Hometown Jingles : Buy Locally, Strapped O.C. Cities Say

This South County city will use a light touch when its shop-near-home campaign debuts next month, but the message will be clear: Residents who buy their gas, groceries and holiday gifts in nearby cities are economic traitors.

Shop-where-you-live campaigns historically have been little more than thinly disguised chamber of commerce gambits designed to drum up hometown support for local merchants during the important holiday shopping season.

Even before the unprecedented bond crisis threatened to force service cuts at cash-strapped cities, municipal officials were embracing shop-where-you-live campaigns as a painless way to raise sales tax receipts to pay for police, safety and recreation programs, among other services.

“It’s critical now,” said Mary Kluver, a banker and president of the Laguna Niguel Chamber of Commerce, which is sponsoring the shopping campaign. “Nobody knows right now what the implications are (of the bankruptcy debacle) but this campaign is a way to put dollars into the city budget immediately.”

Local governments view today’s shop-near-home campaigns as a way to plug sales tax “leakage”--when residents bypass hometown merchants in favor of out-of-town businesses. Leakage is most harmful during the holiday season, when the average retail operation rings up 19% of its annual sales. Laguna Niguel, for example, generates nearly $800,000 of its annual $3.8 million in revenue in the weeks between Thanksgiving and Christmas.

The efforts are increasingly attractive because, at a time when revenue sources are drying up, shop-near-home programs promise increased municipal revenue at no additional cost to taxpayers. Several cities have implemented them:

* Phoenix council members responded to a four-year drop in sales tax receipts by going on television to remind residents that out-of-town holiday shopping trips result in less funding for police and fire services.

* El Cajon used newspaper advertisements that detailed how much each city department receives when a shopper dropped $100 at a local clothing store.

* Cupertino, Calif., hopes to bolster sales tax receipts by routing any increase in excess of last year’s total to a popular local library branch.

* Laguna Niguel’s upcoming shop-near-home campaign will tie its nearly $4-million sales tax receipts directly to cops on the beat.

“We’re trying to let people know that, in Laguna Niguel . . . shops equal cops,” City Manager Tim Casey said. “We’re making a direct connection between sales tax revenue as our most important General Fund revenue source and public safety.”

That’s an easy case to make because Laguna Niguel’s current sales tax receipts are equal to the $3.8-million bill for police services provided by the Orange County Sheriff’s Department. More than 30 Sheriff’s Department personnel work in Laguna Niguel, and about a dozen squad cars patrol within the city’s boundaries. The upcoming 13-week, shop-near-home campaign will tell the city’s 54,100 residents that they can further improve the quality of their lives by shopping where they live.

The campaign is being funded in part by a $35,000 city grant. But most of the $250,000 marketing and advertising campaign will be paid for by local businesses. It will include heavy newspaper, television and radio advertising as well as banners and a contest to draw consumers into participating stores.

The campaign will begin after the holiday season, partly because Laguna Niguel lacks a major regional mall for holiday shoppers. And merchants agree that they could use help drumming up business in the traditionally slow first quarter.

“We wanted to do something that was above what every other city seemed to be doing,” said Laguna Niguel Chamber of Commerce President Mary Kluver, who is manager of the Monarch Beach branch of Mariners Bank. “We didn’t want some bumper sticker or slogan. We really want to make people aware that where they shop is important to their city.”

Five years ago, Laguna Niguel’s affluent residents accounted for about 2% of Orange County’s overall 2.6-million population--but the city was collecting just 1% of countywide tax receipts. Sales tax receipts were hurt by the fact that the relatively young community lacked stores, theaters and restaurants.

But as Laguna Niguel added warehouse stores, major discounters and theaters, annual sales tax receipts rose to $3.8 million from $2 million. There’s still plenty of room for improvement, though, because residents still are spending an estimated $400 million, according to a city estimate, on out-of-town goods and services.

A recent poll showed that 70% of Laguna Niguel residents said they would be willing to change their shopping habits if it would help maintain or improve safety services. City officials agreed, however, that it’s still up to hometown retailers to match the prices, quality and service available elsewhere.

