SANTA CRUZ, California — A California surfing idyll may determine whether soda is poised to go the way of Big Tobacco, banished to the outskirts of modern consumption habits.
Over the past decade, soda companies have invested tens of millions of dollars fighting targeted excise taxes from Mexico to the Philippines, policies developed as part of a global push to make sugary drinks harder to access with the goal of reducing obesity. But a municipal initiative in Santa Cruz could next month reopen the conflict not far from where it first began: at the local ballot in another Northern California college town.
In 2014, Berkeley passed the first modern soda tax over an onslaught of spending from Coke, Pepsi and Dr. Pepper. The tax generated millions of dollars in funding for community health programs, and became a model for other American cities — from neighboring Oakland and San Francisco to Philadelphia and Denver — to adopt similar taxes of their own.
But in California, the companies succeeded in shifting the fight from progressive cities to a state capitol where the influential American Beverage Association still had sway. In 2018, industry lobbyists succeeded in pressuring the Legislature to pass a bill banning local governments from enacting new soda taxes for six years.
With next month’s vote, Santa Cruz officials hope theirs will be the first city to attempt to defy that ban by winning voter approval for Measure Z. The two-cent-per-bottle tax is specifically crafted to provoke a lawsuit over the constitutionality of the 2018 state law.
The companies which fought relentlessly to defeat Berkeley’s tax in 2014 are thus far doing little to prevent its renewal there this fall. But they see a serious threat 75 miles away, where passage of the Santa Cruz measure could force the beverage industry to fight this battle before voters in every other city in the state.
Those soda giants are now descending on the Santa Cruz boardwalk with a familiar playbook, relying on seemingly bottomless corporate resources to flood the city with an anti-tax message updated for a new moment in which soda has lost its stranglehold on the American palate.
“These companies are very large, they’re very visible, and they touch almost every part of the culture,” said Duane Stanford, the editor and publisher of Beverage Digest, a 40-year-old trade journal serving the beverage industry. “The last thing they want is to have some jurisdiction in a part of the country that may be in the minority creating an atmosphere that would suggest this is a good policy outcome.”
Losing in the cities, winning in the state
PepsiCo, Coca-Cola and Dr. Pepper have a combined market cap of approximately $540 billion, about the same as the GDP of Argentina. In 2014, the full force of that economic power arrived on the leafy streets of Berkeley, a city known for its far-left politics, anti-consumerist mindset and history of lively protest.
The soda industry had successfully fended off at least two dozen cities and states that had previously tried and failed to tax its products, including at the ballot two years earlier in nearby Richmond.
But Berkeley’s initiative differed from other failed attempts. The measure would impose a one-cent-per-ounce sales tax on all beverages sweetened with sugar — including juices and teas in addition to soft drinks — but instead of arriving at the register, it would be structured as an excise tax that hit corporations for the privilege of distributing their product in the city. Revenue would then be directed to the general fund so it could be disbursed by a commission made up of residents to help inform people about the health risks of sugary drinks.
The American Beverage Association blanketed the city with ads arguing the tax was a regressive measure that would most hurt the poor. At the downtown Berkeley metro station, No on D billboards filled every wall. The regional transit agency added campaign stickers on the floors of train cars once its advertising sales people realized that the industry wanted to spend even more money getting its message out.
“It's kind of crazy how much power they have,” said Xavier Morales, the director of a local health and social justice organization who served on the Yes on D steering committee. “You think about fossil fuel companies, Big Pharma — and then there’s the beverage industry.”
Soda companies outspent proponents many times over, but couldn’t forestall a landslide victory for Measure D. Two years later, three more soda taxes — in the neighboring cities of Oakland, Albany and San Francisco — passed at the ballot by wide margins. Much of the push to expand beyond Berkeley was heavily funded by former New York City Mayor Mike Bloomberg, whose Bloomberg Philanthropies became a driving force internationally for taxing sugar.
“Everyone thought, ‘Here's this wave, we started something’,” said Lolis Ramirez, a former staffer for Tramutola LLC, an Oakland-based political consulting firm behind the Yes on D campaign.
Although the one-cent tax per ounce of soda wasn’t an existential threat to the companies — many of which have diversified their holdings into snack foods and non-sugary beverages — they had reason to worry about a broader cultural effort to stigmatize their most famous products, just as regulations and education over tobacco in the 1980s prompted a generation of declining smoking rates.
As other California cities prepped their own soda tax measures, the American Beverage Association turned its attention to Sacramento, where it already had well-established relationships with consultants, lobbyists and politicians. In 2017 and 2018, beverage lobbyists spent over $1 million each year to court lawmakers with Maui dinners, IMAX screenings and Sacramento Kings tickets.
Then the soda giants weaponized the same ballot-measure politics tormenting them across the Bay Area. In 2018, they spent millions more to qualify for the ballot a state constitutional amendment that would serve as a financial guillotine over the collective head of California’s local governments. The proposal would have required a two-thirds voter approval for any new local taxes, potentially crippling cities’ ability to fund services. Gov. Jerry Brown called the amendment an “abomination” and demanded that lawmakers seek a compromise.
With that leverage, beverage lobbyists were able to extract a favorable deal from the state: it would drop pursuit of the constitutional amendment in exchange for a ban on all new soda taxes until 2031. The so-called Keep Groceries Affordable Act contained a heavy penalty for any effort at defiance. Any city that even put such a tax before voters would lose access to its sales tax revenue.
