STAFF REPORT
Meeting Date:
July 7, 2026
BUSINESS
16 SUBJECT: REVENUE MEASURE UPDATE – RECOMMENDATION FROM AD HOC
COMMITTEE
RECOMMENDATION: It is recommended that the City Council:
1. At the request of the Revenue Ad Hoc Committee, do not place a general tax revenue measure on the November 3, 2026 ballot; and instead
2. Direct staff to pursue the “deferral with a plan” strategy as described in this report. This strategy would work to reduce ongoing expenditures thoughtfully, while focusing outreach, education, and polling efforts on a single measure, a one-cent (1%) transactions and use (sales) tax, for placement on the November 3, 2028 General Municipal Election ballot; and
3. Find that the recommended action is not subject to the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378, and alternatively, is exempt pursuant to CEQA Guidelines Section 15061(b)(3).
SUMMARY OF THE MATTER
At the City Council’s June 9, 2026 study session, Council directed staff and the Revenue Ad Hoc Committee to further evaluate a possible transient occupancy tax (TOT) measure and a measure to increase the business license tax (BLT) on bars and restaurants.
Based on further polling on the BLT and other considerations explained herein, the Revenue Ad Hoc Committee respectfully recommends that Council not move forward on any revenue measure at this time, and instead to direct staff to work towards additional organizational efficiencies, and concentrate development, outreach, and polling efforts on a single measure: a one-cent (1%) transactions and use (sales) tax, for placement on the November 3, 2028 General Municipal Election ballot.
DISCUSSION
The attachments to this report describe the three revenue concepts considered since the Council’s January 30, 2026 Strategic Priorities discussion:
• A transient occupancy tax (TOT – also known as a hotel bed tax) increase from 12% to 14%, estimated to generate approximately $3.0 million annually;
• An increase in the Gross Receipts Tax associated with the Group 4 business license tax category (for bars and restaurants), estimated to generate approximately $8.6 million annually; and / or • A one-cent increase in the transactions and use (sales) tax, taking the local rate to 8.75% from 7.75%, estimated to generate approximately $7.8 million annually.
Of the three, the Committee believes that:
• The sales tax offers the strongest combination of generating the amount of revenue needed to achieve the City’s capital and operational goals along with a likelihood of voter approval – but possibly not in Fall 2026;
REVENUE MEASURE UPDATE – RECOMMENDATION FROM THE AD HOC COMMITTEE July 7, 2026
• The transient occupancy tax, though well-supported by voters, would generate revenue short of what is needed to fund the City’s significant infrastructure, public safety, mitigating visitor impacts, and wildfire-mitigation needs further described in this report; and • The business license tax – while interesting as a potential way to more fully offset visitor costs by raising revenue from visitor-frequenting businesses - tested poorly in two rounds of voter polling; Any general tax ultimately placed before voters would require a two-thirds (2/3) vote of the City Council (four affirmative votes) to place it on the ballot, followed by the approval by a simple majority of voters.
AD HOC RECOMMENDATION
As an alternative to placing a measure before the voters in November 2026, the Ad Hoc Committee recommends that the City Council direct staff to focus on developing a single measure (a 1% sales tax measure of general purpose) for the November 2028 General Municipal Election. In the meantime, the Committee believes that the City should continue to demonstrate:
(1) The diligence it has pursued and hopes to pursue in becoming a more efficient organization (in alignment with some of the suggestions offered by Council Members Kempf and Rounaghi as a part of their Budget Ad Hoc Committee work);
(2) The need for additional capital investment, affirmed by a specific spending proposal / plan that clearly identifies infrastructure needs and expected costs; and (3) The costs associated with ensuring the city and its resources are not adversely impacted by overtourism.
The Committee also believes that the sales tax is best positioned to both succeed (because of modestly favorable polling) and provide the revenue needed (about $8 million a year in ongoing General Fund dollars) to accomplish necessary capital and operational goals (again, please see Attachment 2). Of further assistance may be an early process to appoint an Oversight Committee (see discussion in Attachment 1).
FINANCIAL ANALYSIS
As discussed, this item is all about fiscal issues – but the discussion of it has no direct fiscal impact right now.
ALIGNMENT WITH CITY COUNCIL GOALS AND PRIORITIES
The recommended action directly supports the City Council’s adopted 2026 Strategic Priorities. It advances City Fiscal Sustainability, which identifies long-term challenges between expenditure growth and revenues, the cost impact of managing six million visitors annually, the cost of wildfire mitigation, and a phased approach to the Facilities Master Plan.
ENVIRONMENTAL ANALYSIS
The recommended action is not a project subject to the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15378 because it involves calling an election and placing proposed general tax measures before the voters, which does not commit the City to a specific project and will not result in a direct or reasonably foreseeable indirect physical change to the environment. Alternatively, the action is exempt under CEQA Guidelines Section 15061(b)(3) because it can be seen with certainty that there is no possibility that the action may have a significant effect on the environment. Any future projects REVENUE MEASURE UPDATE – RECOMMENDATION FROM THE AD HOC COMMITTEE July 7, 2026
funded by revenue from the measures, if approved by the voters, would be subject to separate environmental review as required. No further environmental review is required for this action.
ATTACHMENTS
1. Discussion / summary of City Council actions and revenue concepts (Pgs. 4-10)
2. Draft Spending Plan (Pgs. 11-14)
3. Probolsky Research 2026 Voter Poll Results – BLT Question (Pgs. 15-30)
4. June 9, City Council Study Session (Pgs. 31-94)
https://lagunabeachcity.primegov.com/Portal/Meeting?meetingTemplateId=894
5. Draft presentation for July 7, 2026 (Pgs. 95-108)
Submitted By: Dave Kiff Approved: .David A Kiff
Dave Kiff, City Manager Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Gavin Curran, Assistant City Manager Megan Garibaldi, City Attorney Ad Hoc Committee