California cities face sales tax challenges from shifting online buying trends

The City of Santa Rosa Council meeting on April 15, 2025, highlighted significant challenges facing the city’s budget and services, particularly in light of changing consumer behaviors and funding structures.

A key discussion point was the impact of the shift towards online shopping, which has resulted in a decrease in sales tax revenue for Santa Rosa. As more residents purchase goods online, particularly from major retailers like Amazon, the city is seeing a portion of sales tax revenue redirected to the locations of distribution centers. This change in the sales tax code allows cities with these centers to collect more tax, effectively siphoning funds away from Santa Rosa. City officials emphasized the need for a fundamental change in California's sales tax system to address this issue, which is affecting many cities without distribution centers.

Another critical topic was the budget for professional services within the city attorney's office. The proposed budget cuts would reduce the professional services budget from $271,000 to approximately $85,000, a staggering 68% decrease. City Attorney representatives warned that such cuts would significantly hinder the city’s ability to access specialized legal services, impacting all departments, including public safety. The reduction could slow down projects and increase potential liability risks due to limited access to necessary expertise.

Additionally, the council discussed upcoming fiscal projections, including cost-of-living adjustments (COLAs) for city employees, which are set to be included in future budgets. The city anticipates a 4% COLA for the fiscal year 2026-2027, followed by a 3% increase in subsequent years.

As the city navigates these financial challenges, officials are hopeful for a substantive conversation regarding the CalPERS study by June, which could provide further insights into the city’s financial health and obligations.

The discussions from this meeting underscore the ongoing challenges Santa Rosa faces in adapting to economic shifts and managing its budget effectively, with direct implications for city services and community well-being.