Despite a half-cent increase in its sales tax, the City of Santa Barbara has fallen short of its revenue projections for the end of its 2025 fiscal year.

The city took in $7.3 million in sales tax revenue during the final quarter, about 8.4% below budget for the quarter.

For the full fiscal year, which ended June 30, the city’s revenue came in 6.1% under projections. The city estimated to take in $31.2 million for the year and took in $29.3 million.

Although it was passed last November, the city’s sales tax increase went into effect April 1.

“Sales tax is our most volatile revenue, and any slight changes in consumer confidence can change spending patterns, especially for discretionary items like general retail items,” City Administrator Kelly McAdoo said. “Political instability or insecurity also causes people to pause spending. All of these could be factors in the decline. We are obviously monitoring this very closely.”

The city’s sales tax rate is 9.25%.

McAdoo said there has been little growth in most economic sectors in fiscal year 2025.

Retail and transportation experienced declines, while food products and construction saw some growth. Inflation being high typically would generate more sales tax revenue for the city; however, with interest rates and the cost of living still being high, that may have resulted in lower revenues than originally anticipated, McAdoo said.

McAdoo noted that for Measure I, the sales tax increase, the city budgeted $3 million and took in $3.8 million.

Santa Barbara City Councilwoman Meagan Harmon said political uncertainty affects the economy.

“With more uncertainty comes less non-essential spending,” Harmon said. “Understandable or not, though, it’s very difficult for our city budget to see this key revenue source decline. We have strong planning and protection measures in place to manage fluctuations like this, but it is clear that we need to redouble our efforts toward diversifying our local economy to better insulate the city from consumer volatility.”

Santa Barbara is currently trying to get a handle on the future of State Street, and whether to keep the street closed for people on electric bikes or return the street to vehicular traffic. Downtown has several vacant storefronts.

“Growth of the blue economy, development of an innovation and technology hub downtown — these are actionable economic opportunities that we can and should pursue, right now, for the benefit of our whole town,” Harmon said.