The looming tidal wave of local threats to soda immediately subsided. In Stockton, a nonprofit that had collected signatures for a sugary-drink tax initiative abandoned them. In Santa Cruz, the city manager recommended a measure already on the ballot be pulled. Watsonville and Davis walked away from their proposed taxes.
It was a remarkable turnaround for the beverage industry, whose power only grew when Rick Rivas, the brother of Assembly Speaker Robert Rivas, was hired as the vice president of the American Beverage Association’s California dealings. Even as the global push to tax soda continued to gain momentum — Ireland, Malaysia and South Africa all enacted new soda taxes between 2018 and 2020 — the industry appeared to have succeeded in killing it off in California.
But a small Fresno health advocacy group and a Santa Cruz politician had quietly teamed up to test the Keep Groceries Affordable Act’s power to keep the taxes at bay in California. They filed a lawsuit challenging the sales tax penalty for violating the state constitution’s “home rule” authority that gives the 108 charter cities broad power to make and enforce municipal ordinances.
The plaintiffs argued that the drafters of the tax ban added the penalty as a deterrent because they knew they lacked the power to directly dictate city policy. In 2021, the Sacramento County Superior Court agreed that the penalty provision was unconstitutional, a ruling affirmed two years later by an appeals court.
The penalty was struck down, but the actual soda tax ban itself remained on the books even though the state lacked any mechanism to enforce it. To get an appellate court to rule on the ban itself, a charter city would have to attempt to enact one and invite a challenge from businesses who claimed to be harmed by it. Santa Cruz City Councilmember Martine Watkins began working earlier in 2024 to win support from her colleagues for what would likely be the prelude to an expensive legal battle.
In June, after weeks of discussion the Santa Cruz City Council voted unanimously to place a two-cent soda tax on the fall ballot. If it passes, a lawsuit from soda companies appears inevitable. But first the tax has to get by voters.
Using the Big Oil playbook against Big Soda
Santa Cruz is, in some ways, an unlikely candidate to challenge some of the richest companies on the planet. The town is defined by the slow waves coming off the Pacific and the laid-back atmosphere of a small college town.
But the city is also highly educated, and has a history of planting its flag on controversial issues. Throughout the 1980s, Santa Cruz was at the forefront of local municipalities’ efforts to stop the federal government from drilling for oil off their coast by successfully regulating onshore support activities.
“This is like taking on the oil companies,” Mayor Fred Keeley, a Democrat who previously served in the state assembly, said of the soda fight. “We did this with our eyes wide open. The industry isn't even pretending that they're not going to sue over this.”
Weeks before the soda tax had been given a ballot letter, the soda industry made its presence known through a coalition called the Campaign for an Affordable Santa Cruz. Rick Rivas called the mayor on a “number of occasions,” according to Keeley, to warn of what would happen if Santa Cruz were to move forward with the tax. (Keeley would not specify the warning, and Rivas did not respond to an interview request.)
The American Beverage Association has employed D.C.-based political consulting firm Dewey Square to lead operations in the city. They’ve won endorsements from Teamsters and United Food and Commercial Workers Union locals and saturated Santa Cruz neighborhoods with flyers and pamphlets.
They reflect a message refined since defeat in Berkeley 10 years ago. The No on Z campaign continues to rely on progressive populist anti-tax themes — that it will disproportionately hurt minority consumers and small businesses — with a new twist that the tax will cost the city an enormous amount of money to defend in court. (Nevermind that the beverage industry would be the ones bringing the lawsuit.)
But industry voices now point out that consumer shifts have already led to a dramatic decrease in the consumption of sugary beverages, even as the obesity and diabetes epidemics have grown, and that no-sugar drinks and flavored water now take up half the grocery store aisle. The beverage industry maintains that studies show reductions in beverage purchases are offset by people buying their product over city limits. Calories from beverages are already declining. Soda companies are now “total beverage companies” — driven by coffee, tea and sports drink sales as much as soft drinks.
“California beverage companies are using their strengths in product innovation to offer more choices with less sugar and clear information to drive significant reductions in the sugar people get from beverages,” American Beverage Association Vice President William Dermody said via a prepared statement. “Today, 60% of beverages sold have zero calories.”
Still, the level of spending and opposition has yet to reach the high-water mark of $2 million set in Berkeley in 2014. Although there's still time before the election, the astroturf rallies and media ad buys that defined the previous campaigns have not yet materialized.
Anti-soda campaigners are battling on two fronts this fall. On the same day as the Santa Cruz vote, Berkeley residents will decide whether to indefinitely renew its first-in-the-nation soda tax, which was grandfathered in before the ban but is scheduled to expire in 2027. Both the measures, coincidentally, are titled Measure Z.
All these years later, activists have the experience of how to pass a tax. But Bloomberg Philanthropies appears to have moved on, and what little funding anti-soda activists had a decade ago has dried up entirely. (Bloomberg did not respond to a request for comment.) The Santa Cruz campaign is operating with a meager $12,000, Berkeley just $10,000.
“What they did is just not right, they took away our democracy and our right to vote on something that’s a policy for good, all because they don’t want to lose money,” said Ramirez, the veteran of the Berkeley campaign now helping lead the Santa Cruz effort. “There's a big let’s-not-let-them-win mentality.”
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