DISCUSSION / SUMMARY OF CITY COUNCIL ACTIONS / REVENUE CONCEPTS Since the City Council’s February 2026 Strategic Priorities discussion, the City and the Revenue Ad Hoc Committee have completed substantial outreach, polling, and analysis. This section summarizes that work and the resulting recommendation.
Background and Process Timeline
Date Action
February 24,
2026
City Council confirmed the 2026 Strategic Priorities, including City Fiscal Sustainability and evaluation of a potential November 2026 revenue measure.
February–May
2026
City conducted community outreach, including four Town Hall meetings and an online community survey.
May 19–27, 2026 Probolsky Research conducted a statistically valid voter poll of 400 likely November 2026 voters (margin of error +/-5%).
June 9, 2026 City Council study session; Council directed staff to poll more on the viability of a Business License Tax increase on restaurants and bars, as well as to return with resolutions that could place either a TOT measure (12% to 14%) or a business license tax measure for bars and restaurants on the November 2026 General Election ballot.
June 19, 2026 June 19–24, 2026: Probolsky Research conducted a second voter poll (400 likely voters, +/-5%) focused on the viability of a business license tax measure.
July 7, 2026 City Council considers deferring placement of a revenue measure on the November 2026 ballot and directs staff to develop a sales tax measure for the November 2028 ballot (this report).
Why is the City looking for a new revenue source?
Over the past several years, the City has faced sustained cost pressures, including public safety staffing costs, pension liabilities associated with workforces long retired from Laguna Beach, rising insurance costs, wildfire mitigation and fuel modification scope expansion, and the maintenance and replacement of aging infrastructure and facilities, such as our four fire stations.
To help balance the Fiscal Year 2026-27 budget, the City has already taken significant steps to reduce costs, including eliminating a net of seven full-time positions, reductions in part-time hours, and reducing contracts and capital outlay.
Looking ahead, the City faces several major long-term obligations that the current revenue base may not fully support. These include the Facilities Master Plan and the condition of aging City facilities (such as fire stations, the library, and community centers); the costs of providing services like beach cleaning, restroom maintenance, trash removal, and nuisance citation enforcement associated with our significant visitor base, and the continued investment in wildfire risk reduction and utility undergrounding along evacuation routes.
Attachment 1
4 Community outreach was conducted between February and May 2026, including four Town Hall meetings and an online community survey, and voter polling by Probolsky Research confirmed both the level of community concern and a recognition of fiscal impact. Likely voters said that the City has a need for additional funds to maintain the level of services and facilities residents use; reducing wildfire risk ranked as the highest-rated priority; and traffic congestion on Coast Highway and Laguna Canyon Road, and the impact of visitors on the community were among the most frequently cited concerns.
A recurring theme throughout outreach was that daytime visitors should pay a greater share of the costs of the services they generate before the City turns to resident-paid revenue sources.
Two of the revenue measures reviewed significantly relate to visitors – another (the sales tax) does, too, but to a lesser extent. A summary of each follows:
TRANSIENT OCCUPANCY TAX
The Transient Occupancy Tax (TOT) is a tax paid by guests of hotels and short-term lodging; it is not a tax on residents’ homes or property. The proposed measure would increase the City’s TOT rate from 12% to 14%, effective July 1, 2027. The existing 2% Tourism Marketing District (TMD) assessment would be maintained, resulting in a combined lodging tax rate of 16%. The measure is estimated to generate approximately $3.0 million in new revenue annually.
In addition to the rate change, the proposed ordinance would modernize and update the definition of “rent” and require that TOT be collected on the full amount paid by the guest, including booking fees, commissions, and other lodging-related charges. It would also strengthen collection and enforcement requirements for online travel companies (OTCs) and booking platforms such as Expedia, Booking.com, Airbnb, and Vrbo. As a general tax, the measure requires approval by a simple majority of voters.
How does Laguna Beach’s TOT rate compare?
Laguna Beach’s current 12% base rate (not including the 2% TMD) is already in the upper range among Orange County cities, most of which levy between 8% and 10%. At the proposed 14% rate, Laguna Beach would remain below Anaheim and Garden Grove (15%) and above Tustin (13%) on the base rate, while the combined 16% lodging rate reflects the City as a coastal destination.
Voter support
Polling shows strong support for the TOT measure. In the May 2026 voter poll, 74% of likely voters initially said they would vote yes, rising to 75% after hearing additional information about the measure. Sixty-eight percent (68%) said they were more likely to support the measure knowing that it is paid only by hotel and short-term rental guests rather than by residents. When asked which measure(s) should go before voters, the TOT measure received the highest level of support of the three concepts tested.
Additional consideration: higher rate on short-term lodging At the June 9, 2026, study session, the City Council discussed whether short-term lodging should be taxed at a higher rate than hotels but did not identify a specific rate. Staff estimates that each additional 1% applied to short-term lodging would generate approximately $100,000 in new 5 revenue annually. The proposed TOT measure applies a single, uniform rate, which the measure establishes as the maximum rate approved by the voters. The Council may set the actual rate at or below that voter-approved maximum, but cannot exceed it without returning to the voters.
