SCOTTS VALLEY — Legislation to allow Scotts Valley and Emeryville to raise local sales taxes slightly above the statewide cap ran into a wall as Gov. Gavin Newsom wielded his veto pen for the first time.

Scotts Valley and Emeryville are among a number of California cities facing fiscal shortfalls as revenues stagnate and the worst impacts of the public employee pension crisis loom in years ahead.

Authored by Monterey Bay Assemblyman Mark Stone, D-Scotts Valley, Assembly Bill 618 proposed to allow the two small cities to raise their local sales tax .25% above the statewide cap. California’s base sales tax is set at 7.25%, and local jurisdictions are permitted to add an additional tax of up to 2%, with the approval of voters — meaning most California cities and counties can’t exceed a combined sales tax of 9.25%.

The state has already passed a number of exemptions that raise the cap for certain jurisdictions, however. All of Los Angeles County and 16 Bay Area cities have sales tax rates above the 2% cap, ranging as high as 10.5%.

Stone argued that Scotts Valley and Emeryville should be among the exceptions, citing financial pressures on city services. Most of his colleagues in the state Legislature agreed, sending AB 618 to the governor’s desk July 2.

Newsom, however, demurred, including the bill among the first two vetoes of his term on Friday. In his veto message, Newsom said that neither city has yet reached the statewide 2% cap, “making it unclear why additional tax authority is needed.”

Scotts Valley’s sales tax rate is 9%, .25% below its cap.

Scotts Valley Mayor Jack Dilles said Thursday he was left disappointed by the governor’s veto, and questioned its rationale. Scotts Valley had been considering taking a half-cent sales tax increase to its voters if the legislation passed, Dilles said.

“The problem is that a quarter-cent cap doesn’t fix our problem,” he said. “We need to have a much bigger correction than that.”

Scotts Valley is projecting a $1 million deficit for the current fiscal year — a significant chunk of its $12 million general fund. A half-cent sales tax increase could boost revenues by more than $1 million a year, offsetting the deficit.

The city has more than $4 million in reserves, but Dilles said significant additional revenue is needed to avoid draining reserves that must be relied upon if a much-anticipated recession hits.

Dilles said he understands the governor may be looking at a more comprehensive solution to help California’s fiscally floundering cities. “But I don’t know what that is, neither when it’s going to happen,” he said. “And we don’t have a lot of time to fix our issue.”

Stone responded to the veto in a statement Thursday. “While I am disappointed the governor has vetoed AB 618, I hope we can work together to give local jurisdictions the flexibility and funding they need to provide critical services to their residents,” he said.

AB 618 was opposed by the Howard Jarvis Tax Foundation, a frequent critic of proposals to increase taxes in California. “Authorizing new taxes that will likely be used to pay down unfunded pension liabilities rather than providing new services, is a poor rationale for further regressive taxation,” the foundation said in a statement of opposition.

In 2015, former Gov. Jerry Brown vetoed a bill that would have raised the local sales tax cap to 3% statewide.