Speaker's Commission
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Dueling for dollars

San Francisco Chronicle

April 4, 2002

DANGLE an auto mall or a Costco before neighboring cities and watch the warfare break out. California's fractured tax code has spawned a ruinous battle aimed at grabbing sales tax revenues away from the town next door.

This fight, as anyone can see from a car window, stretches up and down the state. Cash-strapped cities are wooing big-box retailers, shopping malls and rows of car dealers in a desperate bidding war.

Never mind that the results are ugly, lack planning and reward only the winning town. Let the next city build housing or parks, the victors suggest.

This fight defies talk of regionalism and orderly growth, the sensible alternatives to sprawl. Instead of balance and study, the municipal money game is ruled by a constant quest to install more cash registers.

The situation is a result of a haphazard tax code that limits local tax powers and gives most of the revenue to the state. Prop. 13 hemmed in property taxes, sharply restricting their growth.

Sacramento filled the gap for awhile, but has withheld money during tough times. Cities tinkered with fees and extra charges, but hit on the sales tax as a growing tax source that can be kept.

Although most of the sales tax still goes to the state, cities get 1 percent of every taxable dollar. Buy a $20,000 pickup in Santa Rosa and that city keeps $200. At the Ikea in Emeryville, the sales-tax slice stays there even though most customers live elsewhere.

This incentive makes cities chase after big retail projects, offering to outbid each other by rezoning property, paving streets and putting in streetlights. Empty lots once earmarked for housing or open space can become prime real estate for a mall.

The Sacramento metropolitan area is a prime example of the lop-sided results. Fast-growing Roseville has skimmed off the new developments while older parts of Sacramento are left behind. There's money for parks, libraries and swim centers in one town, but not in the other.

A bill by Assemblyman Darrell Steinberg, a Sacramento Democrat, aims to repair the damage. It would divvy up future sales-tax growth in the region, not keep it for one town alone.

The present rules "skew good land-use decisions and pit cities and towns against each other," Steinberg says. With smoggy air and long commutes, present policies aren't serving the communities in his area, he adds.

His measure, AB680, would share future increases in local sales tax in a six-county area around Sacramento. Starting in 2003, a third of new sales tax revenues would stay with the town that generates the money, a third would be shared in the region and the final third would be designated for cities that follow "smart growth" policies that promote housing, open space and social services. There are exemptions for cities that adopted and follow growth- control policies.

It's designed as an experiment in regional planning and tax-sharing. But the implications are clear for the rest of the state. An addiction to sales taxes and bad planning needs a cure that may be contained in the measure.

There are problems and politics with the bill. The winning towns with Wal- Marts and auto rows don't want to share with the losers left behind.

These cities complain that the state Legislature is trampling on local control and decision-making. Any talk of money-sharing may lead to further cuts in local aid, critics say. Dozens of cities, led by the League of California Cities, oppose the bill.

Also, the state legislative counsel has suggested that the Steinberg bill is a change in tax formulas and may need a local vote to make it legal. Steinberg disputes the claim.

The measure, approved by the Assembly in January, now faces a test in the Senate. Negotiations over the next few months should lead to a final vote. It's time to repair California's misdirected tax rules that undercut good planning.

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Speaker's Commission on State/Local Government Finance
in collaboration with the
Metropolitan Forum Project
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