While city officials are eager to boost tax receipts, few shoppers seem to know where their taxes go.

“It’s something I’d never considered before,” said Stacey Nunz, a 12-year Mission Viejo resident who has patronized many out-of-town shops. “I used to just head off to wherever it was convenient to shop.”

Nunz changed her shopping patterns after reading a letter that Mission Viejo’s Economic Development Commission recently mailed to 80,000 households. The letter reminded residents that part of the sales tax levied on holiday gifts returns in the form of improved city services.

“Whether you purchase something as large as a car or as small as a teddy bear, you can feel good knowing you are making our community an even better place to live,” wrote Ben Meharg, chairman of Mission Viejo’s Economic Development Commission.

Meharg’s letter sat well with Nunz.

“At first I thought, here’s another piece of junk mail, but it turned out to be one of the most intelligent, well-penned of letters,” Nunz said. “In effect, they were courteously reminding me to do something that will benefit me, my family and neighbors.”

Nunz was an easy sell, but marketing experts agree that it will take longer to change most shoppers’ habits.

When Cupertino agreed earlier this year to use sales tax receipts to support a cash-strapped library, civic and business leaders thought the campaign would have an immediate impact among residents.

Sales during the first quarter, the most recent data available, were generating less tax revenue than a year ago, leading officials to acknowledge that it will take time to change people’s patterns. “We’re realizing that shopping habits do not change overnight,” said Greg Sellers, whose Cupertino-based marketing company helped design the campaign. “The message we’re getting is that it takes a lot longer for this kind of thing to sink in.”

While shop-near-home campaigns aren’t a quick fix, they’re appealing tools for cash-strapped cities with few available alternatives to replace rapidly shrinking sources of federal and state funding.

“We’re all trying to stem retail sales tax leakage,” agreed John Statton, executive director of the Cupertino Chamber of Commerce, which supported the use of sales tax receipts to help revitalize the local county library branch.

Municipalities also are competing with each other for new retail development. “We all want those sales tax dollars,” Statton said of the prospect of new stores.

Mission Viejo’s sales tax receipts are expected to rise noticeably during the holiday season thanks to sales at Mission Viejo Freeway Center, a new shopping center near Interstate 5 that’s home to Comp USA, Borders Books and Music, and Toys R Us.

“Those retailers rushed to open their stores before Thanksgiving because they know so much of their annual sales come during the Christmas season,” Mission Viejo Deputy City Treasurer Josephine Julian said. “Well, it’s also very important to the city to have them open before Thanksgiving. We’re already penciling in those anticipated revenues in the next budget.”

Mission Viejo credits an ongoing shop-near-home campaign for helping to boost sales tax receipts by 17% to $7 million for the fiscal year ended June 30, up from $6 million a year earlier. Sales tax receipts account for about a quarter of the city’s $27-million operating budget.

Proposition 13, a law that requires two-thirds vote in a general election to increase property taxes, is pushing California municipalities to fight for sales tax receipts, but other states are feeling the pinch as well.

Phoenix cited slumping sales tax receipts last year when it abandoned a longstanding policy that prohibited the use of city tax dollars to provide financial incentives for retail redevelopment projects. But neighboring municipalities had already used aggressive subsidies to ring Phoenix with new, attractive shopping malls.

“The irony in all of this is that, the way the tax structure works, retail development doesn’t increase the economic pie in the community as a whole the way, say, a manufacturing plant does when it moves here from California,” said Dave Krietor, director of the Phoenix Community and Economic Development Department. “We’re all forced to compete with each other for our parochial needs.”

It’s a competition that continues long after the last holiday wreath is taken down because consumers spend billions of dollars each year during daily shopping trips for milk, bread and gasoline.

Those gallons of milk add up, said Casey, who each year drafts a list of the top 20 sales tax generators in Laguna Niguel. The list “really opens your eyes,” Casey said.

“You’ve got your real obvious ones, the HomeBase and (Price Costco), but you’ve also got gas stations and drug stores,” Casey said. “It’s the little things. . . . if you fill your gas tank before you leave town, you can have a dramatic impact on your local tax base.”