As a result, the Council could create a differential without a new ballot measure. For example, by lowering the rate applied to hotels while continuing the existing rate on short-term lodging. If, instead, the Council wishes to set a higher maximum rate for short-term lodging than the rate approved for hotels, staff would need to return with revised ordinance language and a corresponding ballot question for the Council's consideration.
BUSINESS LICENSE TAX
The City’s business license tax for bars and restaurants is currently subject to an annual cap of $1,650, which has arguably not kept pace with the costs that visitor-serving businesses and their patrons place on City services. The proposed measure would create a new Group 4 business license tax category specific to bars and restaurants, remove the existing $1,650 annual cap, and impose a 3% tax on gross receipts for businesses in that category, effective January 1, 2027. No changes are proposed to the business license tax for any other category. The measure is estimated to generate approximately $8.6 million in new revenue annually. As a general tax, the measure requires approval by a simple majority of voters.
Voter support – May Survey
Of the three revenue concepts tested in the May 2026 voter poll, the business license tax measure drew the least support. Initially, 41% of likely voters said they would vote yes and 48% said they would vote no. When presented with competing statements, 46% agreed that the increase would be a burden on businesses, compared with 40% who agreed that the new revenue would be paid largely by visitors and would offset visitor impacts. When asked which measure(s) should go before voters, the business license tax measure was selected by the smallest share of respondents.
Voter Support - June Survey (see attachments)
Following the Council's direction to conduct additional message testing on the business license tax, Probolsky Research conducted a second survey of 400 likely voters from June 19–24, 2026 (margin of error +/-5%), focused specifically on this measure. The survey tested the ballot question itself, informed voter questions, and a series of supporting and opposing messages.
On an initial reading of the ballot question, 47% of likely voters said they would vote no and 33% said they would vote yes, with the remainder undecided. After hearing both supporting and opposing information, support did not improve: 50% said they would vote no on the informed question, and of those, 61% were firmly opposed. When asked to choose between two resident statements, 52% agreed that the tax would increase costs for residents and harm local restaurants.
Message testing showed supportive messages had a meaningful but limited effect, the strongest being that every dollar raised would stay in Laguna Beach (55% more likely to vote yes) and that funds could reduce wildfire risk (49%). Opposing messages were at least as strong: the message that the tax could cause bars and restaurants to close and increase storefront vacancies moved 71% of voters toward no, and the "less competitive" message moved 51%. 6 Taken together, the May and June polling indicate that the business license tax faces the most significant voter resistance. Initial opposition exceeded support in both surveys, support did not improve after voters received additional information in the June poll, and opposition messaging focused on potential impacts to local bars and restaurants tested as highly persuasive. The results of the BLT questions are included for Council’s and the public’s review.
Informing the public about a complex measure
Unlike the TOT and Sales Tax, which voters readily understand, the business license tax is a more complicated measure to explain. It changes the structure of an existing tax, removing a fixed annual cap and replacing it with a percentage of gross receipts, and applies only to a single category of business. Gross receipts taxation is unfamiliar to most voters, and the distinction between a tax on the business and a tax on the customer can easily be blurred. Because of the measure’s complexity, staff would recommend a robust public information effort to educate voters along with continued survey testing (should the Council wish to proceed with a BLT measure in 2028).
SALES TAX (TRANSACTIONS AND USE TAX):
At the June 9, 2026, study session, the City Council directed staff to return with the transient occupancy tax and business license tax measures and did not advance a general sales (transactions and use) tax measure. The Revenue Ad Hoc Committee has since requested that the City Council reconsider its direction and focus on a one-cent (1%) transactions and use tax as the single measure to develop for the November 2028 General Municipal Election ballot.
Voter support – May Survey
Of the three revenue concepts tested in the May 2026 voter poll, the sales tax measure drew 48.8% support with an informed vote. This is a meaningful improvement from the initial vote and from previous polling.
A resolution and ordinance giving effect to that measure are provided as a draft attachment to this report so that, should the Council wish to proceed in 2028, it and the public has a baseline document to memorialize and discuss between now and November 2028. 7 If reconsidered and approved by the Council, the measure would ask voters to establish a one percent (1%) transactions and use tax, deposited into the City’s general fund. The tax is estimated to generate approximately $7.8 million in new revenue annually and would remain in effect until ended by voters, with annual independent audits and public disclosure of expenditures. As a general tax, the measure would require approval by a simple majority of voters, and a two-thirds (2/3) vote of the City Council (four affirmative votes) would be required to place it on the ballot.
COMMUNITY SENTIMENT AND VOTER CONCERN
Residents' overall assessment of the City of Laguna Beach government has remained relatively stable over the long term, with the 2026 results returning to the City's historical norm after a favorable 2025. In the June 2026 survey, 39% of likely voters rated the overall job the City is doing as good and 36% as fair, while 22% rated it poor. Positive ratings have hovered in the low 40s for roughly a decade, comparable to the share giving favorable marks in the City's 2016 survey, rose to a high of 50% in 2025, and have since settled back to 39%. Viewed in that longer context, the 2026 figures are better understood as a return to baseline consistent with a broader softening in public assessments of government in recent years.
