In Pursuit of the City’s ‘Migrating’ Sales Taxes

Joan Filbey, a Long Beach native and passionate devotee of the city, loves to live here. But she prefers not to shop here.

When she is in the mood for some serious buying she goes to the malls in nearby Lakewood or Cerritos, as do a great many of her neighbors in prosperous east Long Beach. As Long Beach Chamber of Commerce Vice President Matthew Faulkner wryly noted: “Long Beach virtually supports the Lakewood Mall.”

Such local shopping habits are a painful reality for Long Beach officials who for years have watched residents spend their dollars somewhere else, thus depriving the city of the sales tax. The city’s sales tax income, one of the mainstays of any municipal budget, has long trailed behind the average for other communities in Los Angeles County, leaving less money to support basic city services.

The weak flow of sales tax dollars has become even more conspicuous as the city’s oil income has slumped and federal funds have evaporated. They have all contributed to tight-fisted budgets and calls for new local taxes to shore up recreation and police services.

“We just haven’t kept pace,” said Councilman Les Robbins, who represents east Long Beach and admits that even though he tries to spend his money in the city, he too wanders over the city line to neighboring malls.

If Long Beach were able to catch up with other cities in Los Angeles County it would have another $11 million a year to spend. “We could solve, as an example, a significant amount of our law enforcement (shortage) if we just had the average” sales tax income, Robbins said.

In the last fiscal year, Long Beach’s sales tax income equaled about 12% of the city’s general fund revenue, which pays for such basic city services as the Police and Fire departments. The state average was nearly 19% in 1987. And in Cerritos, which has a highly successful regional mall and an auto mall, a third of the general fund revenue comes from sales tax.

Catching up is not a simple or quick task for Long Beach, however. The reasons for the city’s relatively feeble sales tax income--an estimated $29 million for this fiscal year--are tied to the very nature of Long Beach. The city was largely developed by the time regional malls emerged on the shopping scene, so the malls went elsewhere, and Long Beach’s affluent shoppers followed.

What is more, when marketing experts look at Long Beach, they don’t find what they want. “A retailer wants to see a 360-degree circle filled with income,” observed Susan Shick, the city’s community development director. In Long Beach’s downtown circle, they find the ocean, industrial areas and gritty, low-income neighborhoods.

Some neighboring cities also tend to be low income.

“We’re kind of fighting a losing battle to start with because we have such a poor market area,” city Planning Director Robert Paternoster said.

Despite such discouraging marketing scenarios, Long Beach officials are forging ahead in eager pursuit of the sales tax dollar.

Following the recommendations of a task force study undertaken two years ago, they are establishing an auto mall near the San Diego Freeway. They hope that the redevelopment push for new housing and office buildings downtown will bring more affluent buyers to invigorate the sluggish downtown shopping scene.

They also see potential for revival of the Los Altos Center in east Long Beach and the Marina Pacifica Mall on Pacific Coast Highway near Westminster Avenue. Bank of America, which foreclosed on the bankrupt mall last spring, is trying to sell the half-leased Marina Pacifica to a developer who will remodel it and correct the many design mistakes that have contributed to its failure. And an Orange County developer, B.C.E. Development Inc., has bought portions of the Los Altos shopping center with plans to expand and enclose it.

The Magic Word

But when local officials talk about pepping up the city’s sales tax base, there is one word that brings stars to their eyes: Disney. If the Disney Development Corp.’s talk of building a major waterfront theme park becomes a reality, Long Beach budget writers will start beaming.

“Ultimately, where we’re looking, I think, is to Disney,” Robbins said. “If Disney does come to Long Beach, we will have solved our revenue problems. . . . We’re talking megabucks.”

Disney has been seriously studying the possibility of constructing a $1 billion, marine-oriented theme park at the Queen Mary site, which it obtained in the purchase of the Wrather Corp. A giant hotel would be built across Queensway Bay that would serve as a base for the theme park and Long Beach Convention and Entertainment Center as well. Disney officials say the complex would bring thousands of tourists and employees to the city every day.

The lids to such treasure chests will not be open for years, or even decades, however. If dealers at the planned auto mall do no more than an average business, Shick said, it will take 25 years for the Redevelopment Agency to pay off the bonds sold to finance the mall. Only after that will the sales tax income from the auto dealers start flowing into the general fund.

While Long Beach suffers from its own set of sales tax problems, cities all over the state have experienced a slowdown in the growth of their sales tax income, according to Jim Harrington, assistant director for policy development at the League of California Cities, a municipal lobbying group.

The league just completed a study of municipal finances since Proposition 13, which severely limited property tax increases. The organization found that sales tax revenue on a per capita basis has been flat over the past decade, lagging behind population growth.

Less Discretionary Income

“The sales tax dollar doesn’t go as far as it used to,” Harrington said, explaining that increases in housing and other costs have eaten into the discretionary income of the middle class, leaving it less money to spend on items that are subject to the 6.5% sales tax. Five percent goes to the state, 1% goes to the city in which the sale was made, and the rest goes to the county for transportation funding.

The lack of sales tax growth, combined with cuts in federal and state grants and property tax limits, have combined to erode municipal incomes around California. When inflation is taken into account, typical city revenue on a per capita basis has fallen more than 15%, the league study found.

As a result, cities are having to cut back on services or impose new taxes to support local services.

In Long Beach, officials have discussed, but not acted on, asking voters to approve property tax increases that would be specifically earmarked for expanding recreation and police programs.

When it comes to services, Councilman Tom Clark said, “We’ve had to pretty much stay at the same level.”

And the shoppers of Long Beach likely will stay in their same patterns, at least for the near future. As for Filbey, the housewife on Karen Avenue in east Long Beach, she finds downtown Long Beach somewhat scary and thinks it is more convenient to shop elsewhere. “I love Long Beach with a passion,” she said, “but when I go shopping, I’m ashamed to say it’s in Lakewood and Cerritos.”

‘78-’88 TAX INCOME Chart compares 1978 and 1988 percentages of sales- and use-tax revenues in the tax income of Long Beach’s general fund.

1978: 33%

1988: 21%

Source: City of Long Beach