a young Santa Cruzan says in the ad.
Such massive fundraising in a city with only about 50,000 people of voting age speaks to the stakes in the referendum, which are much larger than a single tax in Santa Cruz. Both sides see the measure as an opening for similar taxes in other cities.
After the city of Berkeley passed a soda tax in 2014, then-California Gov. Jerry Brown signed the Keep Groceries Affordable Act of 2018, which prevented local governments from passing similar ordinances. But last year, an appeals court struck down the penalty provision of the law, ruling that it improperly chills charter cities from exercising their constitutional rights. If Measure Z passes, Santa Cruz would be the first test of that ruling's implications.
On a hot Sunday afternoon at Tacos Moreno, even some of the patrons who ordered sugary drinks said the additional tax has some merit.
“I mean, there’s obviously a health crisis,” said Sophie Medeiros, whose takeout order included two 16-ounce bottles of Coke. “I don't normally drink sweet drinks, but when I'm pregnant, I have the craving.”
“I don’t think it should be as widely distributed as it is and widely available,” said Medeiros, who said she was due in about two weeks. “Especially with children, having access to sugary drinks being the norm, instead of like a special, every-once-in-a-while kind of thing.”
While many customers at Tacos Moreno that afternoon opted for water or diet soda, and the American Beverage Association says the low and no calorie beverages—including water—now make up nearly 60% of consumption, Carina Moreno said the sugary drinks are still popular—and profitable—in her restaurant.
“Our customers, when they purchase a food item, they always get a soft drink with it, which contains sugar,” she said.
That begs the question of whether a soda tax will even work. Both sides in the Measure Z debate claim to have science on their side.
A University of California, Davis, study last year analyzed the soda taxes in Berkeley, Oakland and San Francisco, and found them to be ineffective.
“They didn't reduce consumption of the sugary beverages all that much. There was no evidence that they increased consumption of healthier beverages, such as bottled water,” said Richard Sexton, a co-author of the study, in an interview. “There was no evidence that they have an impact on obesity in the sense that even if people are buying less of sugary beverages, maybe they’re substituting some non-tax[ed] sweet product in their place.”
But backers of Measure Z cite a UC Berkeley study earlier this year that drew the opposite conclusion. Researchers analyzed soda taxes in five cities—San Francisco, Philadelphia, Oakland, and Boulder, Colorado, and found that consumption fell by 33%, as prices increased by the same amount.
“These taxes are quite effective in terms of health outcomes and societal cost-savings,” said Scott Kaplan, a lead author of the Berkeley study.
Mayor Keeley said that the price of a Coke is not the main point of Measure Z. The real benefit, he said, is the $1.3 million per year in revenue that the city projects the tax will raise.
“Public information and education have been very effective in the public health space, and using that money in that way has the greatest likelihood of getting a change in consumer behavior,” he said.
But the opponents note that under the proposal, revenue from Measure Z will go into the city’s general fund, where it could be used for anything.
Keeley said that is because under the California constitution, a tax for a specific purpose would require a two-thirds vote. But he promised that the money would be used for public health. And the proposal includes the appointment of a “community oversight panel” to recommend proper uses for the money.
“We will be faithful to the voters,” he said.
But the voters may not get the final word.
The opponents are vowing to go to court if Measure Z passes, and the city is preparing to fight back.
This story has been updated to reflect the most recent campaign finance reports covering the period through Oct. 19, filed with the City of Santa Cruz as of Nov. 5.