Also, residents' concerns have been strikingly consistent over time. Traffic congestion on Coast Highway and Laguna Canyon Road has ranked as residents' leading concern for the better part of a decade, appearing at the top of the list in the City's 2016, 2025, and 2026 surveys alike, alongside persistent concern about traffic on local streets and the impact of visitors. In the June 2026 survey, roughly two-thirds of respondents cited tourism impact (66%) and Coast Highway/Laguna Canyon traffic (69%), and 78% agreed that the City spends tens of millions of dollars each year addressing the impacts of day visitors, with much of that cost borne by residents rather than visitors. These findings indicate that residents broadly recognize the visitor-related cost pressures that motivate the proposed revenue measures, even as their overall view of City government has grown modestly more critical.
Wildfire risk also remains a concern for residents. In June 2026, 94% of respondents reported being concerned about wildfire risk in Laguna Beach, and reducing wildfire risk has ranked as voters' single highest priority, registering as the top priority in surveys as far back as 2016, while also showing the largest gap between importance (61%) and satisfaction (28%) in 2026 polling.
This also carries into how voters respond to revenue measures: on the proposed business license tax, the wildfire-mitigation message was the second-strongest argument tested, moving 49% of voters toward yes.
REVENUE AD HOC COMMITTEE’S RECOMMENDATION: PROCESS AND
RATIONALE
The Revenue Ad Hoc Committee held discussions with representatives of the hotel industry, residents, and other community members over the course of this process, in addition to reviewing the results of the City’s May and June 2026 polling.
Through those discussions and the polling results described in this report, it became clear to the Committee that there is meaningful concern in the community about the imposition of any new tax. The Committee concluded that more work (including a detailed spending plan), further outreach, further local government efficiencies, education, and refinement of the ballot question 8 are needed before any measure is brought before voters, which is why the Committee recommends deferring placement of the revenue measure in favor of the more deliberate timeline for November 2028. In reaching this recommendation, the Committee was also mindful of the risk of getting ahead of voters on a decision: presenting a measure before it is well understood and broadly supported risks the very revenue outcome the City is trying to secure. The additional time will allow the City to build on the outreach already completed.
At the same time, it also became clear to the Committee that the cost of delivering City services and maintaining and replacing City infrastructure continues to rise. As shown in the Draft Spending Plan below, the TOT measure, generating an estimated $3.0 million annually, is a good and meaningful amount of new revenue, but does not cover the City’s significant infrastructure needs and rising public safety costs.
The Committee found that the sales tax measure would do substantially more. Over a five-year period, the difference between the two measures is approximately $26 million: roughly $15.8 million for the TOT measure compared with roughly $42.1 million for the sales tax measure. The Committee determined that this difference is significant enough to fund, on a pay-as-you-go basis, both critical infrastructure, such as the replacement of the City’s aging fire stations and wildfire mitigation, and quality-of-life improvements, such as improvements to parks and trails, that the TOT measure alone would not support.
These are the services and facilities residents rely on directly, safe streets and fire stations, wellmaintained parks and trails, and reliable emergency response, and the Committee believes the additional time between now and 2028 should be used to more clearly show voters how the revenue would be spent and the benefit it would provide to the community, so that any measure ultimately placed before voters reflects a shared understanding of its purpose.
OVERSIGHT COMMITTEE
A recurring theme in the City’s community outreach and survey is that residents want assurance that new revenue will be spent as promised. To strengthen public confidence and accountability, the City Council could establish a citizens committee to serve in two phases: one to help confirm the City’s needs and review a proposed spending plan well before the election, and a second to oversee spending after voters approve a measure.
Before the Election: Given the additional time before the November 2028 election, the City Council could convene a citizens review committee to help confirm the City’s infrastructure and operational service needs, review a proposed spending plan, and provide independent input on the case for whichever measure the Council ultimately places before voters. This kind of pre-election confirmation is intended to give voters confidence that the need is real and the plan is sound before they are asked to decide, building on the outreach and polling already completed.
After the Election: If a measure is approved by voters, the City Council could establish a citizens’ oversight committee to review the use of that revenue. Because each of the measures described in this report is a general tax deposited in the General Fund, the committee would serve in an advisory and transparency role; it would not direct appropriations or supersede the City Council’s authority 9 over the budget, but it would provide independent, public review of how the funds are received and spent relative to the priorities identified in the spending plan.
Similar to previous committees of this kind, staff anticipates that either committee would be composed of Laguna Beach residents appointed by the City Council, and could include members with backgrounds in finance, accounting, business, or public budgeting. Each committee’s size, member qualifications, terms, and meeting frequency would be defined by the City Council.
The oversight committee’s core responsibilities, once revenue is collected, would be to review, on at least an annual basis, the revenues received and expenditures made from the revenue measure; to confirm that those expenditures are consistent with the spending plan presented to voters; and to report its findings to the City Council and the community through an annual public report. This review would complement the annual independent financial audit.
Should the City Council wish to establish a citizens committee in either or both phases, the Council can provide direction at this meeting. Staff would then return with the recommended structure, membership, and duties of the committee(s) well in advance of the first full year of revenue collection.
10