Business Agenda Item 4c
STAFF REPORT
Business Agenda Item
DATE: May 4, 2026
TO: Honorable Mayor and City Council Members
FROM: Amy Nilsen, City Manager
SUBJECT: Transactions and Use Tax Measure
STAFF RECOMMENDATION:
Staff recommends that the Council:
1. Receive a report from staff regarding a proposed ballot measure to authorize an additional ¾-cent transactions and use tax within the City, commencing April 1, 2027, to fund essential services.
2. Introduce, on first reading by title only, and submit to the voters Ordinance 2026-785, an Ordinance of the City of Fortuna authorizing an additional City transactions and use tax to be administered by the California Department of Tax and Fee Administration, subject to approval of a majority of the electors voting on the tax measure at the general municipal election to be held on Tuesday, November 3, 2026.
3. Adopt Resolution 2026-12, which:
a. Submits Ordinance 2026-785 to the qualified voters at the November 3, 2026, general municipal election;
b. Requests the election on the ordinance be consolidated with the Statewide General Election;
c. Sets dates for submission of arguments for and against the proposed tax measure; d. Sets dates for submission of rebuttal arguments;
e. Authorizes the Mayor to submit a written argument in favor of the measure on behalf of the Council;
f. Requests the City Attorney prepare an impartial analysis of the measure; and g. Agrees to reimburse the County for the costs of conducting the election on the measure.
DISCUSSION:
In November 2016, a majority of voters approved a local ¾-cent transactions and use tax (Measure E) with the intention of funding previous cuts to public safety and to help maintain and enhance public safety services, support local businesses, provide essential services, and stabilize the City budget. The tax was originally set to expire on March 31, 2025; however, in November 2020, a Business Agenda Item 4c
majority of voters approved an extension of the tax through March 31, 2033. The proposed 2026 measure would not eliminate the current voter-approved ¾-cent transactions and use tax, which would remain in effect through March 31, 2033. Instead, the proposed measure would authorize an additional ¾-cent transactions and use tax commencing April 1, 2027. If approved, the combined City transactions and use tax rate would be 1.5-cent from April 1, 2027, through March 31, 2033, after which the existing voter-approved tax would sunset and the additional voterapproved ¾-cent tax would remain in effect unless ended later in accordance with the ordinance and applicable law.
Measure E revenues are essential for the City to maintain and continue to improve certain essential City services and to maintain a balanced budget. However, as discussed in more detail below, the City has experienced a significant increase in the cost of providing essential services since 2016 and additional funds are necessary to meet current and projected costs.
The City of Fortuna has experienced several consecutive years of structural financial challenges driven primarily by stagnant or declining revenues and rapidly increasing operational costs— particularly for public safety, insurance, and core community services.
1. How Fortuna Reached this Fiscal Crossroads
a. Sales Tax Revenues Are Not Keeping Pace With Inflation The City’s largest unrestricted revenue source is sales tax, and sales tax has not kept up with inflation. Under normal inflation, revenues would have increased to $5.2M by FY 2026–27. Actual projected revenues are only $4.1M. This results in a gap of over $1,000,000. This means the City effectively lost the purchasing power of nearly one million dollars over a five-year period. See below chart.
Business Agenda Item 4c
b. Transient Occupancy Tax (TOT) Revenues Have Declined Significantly Traditionally, TOT helps fund City services and tourism-related impacts. The City’s TOT revenue has dropped sharply since FY 2021–22. Expected inflation-adjusted TOT for FY 2026–27 is approximately $1.1M. Actual projected TOT is $700,000, a gap of over $400,000. This decline appears linked to regional lodging patterns and reduced tourism activity. See below chart.
c. Liability Insurance Costs Have Skyrocketed
Liability insurance—an unavoidable cost—has increased more dramatically than any other major expense category. Actual costs for liability insurance in fiscal year 2021– 22 were $435,894. Projected costs for fiscal year 2026-27 is $1,051,372, an increase of over $615,000, or over 140%. The resulting gap compared to inflation-adjusted expectation is over $500,000. These increases are consistent with statewide trends affecting municipal risk pools. See below chart.
Business Agenda Item 4c
The result of these three trends is a General Fund structural budget deficit. These combined trends demonstrate rising costs and flat to declining revenues. In order to address these trends the use of reserves and a hiring freeze has been put into place. In addition, there is a potential for reductions in services to maintain critical operations.
To better understand voter attitudes toward these challenges and gauge the feasibility of a future sales tax measure, the City commissioned EMC Research to conduct a statistically valid public opinion survey from February 23 to March 5, 2026, collecting 200 interviews with a margin of error of ±6.9%.
