Lawsuit ties up millions of dollars in Campbell revenue

An anti-tax group is fighting to end Campbell’s sales tax hike, tying it up in the courts and putting the city in a multimillion-dollar bind.

The Silicon Valley Taxpayers Association, along with Campbell resident David Wolen, is suing Campbell over Measure K, a half-cent sales tax hike. The measure raises the sales tax to 9.875%, after more than 70% of voters approved it last November. But with the lawsuit ongoing, the city can’t access the roughly $7 million the tax is slated to bring in annually.

It’s unclear when the lawsuit will be resolve — forcing the city to leave roughly $8.7 million the measure has already collected in escrow and saddling it with future fiscal year deficit projections ranging from $2.3 million to $3.8 million.

The lawsuit, filed in the Santa Clara County Superior Court last January, claims Measure K is invalid because it’s based on Assembly Bill 3259. The lawsuit alleges SB 3259 violates California’s constitutional code that calls for uniform policies. Campbell broke that code by raising its sales tax above the county’s previous cap at 9.375%, even though the bill granted it that power. It also claims materials sent out about the measure misled voters, and more. The suit asks the courts to invalidate Measure K and refund taxpayers appropriately. The city has challenged the suit, with its next hearing scheduled for Aug. 1.

Jason Bezis, an attorney representing the taxpayers association and Wolen, said there wasn’t enough time given for opponents to file an informed rebuttal for voters to read. He said Campbell should look to other jurisdictions to see how they addressed their fiscal uncertainty rather than making its sales tax the highest in the county.

“Others are able to make it work without the special (tax and law),” Bezis told San José Spotlight. “So the question is, you know, what’s so unique about Campbell?”

City Manager Brian Loventhal said to his knowledge, the city hasn’t seen a lawsuit like this before, and it’s already causing budget problems. The city faced a $3.75 million deficit in its $69 million budget for fiscal year 2025-26, largely caused by significant dips in sales tax revenue and rising costs. Officials balanced the budget by enacting a temporary hiring freeze and drawing from reserves, but Campbell wouldn’t have had a deficit with access to Measure K funds.

Loventhal said with Measure K money, the city would have surpluses ranging from $3.4 million to $12.2 million beginning in fiscal year 2026-27. He said the tax hike isn’t the silver bullet to Campbell’s budget issues, but the majority of voters supported it to help the city’s finances.

“That’s the frustrating part,” he told San José Spotlight. “The majority can speak, yet be held in abeyance because one person or a small group of people decide they don’t like those results.”

The business community, whose customers are affected by the tax increase, are divided on the issue.

Dan Orloff, past board president of the Campbell Chamber of Commerce, fully supports Measure K. He said it helps maintain the city’s quality of life and a safe business environment.

“Despite whatever good intentions the Silicon Valley Taxpayers Association has, it’s ill-placed,” Orloff told San José Spotlight. “Campbell has a reputation (for a) high quality of life as a safe and sane community, and that doesn’t happen by accident. It requires an investment.”

Amy Taylor, board president of the Downtown Campbell Business Association and owner of Cloud City Supply, didn’t support Measure K because of the effects it would have on small businesses like hers. Despite that, she said Campbell should be able to access Measure K’s funds because the majority of voters approved it. She wants the city to explore other options for revenue that don’t hike taxes.

“Even if they eventually get access to those funds, the city should still be held accountable (for) looking at new and progressive ways to fund the city,” Taylor told San José Spotlight. “I just don’t see that happening.”

Contact Annalise Freimarck at [email protected] or follow @annalise_ellen on X.