Voters in Desert Hot Springs rejected a vacant parcel tax that would have raised millions of dollars.
Measure F needed a two-thirds majority to pass. The latest unofficial results show the measure receiving just 63 percent of the vote.
The measure could have brought in up to $4 million a year from a tax on undeveloped land. It would have raised the tax from just under $30 an acre to more than $370.
City leaders will now have to look at more cuts to services to help close a $3 million budget deficit. That could mean the elimination of the city's police department and contracting with the Riverside County Sheriff's Department for law enforcement.
"Like everybody I would be in favor of keeping our police department, rebuilding it, all the benefits of having your own police department, but we have to look at budget realities," said Mayor Pro Tem Russell Betts.
The city estimates it can save $1.3 million a year on police protection by contracting with the Sheriff's Department.
The City Council has budget meetings scheduled for next Monday and Wednesday.
Along with eliminating the budget deficit, they have to look at ways to rebuild the city's cash reserves.
The city of Desert Hot Springs declared a fiscal emergency last November.