At a regular meeting held on April 6, 2026, the Council reviewed EMC Research public opinion results and subsequently voted to place a ¾-cent sales tax measure on the November 3, 2026 ballot.
The draft resolution incorporates the ballot language used during EMC Research’s public opinion polling and reviewed on April 6, 2026, as follows:
Fortuna Essential Services Funding Measure
Shall the measure to maintain essential City services, such as protecting public safety; increasing and restoring police officers; repairing aging/ deteriorating streets and potholes; providing programs for seniors and youth; and keeping parks clean and safe, by authorizing a ¾-cent sales tax in the City of Fortuna, generating $1,800,000 annually for general government use until ended by voters, requiring independent audits, community oversight, and all funds staying in Fortuna, be adopted?
Yes
No
Included with this Staff Report are two attachments:
• Attachment A is the final proposed ordinance that, among other things:
Business Agenda Item 4c
o Authorizes an additional ¾-cent transactions and use tax commencing April 1, 2027;
o Maintains the existing voter-approved ¾-cent transactions and use tax through March 31, 2033;
o Provides that from April 1, 2027, through March 31, 2033, the combined City transactions and use tax rate would be 1.5-cent;
o Maintains the independent audit requirement;
o Maintains the oversight committee; and
Preserves the authority to reduce or repeal the additional tax as provided in the ordinance.
• Attachment B is the final proposed resolution that, among other things:
o Submits the ordinance (Attachment A) to the qualified voters at the November 3, 2026, general municipal election;
o Requests the election on the ordinance be consolidated with the Statewide General Election;
o Designates the ballot title and question;
o Sets dates for submission of arguments for and against the proposed tax measure;
o Sets dates for submission of rebuttal arguments;
o Authorizes the Mayor to submit a written argument in favor of the measure on behalf of the Council;
o Requests the City Attorney prepare an impartial analysis of the measure; and
o Agrees to reimburse the County for the costs of conducting the election on the measure.
Authorizing an additional ¾-cent transactions and use tax will allow the City to continue to have more competitive salaries and fund special programs beyond normal operation. Not pursuing additional tax revenue will make it harder for the City to recruit and retain employees and limit the ability to do special projects. It is important to note, that while the sales tax would be administered by the California Department of Tax And Fee Administration (“CDTFA”), the revenues are earmarked exclusively for use by and within the City – the State would not be able to take or borrow these funds.
FISCAL IMPACT:
Without the proposed additional ¾-cent increase to the City’s existing transactions and use tax, the City will continue to lose the ability to fund all but the necessary projects and would struggle to retain staff by paying competitive salaries. If the tax is not increased in 2026 then the City would look to work toward balancing future budgets by reducing services and staffing. In addition, the following essential services would be at risk for elimination or reduction:
• Capital Improvement Projects (CIP) that are scheduled for the repair and/or replacement of deteriorated City infrastructure will continue to be postponed and/or cancelled • Fewer staff and maintenance projects for city streets • Fewer repair projects for city drainage facilities
Business Agenda Item 4c
• Fewer staff and expansion or improvement of city parks RECOMMENDED COUNCIL ACTION:
1. Receive a report from staff regarding a proposed ballot measure
2. Take public comment
3. Council discussion
4. Move to introduce, on first reading by title only, and submit to the voters Ordinance 2026- 785 (Two-thirds vote required). Roll Call vote.
5. By way of a separate motion, move to adopt Resolution 2026-12 and read by title only.
Roll Call vote.
ATTACHMENTS:
A. Ordinance 2026-785, An Ordinance of the City Council of the City of Fortuna Authorizing an Additional City Transactions and Use Tax to be Administered by the California Department of Tax and Fee Administration, Subject to Approval of a Majority of the Electors Voting on the Tax Measure at the General Municipal Election to be Held on Tuesday, November 3, 2026
B. Resolution 2026-12; A Resolution of the City Council of the City of Fortuna Ordering the Submission to the Qualified Electors of the City of Fortuna a Certain Measure Relating to a Proposed Ordinance Amending Chapter 3.13 of Title 3 of the Fortuna Municipal Code to Authorize an Additional City Transactions and Use Tax for General Purposes at the General Municipal Election to be Held on Tuesday, November 3, 2026, as Called and Proposed to the Qualified Electors by Resolution; Directing the City Attorney to Prepare an Impartial Analysis of the Measure; Setting the Dates for Arguments on the Measure; and Requesting the Board of Supervisors of the County of Humboldt to Consolidate Said Election Pursuant to Section 10403 of the Elections Code