Speaker's Commission
State Seal

Tax sharing plan is DOA

Los Angeles Daily News

August 18, 2002

Assemblyman Darrell Steinberg's sales tax sharing plan is dead, at least for this year. It ran afoul of opposition from cities across the state, who saw it as a direct assault on a prized revenue source.

The bill's fate shows just how difficult reforming California's dysfunctional tax and revenue system will be - and a big reason it hasn't happened before now.

Steinberg, a Sacramento Democrat, proposed a pilot program that would share the growth in sales tax revenue from 20 cities in a six-county region around Sacramento. The idea was to stop suburban sprawl, driven by the need for sales tax money, and focus on regional approaches to planning and development. He based the plan on tax-sharing done in the Minneapolis-St. Paul region in Minnesota, where 187 cities share revenues.

Give Steinberg credit for trying to deal with a legitimate problem. Ever since Proposition 13 limited property taxes in 1978, sales tax has become an increasingly important part of local revenue. And after the state grabbed local property taxes to balance its own budget in the early 1990s, sales tax was the major remaining source of money that local government had real control over.

The effect, over the years, distorted local planning as cities and counties courted high-volume retail development at the expense of everything else. Cities competed for big-box stores and auto malls, even luring them away from their neighbors, while balanced development took a back seat to the need for money.

But what one city does affects its neighbors, and almost everyone agrees that the current system is unwieldy, inefficient and doesn't reward well-rounded city development.

Steinberg soon found out why the system hasn't been changed, however. His bill quickly ran into opposition from cities who had been successful at building a large sales tax base. They saw it as a money grab by jurisdictions that lacked retail activity.

Soon, cities from around the state joined the battle against the bill, as they saw a source of revenue they had chased come under threat of state action. In the end, the opposition proved too much, and even a much truncated version of Steinberg's bill failed to get enough support to stay alive.

Thus we see the big hurdle to reform: Every change will hurt some jurisdiction that has built a revenue plan on it. Whether it's property tax or sales tax, some cities will win and some will lose if the system is changed - and that creates a huge inertia.

Steinberg's proposal was flawed, of course, by its limited approach to the subject. He dealt with only a small part of the public revenue problem, when in reality the whole structure needs an overhaul.

Cities and counties would benefit from such an undertaking in the long-term, as the revenue system became more understandable and realistic. But Steinberg's experience suggests that it's not clear at all that local governments are willing to risk their investments in the current crazy-quilt system for the promise of a more rational one.

Home | About the Commission | Commissioner Biographies
News | Press Coverage | Testimony | Agendas
Meeting Schedules | Minutes | Links

Speaker's Commission on State/Local Government Finance
in collaboration with the
Metropolitan Forum Project
811 West Seventh Street, Suite 900
Los Angeles, CA 90017
(213) 629-9019